ECOSPERITY WEEK: IEA urges balanced transition credits for early Southeast Asia coal exits

Transition credits must strike a balance between power system reliability and carbon credit integrity to enable early coal plant retirements in Southeast Asia, where relatively young coal fleets are crucial for energy security, the International Energy Agency said in a report released May 15 at GenZero's Ecosperity Week 2026 event in Singapore.

The report, "Financing the Modernization of Power Systems Beyond Coal: The role of transition credits in Southeast Asia," emphasizes that transition credits should only be issued where carbon revenues demonstrably bring forward retirement or emissions reductions that would not otherwise have occurred on the same timeline.

The report noted that it's a critical consideration in Southeast Asia, where phasedown commitments are emerging, but early retirement is not mandated.

"Transition credits may support modernizing power systems and accelerating coal transitions, but only under the right policy, planning and market conditions," Sue-Ern Tan, Head of the International Energy Agency Regional Co-operation Centre.

Transition credits are a type of carbon credit issued from verified emissions reductions achieved by accelerating the early retirement of coal-fired power plants and replacing their generation with cleaner energy sources.

Singapore allows entities covered by its carbon tax to offset up to 5% of their emissions using eligible international carbon credits, creating compliance demand for high-integrity credits, including those generated under Article 6.2 bilateral agreements.

Platts, part of S&P Global Energy, assessed Singapore's eligible ICCs at S$31/mtCO2e on May 14.

Platts reported that Singapore and the Philippines signed their Article 6 implementation agreement on April 30, establishing a framework for generating and transferring carbon credits from mitigation projects.

Among published methodologies, Verra's VM0052 is being piloted at the South Luzon Thermal Energy Corporation plant in the Philippines, the IEA report noted.

The methodology includes requirements for just transition plans, grid stability assessments, and system operator involvement to ensure energy security is maintained during the transition.

"When we look at VM0052 in particular, all the stuff around integrity is part and parcel of the methodology. But very much in particular when it comes to coal shutdown, there are huge questions around what happens to the community," Mandy Rambharos, Chief Strategy Officer at Verra, said.

Philippines projects priced around Singapore ICCs

The Philippines transition credit pilot project is currently priced at indicative levels of Singapore-eligible International Carbon Credits, aligning with Singapore's carbon tax range, the panel said.

The Transition Credits are priced there, not only because current demand is limited to Singapore, but the price per credit turned out to be around $35-$50/mtCO2e, Eric Francia, President and CEO of ACEN, told Platts. So it suits the range of Singapore ICCs, he added.

During the panel discussion, he noted that while variables such as coal prices, interest rates, foreign exchange rates, and solar and battery prices continue to fluctuate, current modeling suggests that transition credits remain within the range of Singapore's carbon tax trajectory.

Demand remains limited; offtakers critical

Transition credit demand remains modest, with compliance carbon markets offering the strongest potential anchor for future demand, the IEA report noted.

"Weak demand signals today mean there may not be sufficient clear price signals for commitments to early retirement investments in the near term," the report said.

Francia emphasized that offtakers are essential to make transition credit projects financially viable, noting that ACEN is looking to Singapore and Japan for support, with hopes that Europe might offer opportunities when it allows limited use of international credits starting in 2036.

At the same time, Frederick Teo, CEO of GenZero, cautioned against over-reliance on Singapore's carbon tax as a demand anchor, noting that if the tax rises to S$100/mtCO2e, buyers will seek to average down their effective price rather than pay the maximum rate.

Nat Keohane, President at the Center for Climate and Energy Solutions, noted that the Philippines transaction presents an opportunity to demonstrate how disparate demand sources, including voluntary corporate commitments, Singapore's carbon tax compliance, and Article 6 sovereign demand, can be combined for a single project.

Transition credits may also help address supply-demand gaps in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), where airlines can use eligible credits to offset compliance obligations, the panel suggested.

However, the report noted that the risk of policy reversal remains a key concern, as changes in domestic priorities could weaken integrity requirements and reduce buyer confidence.