New Rules Empower Early Coal Retirement with Renewable Shift

In a landmark move that could redefine carbon markets and accelerate the global shift from fossil fuels to clean energy, Verra, the world’s leading carbon credit certifier, has officially launched the first-ever transition credits methodology. This groundbreaking framework enables carbon credits to be generated from the early retirement of coal-fired power plants and their replacement with renewable energy sources — a move that aims to deliver both climate impact and social justice.

Announced during Temasek’s annual sustainability summit in Singapore, the methodology is being hailed as a pivotal tool to catalyze Asia’s energy transition, where coal remains a dominant power source. The framework, developed in collaboration with the Coal to Clean Credit Initiative (CCCI) led by The Rockefeller Foundation, introduces a rigorous, transparent process to quantify emissions reductions and ensure fair outcomes for affected workers and communities.

Transition Credits: A Financing Innovation for Climate Impact

Transition credits represent a novel class of carbon offsets that measure the avoided emissions from a coal plant’s early shutdown based on its expected remaining lifetime. Unlike traditional credits, which are often generated from new renewable projects, these credits are based on a “counterfactual” — i.e., what the coal plant would have emitted if it had continued operating.

The concept has been under development since 2023, undergoing multiple rounds of public consultation. With the new rules now finalized, developers can monetize these avoided emissions to finance early coal retirements, replacing them with cleaner, more sustainable energy systems.

“This methodology gives energy providers the tools to make a meaningful shift — one that doesn’t abandon workers or worsen energy poverty,” said Mandy Rambharos, CEO of Verra. “To meet our climate goals, we must do more than just reduce emissions — we must change the systems producing them.”

From Coal to Clean: Real-World Applications Begin

One of the first real-world applications of transition credits is already underway in the Philippines. Filipino conglomerate Ayala Group’s power arm, ACEN, has announced plans to use the methodology to decommission the 246-MW South Luzon Thermal Energy Corp (SLTEC) coal plant by 2030 — a full decade ahead of schedule.

In 2022, ACEN fully divested from SLTEC and is now working to convert the site to renewable energy and battery storage. The project could avoid up to 19 million tonnes of carbon dioxide emissions, making it a potential flagship case for transition credit success.

Other initiatives across Asia are also exploring this model. The Asian Development Bank (ADB) is assessing the use of transition credits for early closure of a 200-MW coal plant in Mindanao, Philippines. The project, if implemented, could cut 7 million tonnes of CO₂ emissions, according to a government-prepared investment plan.

Just Transition at the Core of the Framework

A key strength of Verra’s methodology lies in its mandatory just transition requirements. Project developers must allocate at least 2% of expected revenue — potentially from outside the carbon market — to support a just transition. This includes provisions for job retraining, social protections, and continued energy access in coal-dependent regions.

This ensures that communities and workers impacted by plant closures are not left behind. Importantly, this 2% contribution must be committed before credits are issued, avoiding reliance on volatile carbon markets to fund social safeguards.

“This approach ensures that the support is in place at the planning and implementation stages — not as an afterthought,” explained a Verra spokesperson.

Technical Rigor and Broadened Scope

The final methodology is applicable to coal plants with power purchase agreements (PPAs) of at least 20 years, enabling accurate emissions baselining and ensuring environmental integrity. It now also covers both regulated and deregulated electricity markets, expanding its reach and relevance.

Stricter criteria have been introduced to ensure additionality — that credits only apply to projects that truly depend on this financing to go forward. This addresses a major concern from critics, who argue that many aging coal plants are already uneconomical and would be retired without credit incentives.

To further validate transition credits, the Integrity Council for the Voluntary Carbon Market (ICVCM) has begun examining how such credits align with their Core Carbon Principles, which determine whether an offset can receive a “high-integrity” label. This label is increasingly seen as essential for voluntary carbon buyers seeking credible impact.

A New Pathway for Asia’s Energy Shift

The timing of this launch is significant. Asia is home to nearly 2,000 coal-fired power plants, many of which still have decades of operation ahead under existing contracts. Traditional mechanisms — like blended finance — have had limited success in speeding up coal exits.

The transition credit model offers an innovative financial tool that could fill this gap. Initially conceptualized in 2023 by the Monetary Authority of Singapore (MAS) and McKinsey & Company, the model has now found practical form through Verra’s methodology.

In parallel, Gold Standard, another carbon standard body, is developing its own coal phase-out crediting rules, although it has yet to release a final version. ADB’s decision on which methodology to adopt — Verra’s or Gold Standard’s — for its Mindanao project will likely set a precedent for the broader region.

Addressing Criticism and Market Concerns

Despite its promise, the transition credit model has faced scrutiny from environmental groups concerned about “phantom credits” — or offsets that do not represent real emissions reductions. The key issue lies in proving additionality and avoiding rewards for actions that would happen anyway due to market pressures.

Verra’s strengthened requirements around long-term PPAs, social protections, and independent verification are designed to address these concerns and ensure that only genuinely impactful projects qualify.

Further review by ICVCM and other global watchdogs is expected to bring additional clarity and assurance to the market.

A Breakthrough for Climate and Communities

With its bold step into transition credits, Verra has introduced a powerful new instrument for climate finance. This methodology not only accelerates the retirement of high-emission coal plants but does so with a clear focus on justice, inclusivity, and integrity.

As countries race to meet their net-zero targets and safeguard their energy security, transition credits could emerge as a critical catalyst for sustainable development, particularly in regions like Southeast Asia, where coal dependency remains entrenched.

By reimagining how carbon credits are structured and who they serve, Verra has opened up a hopeful new frontier in the global climate effort — one that acknowledges both planetary limits and human needs.

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