Verra, the world’s largest carbon credits certifier, has finalised a methodology for generating a novel class of carbon credits from retiring coal plants early and replacing them with renewables, also known as transition credits.
The new rules, which had undergone two rounds of public consultation since 2023, quantify the emissions reductions from early coal phase-out projects by using the counterfactual of what a plant would have emitted over its expected lifetime.
Developed in partnership with the Coal to Clean Credit Initiative (CCCI), which is led by the United States non-profit The Rockefeller Foundation, the framework includes “strengthened just transition requirements” for affected workers and communities, including job creation, energy access and social protections, according to Verra’s press release.
“To meet global climate goals, we need to do more than slow emissions – we need to rethink the very systems that produce them,” said Verra’s chief executive Mandy Rambharos at Singapore state investor Temasek’s annual sustainability summit. “Our new methodology empowers energy providers to make that shift in a way that doesn’t leave workers or communities behind and doesn’t inadvertently exacerbate energy poverty.”
An earlier draft had proposed at least 5 per cent of transition credits revenue to be allocated towards implementing a developer’s just transition plan. However, the finalised methodology requires just a minimum of 2 per cent of expected revenues to go towards this, clarified a Verra spokesperson. This amount can be raised from sources outside of the sale of verified carbon credits, he added.
“This approach ensures that the funding is in place when it is needed, in the planning and implementation stages before the sale of credits. And because it must come from other sources, it is not subject to changing market values for these units,” the spokesperson said.
The finalised methodology will only be applied to coal power plants with long-term power purchase agreements of at least 20 years, which is what is used to establish a counterfactual scenario to calculate emissions reduction. The latest version has also been expanded to include deregulated electricity markets, in addition to regulated markets, with tightened criteria for assessing additionality and baseline scenarios, Verra stated.
In December 2023, Filipino energy group ACEN announced that its 246-megawatt (MW) South Luzon Thermal Energy Corporation (SLTEC) coal plant will be the first to trial CCCI’s draft methodology, in order to bring forward its decommissioning date by a decade.
Previous estimates suggested that the Philippine plant’s early retirement and replacement with renewables and battery storage could potentially slash around 19 million tonnes of carbon dioxide emissions, though it is unclear whether the updated methodology affects this figure.
Transition credits were first mooted as a financing mechanism by the Singapore central bank and consulting giant McKinsey as a way to make early phase-out of Asia’s nearly 2,000 coal-fired power plants more economically viable back in September 2023.
Previously, early coal phase-out initiatives in the region had mainly used blended finance, where concessional capital – typically from governments, multilateral development banks and philanthropic investors – is mobilised to de-risk the projects and attract more private capital.
These include the Asian Development Bank (ADB)’s Energy Transition Mechanism, which has been in talks to complete Indonesia’s first early coal retirement project since 2022, but has yet to reach a financial close on the deal.
Gold Standard, another major carbon standard certifier, has also proposed its own methodology to shut down coal plants and replace some of their foregone power with renewables, while paying for a just transition for workers. But it has not released its final version.
The ADB is also exploring the use of transition credits to shut down a 200-MW coal plant in Mindanao, the most coal-reliant island in the Philippines. Based on an investment plan prepared by the government, its early closure could avoid 7 million tonnes of carbon dioxide emissions.
ADB’s senior public-private partnerships specialist Dion Camangon previously told Eco-Business that it has not decided between adopting the rules by CCCI and Gold Standard for its Mindanao deal. The entity’s choice depends on which of the two will be closer to the principles of ADB’s methodology for credits aligned with Article 6.4 – a clause in the Paris Agreement that enables countries to trade offsets to meet their national climate targets.
Additionality concerns
However, critics of transition offsets have previously flagged concerns around determining additionality in methodologies by Verra and Gold Standard, arguing that coal-fired powered plants are becoming so uneconomical that market forces are sufficient to ensure their closures, without the use of carbon credits.
On a separate panel, when asked about the Integrity Council for the Voluntary Carbon Market (ICVCM)’s views on transition credits, the carbon credit industry watchdog’s chief executive Amy Merril said that it launched a continuous improvement stakeholder group last week to look at the requirements for this new class of carbon offsets.
“What we’re trying to do right now is to hear from all those actors, including the Monetary Authority of Singapore (MAS) and Traction [MAS-led Transition Credits Coalition], about how it works,” she said. “We’re trying to understand what it looks like to offer energy transition crediting in a just transition. So those two components, how do you measure it, and how do you ensure it has the justice component.”
While she did not share ICVCM’s position on transition credits, she said that upon methodologies being published, they will “join the queue” – which currently has a wait time lasting “a few months long” – to be assessed against ICVCM’s Core Carbon Principles framework to be deemed eligible for a high-integrity label.
