The Philippines tests ‘transition credits’ to cut coal use in novel experiment

CALACA, Philippines (AP) — The Philippines is testing a new type of carbon credit aimed at encouraging businesses to reduce their global warming emissions by creating funds that can be used to transform coal-fired power plants into renewable energy facilities.

Called transition credits, they are intended to help finance the phase-out of coal use by creating value from emissions that could be avoided. The funds would then be used to replace fossil fuel equipment with clean energy equipment.

Supporters say the transition credits could unlock an investment windfall for the energy-hungry Asia-Pacific region and accelerate Southeast Asia’s transition to renewable energy. But some experts, wary of the carbon market’s long-standing problems, view them as a dead end.

Transition credits offer a new vision

A carbon credit represents one ton of carbon dioxide removed or not released into the atmosphere. Credits are bought and sold on carbon markets by countries and companies trying to comply with emissions regulations, meet pollution reduction goals or offset environmental impacts.

Transition credits differ because they value avoided future emissions caused by burning fossil fuels, which contribute to climate change.

But integrity issues plague carbon credit projects around the world.

Projects intended to save carbon-absorbing forests have been accused of greenwashing, miscalculations and carbon leakage, the term for when companies move to countries with looser emissions rules. They have proven unable to deliver promised benefits to local communities and are linked to, among other problems, allegations of human rights abuses in Cambodia and an uptick in deforestation in Peru.

Credits have pros and cons, like any new, untested idea, said Ramnath Iyer of the American Institute for Energy Economics and Financial Analysis. He calculates that a transition credit could be worth between $11 and $52.

“There will be challenges and flaws, as in every deal,” Iyer said. “But it’s not like we have a smorgasbord or buffet of solutions to climate change to choose from.”

Southeast Asia relies on coal

The world will likely exceed the global goal of keeping Earth’s temperature above 1.5 degrees Celsius.

In November, the United Nations failed to negotiate an international road map to phase out fossil fuels during the annual climate talks, known as COP30.

Emissions are rising as coal is used to meet growing energy demand in emerging economies in the Asia-Pacific region, worsening air pollution.

Southeast Asia is the world’s third-largest coal-consuming region after India and China, according to the International Energy Agency, which predicts regional electricity demand will double by 2050.

“There is no doubt that efforts to support the phase-out of coal-fired power plants are valid, important and absolutely necessary,” said Danny Cullenward of the Kleinman Center for Energy Policy at the University of Pennsylvania. “But it’s a really tricky question to try to precisely quantify the benefits of an intervention, like transition credits. »

Philippine pilot project divides opinions

The bridging credit experiment is taking place at South Luzon Thermal Energy Corp.’s 270-megawatt power plant. in Calaca City, south of Manila.

The site was built ten years ago by ACEN Corp., the energy arm of the giant Philippine conglomerate Ayala Corp.

Coal-fired power plants can typically operate for 50 years. Coal sites in Southeast Asia are on average less than 15 years old, like Calaca. However, ACEN has committed to decommissioning the South Luzon facility by 2040.

Transition credits could speed up this process.

“If this works, there will be a playbook for coal asset owners and their energy transitions,” said Irene Maranan of ACEN. “There will be more believers than non-believers in this initiative.”

The Rockefeller Foundation conceived the concept of transition credits to help finance the early retirement of coal-fired power plants by financing the replacement of fossil fuel equipment with renewable energy equipment used to continue generating electricity at the same sites.

“It would be irresponsible to simply close a coal plant without replacing it,” Maranan said. “The country still needs its energy supply. There is a growing demand that is not stopping.”

Joseph Curtin, vice president for energy transitions at the Rockefeller Foundation, said an independent, nonprofit carbon market governance body was reviewing the transition credit method, which has already been backed by business giants like Japan’s Mitsubishi Corp.

There are about 60 coal plants in the Asia-Pacific region with bridging credit potential that together could attract $110 billion in public and private capital by 2030, and the Calaca project is needed to show the idea works, Curtin said.

“We want to carry out dozens of projects to have a real impact,” he said. “But to have any credibility, we have to do one project and we have to use it to learn and grow.”

The problems of carbon credits

Skepticism about transition credits comes from the somewhat tarnished reputation of the carbon market.

Elle Bartolome, of the Philippine Climate Justice Movement, was among dozens of activists who protested against what she called the “carbon casino” during protests at COP30 in Brazil.

Given the integrity issues with past projects, Bartolomé said the transition credits would likely fall into the same trap of not benefiting local communities, especially if reparations are not provided to those who were negatively affected by the Calaca coal plant.

Patrick McCully, an energy transition analyst at Reclaim Finance, wrote in a recent report that transition credits would likely repeat the failures of the carbon market, saying the credits are a “dead end” because the industry has failed to address false promises, inaccurate carbon calculations and other problems.

Southeast Asia’s focus and funding should prioritize “all-inclusive, all-encompassing action” on renewable energy development, McCully said.

“It’s old wine, in a new bottle,” McCully said. “It’s going to waste a lot of time, energy and money.”

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