Case Study
Supporting a regional climate foundation in developing an informed position on the use of transition credits for the early retirement of coal power plants.
Overview
The Story
Understand the emerging role of transition credits in decarbonization
Asia’s dependence on coal remains one of the central challenges to achieving global climate goals, as 90% of the world’s newly built coal-fired power plants (CFFPs) are located in the region. While coal has historically powered the region’s economic growth, it is also responsible for some of the highest carbon emissions worldwide. To accelerate a shift away from coal, an emerging financial mechanism — transition credit — proposes to reward CFFP owners with verified emission reductions from the early retirement of CFPPs when paired with renewable energy replacement.
Recognizing both the promise and complexity of this mechanism, a regional climate foundation sought an independent analysis to understand whether transition credits could offer a credible, effective, and equitable tool to accelerate coal phase-out across Asia.
Provide the analytical foundation for informed decision-making
We supported the client in developing an evidence-based position on the feasibility and risks of transition credits.
Through an in-depth review of six emerging methodologies, an assessment of market dynamics, and a critical analysis of policy implications under the Paris Agreement’s Article 6, we clarified how transition credits could operate, under what conditions they might succeed, and what governance safeguards would be essential to ensure environmental integrity.
Analyze transition credit methodologies and their integrity
A central component of the study was to assess the available and draft methodologies that define how emission reductions from early retirement can be quantified, verified, and credited.
The team examined project-level methodologies such as:
- Verra’s Methodology for Accelerated CFPP Retirement through a Just Transition
- Gold Standard’s Just Transition through Early Phase-Out of CFPPs
- IDB Invest’s Early Closure of Fossil-Fuel-Fired Power Plants and Replacement by Renewables,
- ADB’s draft approach
- Asian Carbon Initiative’s framework
- World Bank’s sectoral-level ETA mechanism
Each methodology was reviewed against 12 criteria, including additionality, leakage, permanence, renewable replacement requirements, asset ownership, just transition provisions, and alignment with Sustainable Development Goals (SDGs).
The assessment revealed that while these methodologies shared a common purpose, they differ significantly in scope and applicability. Most methodological frameworks are still under development or context-specific, meaning they cannot yet be applied universally. Methodologies designed for Indonesia, for instance, embed social safeguards that may not directly transfer to other contexts. Choosing the fittest methodology, then, must be tailored to the context of each CFFP’s circumstances.
Evaluate carbon market dynamics and investment feasibility
We analyzed the market environment to understand whether transition credits could realistically contribute to attracting sufficient financing. The findings show that economic feasibility remains a key barrier.
In Indonesia, the estimated internalized social cost of early coal retirement by one analysis was approximately USD 222 per ton of CO₂, far higher than the average carbon credit prices in both voluntary and compliance markets. This cost disparity makes large-scale implementation commercially challenging without blended finance or concessional support.
The voluntary carbon market (VCM), one potential outlet for these credits, has contracted since its peak of 2021, due to concerns about integrity and double-counting. Adding a complex new product like transition credits may depress prices further unless underpinned by strong governance and transparency mechanisms.
On the supply side, Asia’s coal fleet presents enormous technical potential: countries such as India, Indonesia, Vietnam, and the Philippines host hundreds of CFPP units that could, in theory, generate transition credits. However, the retirement dilemma complicates prioritization. Retiring younger, more efficient plants yields greater climate benefit but higher financial burden, while closing older plants is cheaper but less impactful (since they have less lifetime left).
Identify the political and social context for implementation
Beyond market mechanics, the study considered political, regulatory, and social barriers. In several Asian economies, coal remains a politically sensitive sector tied to energy security and employment. Governments must balance climate ambitions with the practical need to keep power affordable and reliable.
For example, while China has pledged to stop building new domestic coal plants, it continues to finance coal infrastructure overseas. In India, phasing out coal too rapidly could jeopardize electricity access for millions of households. These realities highlight that the feasibility of transition credits must be assessed case by case, reflecting each country’s political economy, policy frameworks, and grid capacity for renewable energy integration.
Provide actionable recommendations
The study concluded with several recommendations for institutions and governments exploring transition credits as part of their energy transition strategy:
- Strengthen integrity standards — Ensure additionality, permanence, and that leakage controls are robust and verifiable.
- Align with national policies — Integrate transition credit mechanisms with each country’s NDCs and avoid double-counting under Article 6.
- Develop financing mechanisms — Combine concessional and market-based finance to close the cost gap between current carbon prices and real transition costs.
- Embed just transition measures — Include social safeguards to protect affected workers and communities.
- Pilot before scaling — Conduct case-by-case feasibility studies to identify suitable plants and learn from implementation before wider adoption.
These steps aim to guide policymakers, investors, and climate institutions in assessing whether and how transition credits could be used responsibly to support the decarbonization of power systems.
The objective was not to advocate for or against transition credits, but to provide a robust analytical base to guide strategic engagement and policy dialogue in this fast-evolving space.
Drivers of change
Inform policy and investment decisions with evidence
Through this analysis, the client gained a detailed understanding of technical feasibility, market limitations, and governance requirements for generating and using transition credits in Asia. This foundation enables them to engage confidently in discussions about the mechanism’s future and to influence how integrity standards evolve at both the national and international levels.
Lessons Learned
The study yielded insights into the process of evaluating innovative market instruments. Comparing methodologies proved challenging because most were evolving during the research period.
The exercise underscored the importance of agility and access to non-public information. Certain key documents, such as the Asian Development Bank’s draft methodology, were only accessible through professional networks, emphasizing that credible analysis often relies on stakeholder engagement beyond published sources.
Another lesson was about the nature of advisory work itself. Technical reports should not be prescriptive; rather, they should equip decision-makers with comprehensive information to make their own strategic choices.
Additional Project Information
Client: Tara Climate Foundation
Year: 2024-2025
Partner: Subcontracted by Kora Climate
This project was presented during the Baku Climate Action Week, October 2025