Replacing coal with clean power in emerging economies is perhaps the single largest, most urgent climate challenge we face this decade. Burning coal for electricity accounts for about 10bn tonnes of CO₂, about 70% of the total emissions associated with generating electricity.

And we are continuing to move in the wrong direction. Over the past five years, coal emissions have grown by over 2%/y. While some progress has been made across OECD economies, this has been more than offset by growth in non-OECD countries, which now account for 80% of the global total.

Fortunately, there has been recent political and financial investment in innovative solutions. In 2020, the Asian Development Bank launched its Energy Transition Mechanism, under which concessional and market-based funds were to be deployed to retire or repurpose existing coal and other fossil fuel power plants on an accelerated schedule and replace them with clean power. The Climate Investment Funds also announced an Accelerating Coal Transition programme to provide a holistic toolkit to help countries transition away from coal, tackling challenges linked to national strategies, people and communities.

Also notable in this respect are Just Energy Transition Partnerships (JETPs). These arrangements between the International Partners Group of donors and host countries seek to accelerate host country-led energy transitions. They combine leader-level political support with the provision of concessional capital, targeting near-term investments with an elevated focus on easing the transition for workers. Four countries have established JETPs between 2021 and 2023: South Africa, Indonesia, Vietnam and Senegal.

Yet, despite all these initiatives, there are no examples of accelerated coal plant retirements and replacements in emerging countries to point to. The reality is that many of these plants are new assets with guaranteed revenue streams well into the future. To retire them, we must prove these assets can afford to transition early while earning future revenue.

To develop that proof, The Rockefeller Foundation launched the Coal to Clean Credit Initiative (CCCI) in 2023. The objective is to design and test a new methodology that leverages carbon credit finance to accelerate a managed, equitable phaseout of coal plants in emerging economies and to incentivise their replacement with clean power, while supporting the lives and livelihoods of affected workers. CCCI partners with local communities for each project to identify routes to new employment, entrepreneurship and reskilling to ensure that the needs of workers and communities are kept at the forefront.

The reality is that many of these plants are new assets with guaranteed revenue streams well into the future. To retire them, we must prove these assets can afford to transition early while earning future revenue.

At COP28, CCCI announced that its methodology was under review by Verra, the world’s largest carbon crediting standard. We also announced a new collaboration with ACEN Corporation to apply this methodology to a potential pilot project in the Philippines.

Last month, during the Financing Asia’s Transition Conference in Singapore, CCCI launched the analysis of our initial due diligence on this potential pilot. The RMI-led assessment explored the climate impact of leveraging carbon finance to close the South Luzon Thermal Energy Corporation coal plant in Batangas, the Philippines, in 2030 – 10 years ahead of its scheduled retirement – and replacing it with clean power and battery storage, while supporting the livelihoods of workers affected by the plant’s early transition.

The analysis concluded that this project would avoid 19mn tonnes of CO₂. It also found that the project meets the eligibility criteria of the draft methodology, that decommissioning by 2030 would not be possible without carbon finance, and that a carbon credit-backed retirement as early as 2030 could yield positive financial, social and climate outcomes when compared to a 2040 retirement.

Our next steps are to secure final approval for the methodology, at which point we anticipate the ACEN Corporation will prepare a project design document. This document will detail programmes to ensure a just transition for affected communities and workers following a consultative process, along with plans for the responsible decommissioning of the plant and the rollout of an affordable, reliable energy replacement. By 2025, ACEN hopes to finalise buyer discussions and reach financial close for what will be the world’s first coal-to-clean carbon credit transaction.

If successful, there is no reason that this transaction methodology could not be replicated in other emerging economies. We hope that by bringing a new asset class of transition credits to market, we can help the world avoid billions of tonnes of carbon emissions and help emerging economies fund their climate and development goals.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

• Further reading: ‘Accessing finance for the development of clean energy projects in emerging markets’. It is critical for the clean energy transition that emerging markets do not become locked into relying on fossil fuels. But this requires significant capital investment and attractive policies and legal frameworks in these markets, explains Chinenye Ajayi, Solicitor, Power and Infrastructure Practice at Olaniwun Ajayi LP.
• Find out how we can be sure of a just energy transformation, and why it matters.