The Monetary Authority of Singapore (MAS) and McKinsey & Company are together exploring the potential for carbon credits to help speed up the early retirement of coal fired power plants in Asia.
This week, both sides jointly published a working paper, which outlines how high-quality carbon credits can effectively be used as an additional financing instrument in the process of phasing out coal power plants.
The paper also dives into the issue of what the requirements for the generation of such carbon credits would be, as well as what it would take to develop a high-integrity market for these credits.
Phasing out the use of coal power has been identified as a critical step in the region’s energy transition, which should be done in parallel with the move towards clean energy sources.
But given the lack of government mandates and phase-out requirements, stakeholders in the rather large sector of coal-fired power plants in Asia hardly have any motivation to reduce the periods of their current power purchase contracts.
Hence, there is a need for additional financing mechanisms to make such moves more economically viable.
One possibility, which the paper focuses on, is the aforementioned carbon credits. These can be put to use to ‘fill the economic gap’ for the early retirement of Asian coal power plants.
Namely, the paper by Singapore and McKinsey talks about so-called transition credits that can be generated from the CO2 emissions reductions achieved through the retirement of coal plants and replacement with low-carbon alternatives.