MAS-led coalition of investors targets Asian coal plants

Singapore is leading the new coalition of international investors that is working to develop and roll out a new class of carbon credits which are specifically aimed at closing coal-fired power plants, Net Zero Investor has been told.

The joint effort includes includes Singapore's largest sovereign wealth funds, Temasek, GIC and IMAS. It is also backed by the Asian Development Bank, Indonesia's sovereign wealth fund, the Indonesia Investment Authority (IIA), South Korea's $92 billion-Korea Investment Corporation (KIC) and the New York City-based Rockefeller Foundation.

Also on board are pan-Asian banks DBS and OCBC, the Glasgow Financial Alliance for Net Zero (GFANZ), the International Energy Agency (IEA), the World Wide Fund for Nature Singapore as well as carbon standard setting agency Gold Standard, a spokesperson for MAS, the Monetary Authority of Singapore (MAS) confirmed to this publication. 

Speaking from the COP28 climate summit in Dubai, she said the Transition Credits Coalition (TCC) currently has 27 members, comprising of asset owners, banks, NGOs, charities, carbon exchanges and international organisations.

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In addition, the spokeswoman said "MAS has used its time in Dubai to unlock memorandums of understanding for collaboration on carbon credits with Rwanda and Fiji."

She stressed the latest arrangements follow similar, individual pre-COP28 deals with Cambodia, Chile, Columbia, the Dominican Republic, Indonesia, Kenya, Mongolia, Morocco, Papua New Guinea, Peru and Sri Lanka. These MOAs will now become part of the coalition structure, the MAS representative explained.

“We are very encouraged by the strong support of the wide range of industry partners who have come forward to work with us to further develop the transition credits market to enable the acceleration of the early retirement of coal plants,” she said.

Joseph Curtin, managing director of the power and climate team at The Rockefeller Foundation, told Net Zero Investor the initiative was much-needed.

"The transition from coal-to-clean energy in emerging markets is stuck," Curtin said, stressing that "we need new solutions that can support the retirement of a fleet of coal fired power plants across the globe."

In order to let this coalition gain further momentum, he stressed that "we need to create the right incentives for asset owners and communities and mobilize additional finance."

If it is up to MAS, the group will grow quickly in the months ahead as she issued an open call to investors and other actors to get in touch.

“We welcome those with interest to work with MAS on transition credits to contact us," the spokeswoman said.

The wider initative comes only a day after the Asian Development Bank (ADB), part of the MAS coalition, told Net Zero Investor that the $24 billion Indonesia Investment Authority (IIA), the sovereign wealth fund of Indonesia also part of the MAS group, agreed to shut the country’s largest coal-fired power station.

David Elzinga, energy principal at the ADB, stressed it was the first deal under the ADB’s new Energy Transition Mechanism program, which aims to stimulate countries and investors to cut their climate-damaging carbon emissions and implement climate-friendly policies and strategies.

The ETM program is, so far, supported by Indonesia, Kazakhstan, Pakistan, the Philippines and Vietnam.

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Transition credit system

Transition credits have been introduced as a tool to compensate coal plant owners for loss of income if and when their facilities are closing early.

The aim is to provide a financial incentive for investors and owners of such energy giants to agree to early closure.

The MASS spokeswoman said that “this new asset class of carbon credits” is currently being used to finance the early closure of two plants in the Philippines.

Firstly, there is the South Luzon coal plant, owned by Acen, the energy division of Philippine investment giant Ayala Group, one of the country's largest asset owners with around $26 billion in assets under management.

Acen has agreed to work with the coalition, spearheaded by The Rockefeller Foundation's coal-to-clean credit initiative (CCCI). So far, an exact date for closure of the plan has not yet been agreed.

"The economics of phasing out coal fired power plants are challenging," acknowledged Gillian Tan, assistant managing director and chief sustainability officer at MAS.

On the sidelines of COP28, she shared that "there is a need for effective market-based financing solutions, including the use of transition credits to improve the economic case of retiring these coal plants early."

Tan explained that "through the pilot transactions that MAS has convened, we hope to road-test and learn from different approaches that can catalyse the use of high-integrity transition credits to support the early retirement of coal plants on a significantly larger scale."

A second plant that is on the coalition's radar is a coal plant in the Philippine's far south, in Mindanao, owned by the Power Sector Assets and Liabilities Management, which is run and owned by the Filipino government. The intended closure of this facility is led by the ADB.

'High integrity'

MAS stressed it is vital the new carbon credits are recognised as being of "high integrity".

Effectively, this means they need to meet global standards as set out by by The Integrity Council for the Voluntary Carbon Market (ICVCM), based on the principles of the United Nations Framework Convention on Climate Change in Article 6 of the Paris Agreement.

Article 6 stipulates regulations and standards for carbon credits, and provides a broad framework for the establishment of an international carbon market space, although specifics were never finalised or details filled in. 

In fact, the details of any such mechanism are still being negotiated at COP28.

Barbara Buchner, global managing director of the Climate Policy Initiative, said the devil will be in the detail.

"Monetizing emission reductions from phasing out coal-fired power plants and replacing them with clean power is likely to be instrumental in supporting the financial viability of coal transition mechanisms in emerging markets," Buchner told Net Zero Investor. 

"However, such carbon credits must reflect real and verifiable emissions reductions," she stressed, adding that "they need to support a just transition."

The MAS spokeswoman said that it will work with ICVCM to "explore ways for transition credits to align with the CCPs."

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