CALACA, Philippines (AP) — The Philippines is piloting a new type of carbon credit known as transition credits, which aim to encourage companies to reduce their climate-warming emissions. This initiative focuses on creating funds that can be used to convert coal-fired power plants into renewable energy facilities.
These transition credits are designed to assign value to the future emissions that would be prevented by phasing out coal use. The funds generated would then assist in substituting fossil fuel infrastructure with clean energy technology. Advocates argue that this innovative approach could attract significant investment for the power-hungry Asia-Pacific region and expedite Southeast Asia’s shift towards renewable energy. However, some experts express skepticism regarding the effectiveness of carbon markets, suggesting that transition credits might represent a misguided effort.
A carbon credit traditionally denotes one metric ton of carbon dioxide that is either removed from the atmosphere or not emitted. Such credits are actively traded on carbon markets by countries and corporations striving to comply with emission regulations, fulfill pollution reduction targets, or mitigate environmental impacts. Transition credits, however, stand apart by focusing on the potential future emissions loss tied to burning fossil fuels, which significantly contribute to climate change.
Despite the promise of transition credits, concerns over the integrity of carbon credit projects persist globally. Initiatives aimed at preserving carbon-absorbing forests have faced accusations of greenwashing, miscalculations, and triggering carbon leakage, a phenomenon where companies relocate their operations to nations with less stringent emission regulations. These projects have often failed to deliver on their promised benefits to local communities and have been associated with human rights violations in places like Cambodia and an increase in deforestation in Peru.
Ramnath Iyer from the Institute for Energy Economics and Financial Analysis points out that while transition credits present both advantages and drawbacks, they also introduce valuable options in the context of addressing climate change. He estimates that each transition credit could range in value from $11 to $52. Iyer remarked that challenges and flaws are inherent in any solution, but options to combat climate change are limited.
With Southeast Asia being the world’s third-largest coal-consuming region—ranking behind India and China—coal continues to underpin energy demands in emerging economies throughout the Asia-Pacific. This growing reliance on coal is exacerbating air pollution, further complicating the region's challenge to comply with climate goals.
The transition credit experiment is currently underway at the 270-megawatt South Luzon Thermal Energy Corporation power plant located in Calaca City, south of Manila. This facility, owned by ACEN Corp. (the energy arm of the Philippine conglomerate Ayala Corp.), was built approximately a decade ago. Coal plants generally have operational lifespans of up to 50 years, while many of Southeast Asia’s coal facilities are relatively new. However, ACEN has pledged to retire the South Luzon plant by 2040, and the introduction of transition credits could potentially accelerate this timeline.
Irene Maranan from ACEN suggests that if this pilot project is successful, it may create a blueprint for other coal asset owners and their transition strategies. She envisions a future where belief in this initiative could outweigh skepticism. The transition credits concept, designed by the Rockefeller Foundation, aims to finance the early closure of coal plants and aid in the transition to renewable energy without depriving energy supplies to a region that faces persistent demand.
Joseph Curtin, vice president of energy transitions at the Rockefeller Foundation, stated that an independent governance body is reviewing the transition credit methodology. This initiative has already gained backing from major corporations such as Japan’s Mitsubishi Corp. There are approximately 60 coal plants in the Asia-Pacific that hold transition credit potential, which could collectively attract $110 billion in investments by 2030. The Calaca project is deemed essential in demonstrating the viability of this approach.
However, skepticism surrounding transition credits stems from the tarnished reputation of the carbon market. Elle Bartolome of the Philippine Movement for Climate Justice participated in protests against what she defined as the “carbon casino” during COP30 in Brazil. She expressed concerns that transition credits may suffer from similar pitfalls as previous projects, particularly in failing to benefit local communities negatively affected by the Calaca coal plant. Patrick McCully, an analyst for Reclaim Finance, criticized transition credits, calling them a “dead end” that is likely to replicate the shortcomings of the carbon market.
McCully advocates for a more focused investment in renewable energy rather than pursuing potentially flawed carbon credit solutions. He argues that transition credits simply repackage existing issues rather than offering genuine progress in combatting climate change.
