19 December 2023

On 4 December 2023, the Monetary Authority of Singapore (“MAS”) announced the launch of the Transition Credits Coalition (“TRACTION”) and two pilot projects to test the use of high-integrity transition credits in transactions for the early retirement of coal-fired power plants (“CFPPs”).

TRACTION will study the challenges and propose solutions to scale the early retirement of CFPPs in Asia through high-integrity carbon credits. Pilot projects will be undertaken separately to test the feasibility of integrating transition credits for early CFPP retirement. TRACTION and the pilot projects will build on the concepts laid out in the working paper jointly published by MAS and McKinsey & Company in September 2023.

Transition credits are high-integrity carbon credits generated from the emissions reduced through retiring a CFPP early and replacing this with clean energy sources. They serve as a complementary financing instrument to reduce the economic gap for the early retirement of CFPPs. To be considered high integrity, these credits must be aligned with globally recognised standards such as the Core Carbon Principles (“CCPs”) set out by the Integrity Council of Voluntary Carbon Market (“ICVCM”), and other Article 6 integrity requirements, as mandated by the United Nations Framework Convention on Climate Change (UNFCCC). MAS will explore ways for transition credits to align with the CCPs, in consultation with the ICVCM.

MAS observes that a whole-of-system approach is needed to develop transition credits into a viable market solution. Comprising members and knowledge partners from carbon credit services, energy financing, project development, risk management, and non-governmental organisations, TRACTION will identify system-wide barriers and develop solutions for transition credits to be utilised as a credible financing instrument. These include identifying robust crediting approaches that can be applied to regulated and deregulated electricity markets, mitigating risks of non-delivery of credits, and exploring avenues to build buyers’ confidence in transition credits. TRACTION will conduct its work over a two-year period.

MAS has also announced two pilot projects to explore and test the practicality of different approaches in integrating high-integrity transition credits in the early retirement of CFPPs. While TRACTION members and knowledge partners will not be directly involved in any pilot transactions, insights from these pilots will contribute to TRACTION’s work in examining the possible standardisation of approaches that can be replicated across markets.

Reference materials

The following materials are available from the MAS website www.mas.gov.sg: