Shutting
Southeast Asia’s many pollutive coal plants is critical to halting climate
change. But these power stations generate almost half of the electricity for
the rapidly developing region. Many are also recently built, making it even
more costly to shelve them with decades of operational lifespan remaining.
In
recent years, financiers have floated the idea of financing a coal phase-out
with carbon credits, generated from the emissions saved by
transitioning early to clean energy.
The
high price of such coal phase-out credits means that governments will need to
step in and buy the credits, Larsen said on a panel at the Genzero climate
summit in Singapore on Tuesday.
“We
need to work this into compliance markets, and we need to get some key anchor
buyers in here,” he added.
In
the voluntary market today, where businesses buy carbon credits to
counterbalance their own emissions and move closer to their green goals,
popular offsets trade much lower than US$30 per piece.
For
instance, popular forest protection credits sold at just over US$3 per piece in
early April, according to
analyst S&P Global Commodity Insights. Larsen said offsets from renewable
energy credits are trending around US$5-7. This means corporate buyers are
unlikely willing to fork out a premium for coal phase-out credits.
As it
stands, few governments appear keen to buy coal phase-out credits. Singapore
said it was prepared to do so in the future at the end of last year.
Earlier
studies suggest coal phase-out credits can be priced lower at US$15-20,
but those only factored in the cost of the new electricity capacity needed
– not the additional expenditure needed for just transition safeguards, Larsen
noted.
Singapore’s
central bank and consultancy Mckinsey had last year in a report said the
per-tonne cost of carbon dioxide savings is US$11-12, if a 1-gigawatt coal
plant is closed five years early.
The
term “just transition” generally refers to the equitable benefit and cost
sharing in decarbonisation initiatives – such as making sure coal plant workers
can switch to new jobs when their old workplace shuts, or that energy security
for local communities is not impacted. But figuring the price tag of such
ventures is difficult as there is no consensus on what a just transition should
exactly encompass.
“[Has
anyone] ever seen any statement that succinctly describes what a just
transition really is, or when something is good enough? I’ve spoken to a lot of
people in finance, industry and corporations, nobody has a framework for it
quite yet,” Larsen said.
He
added that the cost of installing batteries – needed to stabilise power output
from intermittent solar and wind power – would make up a “fairly large
component” of the final asking price.
But
Larsen said the premium is fair, given that closing coal plants is an almost
guaranteed way of slashing emissions, compared to other project types.
“We
shy away from avoidance credits…because of the lack of permanence. But once you
take a coal-fired power plant offline, it really is offline,” he said.
Avoidance
carbon credits focus on preventing or reducing greenhouse gas emissions that
would have otherwise occurred. Forest conservation projects in particular have
been called into question over permanence issues, since protected trees could
still be cut or burnt down in the future.
Beyond the high pricing, experts have said
Key coal phase-out
initiatives today include an initiative led by the Asian Development Bank (ADB)
to retire a 660-megawatt coal plant in
Indonesia Philippine coal plants
The two largest carbon credit
certifiers, Verra and Gold Standard, are each developing their own coal
phase-out methodology. On Wednesday, Singapore-based certifier Asia Carbon
Institute announced work on a new rulebook along with partner firm
Sustainability Economics.
Indonesia,
the largest coal power operator in Southeast Asia, had floated the idea of
closing several gigawatts worth of coal plants in past years, as it negotiated
large international climate financing deals. But progress has been slow,
and last year its policymakers said the focus would instead turn to operating
coal plants with alternative fuels instead.
The
hope is that carbon credits could provide more money to revitalise such
initiatives, alongside blended financing models that involve multiple lenders.
Speaking
alongside Larsen, Lim Wee Seng, group head of energy, renewables and
infrastructure at the institutional banking group of Singapore’s DBS bank, said
that impact funds could help boost financing given their parallel focus on
doing good.
Such
funds are willing to accept lower returns to shut coal plants down earlier, Lim
said, though conceding that dealing with neighbouring countries’ national
utilities in such projects is “not easy”, and called for regulatory
improvements.
Cindy
Lim, chief executive of Singapore’s Keppel Infrastructure, noted that coal
plant workers have much of the requisite skills needed for them to shift into
operating new waste-to-energy facilities, which would also address the region’s
mounting waste and landfill emissions issues.
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