The Philippines is piloting a groundbreaking carbon credit system known as transition credits, aimed at accelerating the shift from coal-fired power plants to renewable energy. The program is designed to generate funding for replacing fossil fuel infrastructure with clean energy equipment, offering a potential blueprint for the Asia-Pacific region’s energy transition.

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What Are Transition Credits?

Traditional carbon credits represent one metric ton of carbon dioxide removed from the atmosphere or prevented from being emitted. They are traded on global carbon markets by governments and corporations to meet emissions targets or offset environmental impacts.

Transition credits, however, are unique: they place value on avoided future emissions from fossil fuel use. The funds generated are earmarked to finance the early retirement of coal plants and the installation of renewable energy systems on the same sites.

Proponents argue that transition credits could mobilize substantial investment in Southeast Asia, where demand for electricity is rising rapidly. Skeptics, however, point to historical issues in the carbon credit market, including greenwashing, inaccurate emissions calculations, and negative impacts on local communities.

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Pilot Project in Calaca, Batangas

The first transition credit experiment is underway at the 270-megawatt South Luzon Thermal Energy Corp. (SLTEC) power plant in Calaca City, south of Manila. The plant, operated by ACEN Corp., a subsidiary of Ayala Corp., was built a decade ago and is slated for retirement by 2040.

“If it works, there will be a playbook for coal asset owners and their energy transitions,” said Irene Maranan, ACEN representative. “There will be more believers than non-believers in this initiative.”

The project is being guided by the Rockefeller Foundation, which developed the transition credit concept to provide financing for clean energy retrofits at existing coal sites. Joseph Curtin, Vice President of Energy Transitions at the foundation, emphasized the need for a credible pilot to refine the approach before scaling it across the region.

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Potential Economic Impact

The Asia-Pacific region has approximately 60 coal plants with potential for transition credits. Together, these projects could attract up to $110 billion in public and private investment by 2030. The Calaca pilot is critical to proving the concept and demonstrating measurable emissions reductions while maintaining power supply.

Curtin stressed, “We want to do dozens of projects to drive real impact. But to have any credibility, we need to do one project first and learn from it.”

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Challenges and Skepticism

Critics caution that transition credits may inherit problems from the carbon credit market. Issues such as false promises, miscalculated carbon savings, and social impacts have plagued past projects.

Elle Bartolome of the Philippine Movement for Climate Justice warned that local communities could be overlooked if they are not properly compensated for disruptions caused by plant closures. Patrick McCully, energy transition analyst at Reclaim Finance, labeled transition credits as “old wine in a new bottle,” arguing that direct investment in renewable energy may be more effective than financialized carbon schemes.

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Coal Dependency in Southeast Asia

Southeast Asia is the world’s third-largest coal-consuming region, after India and China. According to the International Energy Agency, electricity demand in the region is expected to double by 2050, making coal phase-out a complex challenge.

Experts emphasize that any transition credit initiative must balance emission reductions with energy reliability. ACEN representatives note that shutting down coal plants without replacement energy sources would be irresponsible, as growing energy demand continues.

Danny Cullenward, of the University of Pennsylvania’s Kleinman Center for Energy Policy, said, “Efforts to phase out coal-fired power plants are critically important, but accurately quantifying the benefits of interventions like transition credits is extremely challenging.”

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Conclusion

The Philippines’ transition credit pilot represents an innovative attempt to finance early coal retirement and accelerate renewable energy adoption. While it offers potential for large-scale climate impact and investment, concerns about market integrity and community benefits underscore the importance of careful monitoring and transparency.

If successful, the project could serve as a model for Asia-Pacific nations seeking sustainable ways to reduce coal dependence while maintaining energy security.