Singapore’s central bank lays out next steps to help Asia leave coal behind

SINGAPORE: Singapore’s central bank has laid out the next steps in its efforts to help Asia transition away from coal plants as an energy source.
The Monetary Authority of Singapore (MAS) on Thursday (Nov 14) released its latest interim report on transition credits to assist such coal-fired power stations shift towards more climate-friendly sources of energy.
This is helped by a new financial instrument called the Transition Credits Coalition – or TRACTION – which was launched at last year’s United Nations-led climate change conference, known as COP.
Asia is home to many new coal plants that have been running for fewer than 15 years on average.
Getting them to shut down earlier than planned will break contracts and require a lot of money from investors.
To further fund the switch to greener energy sources, coal plant owners will be able to sell what is known as “transition credits”.
Governments and companies can buy these credits to mitigate their own emissions.
“The early and managed phase out of thermal coal power plants in Asia is the mother of all just transitions. And given the significant amounts of capital needed for this, we see transition credits as critical financial innovation to enable it,” said Helge Muenkel, chief sustainability officer at DBS, which is the co-lead of one of TRACTION’S workstreams.
MAS has piloted two projects decommissioning coal plants in the Philippines.
Its latest interim report, gathered from discussions with the coalition’s 30-plus members and experts involved in coal transition and carbon markets, identifies risks and suggests practical solutions based on these studies.
Gillian Tan, the authority’s chief sustainability officer, said part of the coalition’s work is understanding buyers’ considerations. These include what they look for in carbon credits, and what attributes they want transition credits to have.
“We want to make sure that we can build a robust pipeline of high integrity credits that the market trusts, where you can feel confident that carbon emissions have genuinely been reduced,” she said.
Ms Tan added that a balanced supply and demand is also important in building a scalable market.
The central bank is now working towards a comprehensive playbook that can be used across Asia by next year’s COP.
Sharad Somani, partner and head of environmental, social and governance consulting at business advisory firm KPMG Singapore, said there is a need for a set of guidelines to ensure the integrity and trust of the system, and that the supply of credits is credible.
There must also be a demand for such credits, he added. This means stakeholders at COP summits – such as the ongoing COP29 in Baku, Azerbaijan – must push for bilateral deals on the Paris Agreement, crediting mechanism to drive market demand, he said.
Under Article 6 of the agreement, countries can transfer or sell carbon credits earned from the reduction of greenhouse gas emissions to help other nations meet their climate targets.
“We (also) have to have a proper documentation process, to ensure that every credit that has been generated is documented and extinguished. This is where I believe that transition credits will come to maturity – only when we can match demand, supply and technology,” Mr Somani said.
Singapore also said it has aligned itself with the European Union and China on definitions of green or transition activities based on science.
This world-first taxonomy will make it clearer for investors to know what activities they can put their money in for greener outcomes.