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

CALACA, Philippines (AP) — The Philippines is testing a new type of carbon credits aimed at encouraging companies to cut climate-warming emissions by creating funds that can be used to convert coal-fired power plants into renewable energy projects.

Called transition credits, they are designed to help pay for the coal phase-out by putting a value on the emissions that would prevent it. These funds will then be used to replace fossil fuel-burning equipment with clean energy equipment.

Proponents say the bridge loans could unlock windfall investment for the energy-hungry Asia-Pacific region and speed up Southeast Asia's transition to renewable energy. But some experts fearing long-standing problems the carbon market views them as a dead end.

Bridge loans offer a new perspective

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

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

But integrity issues have plagued carbon credit projects around the world.

Projects aimed at preserving carbon-sinking forests have been accused of greenwashing, miscalculations and carbon leakage – a term for companies relocating to countries with looser emissions rules. They have been found to not deliver the promised benefits to local communities and have been linked to allegations of human rights abuses in Cambodia and increase in deforestation in Peru, among other problems.

The loans have their pros and cons, like any untested new idea, says Ramnath Iyer of the US Institute for Energy Economics and Financial Analysis. He estimates that a bridge loan could cost between $11 and $52.

“As with every deal, there will be problems and shortcomings,” Iyer said. “But that doesn’t mean we have a smorgasbord or a smorgasbord of climate change solutions to choose from.”

Southeast Asia counts on coal

There will be peace probably exceeding That global goal keeping the Earth's temperature from warming above 1.5 degrees Celsius.

In November, the UN failed to agree on an international road map to phase out fossil fuels V annual climate talksknown as COP30.

Emissions rise as coal is used to meet growing energy demand in developing economies of the Asia-Pacific region is deteriorating air pollution.

Southeast Asia is the world's third largest coal consuming region after India And ChinaAccording to the International Energy Agency, which predicts electricity demand in the region will double by 2050.

“There is no doubt that efforts to support the phase-out of coal-fired power plants are worthy, important and urgently needed,” said Danny Cullenward of the Kleinman Center for Energy Policy at the University of Pennsylvania. “But it’s really a challenge to try to accurately estimate the benefits of an intervention like transition loans.”

Philippine pilot divides opinion

The bridge lending experiment is being implemented at the South Luzon Thermal Energy Corp. power plant. with a capacity of 270 megawatts in Calaca City, south of Manila.

The facility was built a decade ago by ACEN Corporation, the energy division of major Philippine conglomerate Ayala Corp.

Coal power plants can typically operate for 50 years. Coal deposits in Southeast Asia are on average younger than 15 years, such as the Kalaka deposit. However, ACEN has committed to decommissioning the Southern Luzon facility by 2040.

Bridging loans can speed up this process.

“If this works, there will be guidance for coal asset owners and their energy transition,” said ACEN's Irene Maranan. “There will be more believers than non-believers in this initiative.”

Rockefeller Foundation developed the concept of transition loans to help finance the early retirement of coal-fired power plants by paying for the replacement of fossil fuel equipment with renewable energy equipment that is used to continue generating electricity at the same facilities.

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

Joseph Curtin, vice president for energy transitions at the Rockefeller Foundation, said the independent nonprofit carbon market watchdog is reviewing the transition credit method, which has already been backed by business giants such as Japan's Mitsubishi Corp.

There are about 60 coal-fired power plants in the Asia-Pacific region with bridge lending potential that together could attract $110 billion in public and private capital by 2030, and the Kalaka project is needed to demonstrate that the idea works, Curtin said.

“We want to implement dozens of projects to achieve real impact,” he said. “But to build trust, we need to take one project and use it for learning and development.”

Problems with carbon credits

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

El Bartolome of the Philippine Climate Justice Movement was among dozens of activists protesting what she called the “carbon casino” at demonstrations during COP30 in Brazil.

Given integrity issues in past projects, Bartolome said transition loans would likely fall into the same trap of not benefiting local communities, especially if reparations were not provided to those affected by the Calaque coal plant.

Patrick McCulley, an energy transition analyst at Reclaim Finance, wrote in a recent report that “transition credits are likely to repeat the failures of the carbon market,” arguing that the credits are a “dead end” because the industry has not addressed false promises, inaccurate carbon emissions calculations and other problems.

Southeast Asia and its funding should prioritize a “comprehensive and complete judicial press” on renewable energy development, McCulley said.

“It’s old wine in a new bottle,” McCulley said. “A lot of time, energy and money will be spent on this.”

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