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(Image: Freepik / standret)
Mikkel Larsen, CEO of Climate Impact X, a Singapore-based carbon credit trading platform, suggested that the pricing of transition credits should start at 30 USD per ton to effectively encourage the early retirement of coal-fired power plants while ensuring fairness in the transition to green energy.
Many coal-fired power plants in Southeast Asia are major contributors to climate change, yet they provide nearly half of the region's electricity. Some of these plants have completed recently, making early retirement with significant costs.
In recent years, the financial sector has begun discussing a new form of carbon credit, which converts the emissions reduction achieved by the early retirement of coal-fired power plants into carbon credits. This provides funding for phasing out coal-fired power plants while accelerating the pace of energy transition. Some researchers believe that the price of such "transition carbon credits" should be set at 14 USD per ton to be effective.
“Anything less than 30 USD, if you start to add that up, it’s not going to be feasible in a lot of places,” said Larsen in a conference hosted by GenZero, a Singapore green investment firm.
Mikkel Larsen (Center) attended a conference hosted by GenZero. (Photo: GenZero)
He said that earlier studies suggest coal phase-out credits can be lower priced because those only factored in the cost of the new electricity capacity needed but the additional expenditure needed for just transition safeguards.
The cost of installing batteries – needed to stabilize power output from intermittent solar and wind power – would make up a “fairly large component” of the final asking price, he added.
In a report released last year (2023), the Monetary Authority of Singapore (MAS) and international consulting firm McKinsey pointed out that the cost of reducing emissions by closing a 1GW coal-fired power plant five years earlier is estimated to be between 11 USD and 12 USD per ton. They also estimated a financing gap of 70 million USD per GW.
CIX has been involved in the two pilots where transition credits have been used to finance the early closure of two coal plants in Philippines, and Larsen noted that the credits often “surprised on the high side”.
According to Singapore's "Business Times" and "Eco-Business," transition carbon credits are not yet widespread in the market, partly due to the lack of permanence, meaning the carbon reduction benefits cannot be maintained in the long term. Additionally, some experts believe that the large volume of carbon credits generated from the retirement of coal-fired power plants may disrupt the stability of voluntary carbon markets.
During the meeting, Larsen suggested that governments should take action to purchase transition carbon credits and formulate relevant policies to ensure their acceptance in compliant markets, thereby raising the price to at least 30 USD.