The International Energy Agency (IEA) has published a detailed assessment of how a novel category of carbon market instruments, known as transition credits, could help Southeast Asian countries reduce their dependence on coal-fired power, while warning that major design and demand challenges remain unresolved.
The report, titled Financing the Modernisation of Power Systems Beyond Coal: The Role of Transition Credits in Southeast Asia, published in May 2026 and supported by the Rockefeller Foundation and GenZero, examines the region’s coal landscape from power system, investment, and carbon market perspectives.
Transition credits are carbon credits issued for verified emissions reductions in the power sector, generated through early retirement of coal plants paired with clean energy replacement, or through system-level reductions in grid emissions intensity.
Southeast Asia’s coal problem is acute. Around 80% of coal plants across developing Asia are under 20 years old, and if operated at current rates for their full technical lifetimes, they would emit more than 280 gigatonnes of carbon dioxide (CO2) through to 2100, equivalent to over 20 times China’s current annual energy-related emissions.
Electricity demand in the region is projected to grow by around 60% between 2026 and 2035, ensuring coal remains central to energy security for years to come.
The picture has grown more complicated in 2026. Conflict in the Middle East has driven extreme volatility in Asian liquefied natural gas (LNG) markets, prompting the Philippines to declare a state of energy emergency and several countries to lean more heavily on coal, even as governments maintain long-term phasedown commitments.
The IEA’s Announced Pledges Scenario estimates Southeast Asia requires around $20 billion per year in coal-related power investment through 2050, with 70% directed toward solar and wind.
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The report identifies carbon leakage, additionality, and a shortage of committed demand as the central challenges.
Compliance carbon markets offer the strongest near-term demand potential, with stakeholder consultations suggesting transition credits could price between $14 and $45 per tonne of CO2 equivalent (CO2e).
Overall, the IEA recommends governments treat transition credits as a complementary revenue stream within broader financing packages, rather than a standalone solution.
Read more: Germany To Pull Carbon Credits Freed By 2024 Coal Phaseout From EU Market
