1. Good afternoon, ladies and gentlemen. The Monetary Authority of Singapore is delighted to co-host today’s event with the World Bank.
2. If there was a Dummy’s Guide to Decarbonisation, it would probably say something like this: clean the grid, electrify everything and leave a small carbon budget for genuinely hard-to-abate sectors.
3. The focus on coal transition addresses the first of those three limbs: clean the grid. Today, our grids are primarily powered by fossil fuels, accounting for over 60% of the share of global electricity generation. Coal continues to remain the largest source of electricity globally and remains the dominant energy source for many countries.
4. There is some reason for optimism. Based on IEA forecasts, more than a third of the world’s electricity will come from renewables by next year, surpassing coal as the largest source of supply. In advanced economies last year, renewables accounted for 34% of total power generation, while coal’s share plummeted to a historic low of 17%.
5. However, the transition is taking place unevenly and we are seeing a different trajectory in developing regions. For instance, in Southeast Asia, coal continues to account for over 40% of the energy mix.
6. We should all be concerned about this because one in every seven tonnes of greenhouse gas emitted into the atmosphere comes from a coal plant in Asia. If we are serious about the climate transition, we need to get serious about Asian coal.
7. If nothing is done, coal power will continue to be dominant for three main reasons:
a. Coal is already locked in. Asia’s coal plants are young, less than 15 years old on average. There is established infrastructure, and long-term power purchase agreements (PPA). These make transitioning from coal a costly process.
b. The second reason underpinning the dominance is that bottlenecks in grid infrastructure are hindering renewable energy deployment. There is no transition without transmission. There is little value in adding more generation capacity if the electricity cannot reach the intended end-user. In Vietnam for example, the influx of solar and wind capacity in the South has caused renewable energy generation curtailment. At the same time, the country’s coal-dependent northern provinces face supply challenges.
c. Lastly, if we only think of coal in economic terms, we have missed the plot. Coal is not just an economic asset; it is an asset with deep security and social implications. Coal is viewed as essential for energy security given its reliability as baseload capacity. In Asia, some 6.7 million jobs are tied to the coal industry, from mining to power generation. The transition away from coal, if not managed carefully, could lead to significant social disruption, particularly in regions where alternative employment opportunities are scarce.
8. These three challenges – (i) lock in, (ii) grid infrastructure, and (iii) the broader entrenchment of coal, particularly in emerging markets – highlight why broad-brush efforts to phasing out coal have met with limited success. Because coal has deep economic, social and existential roots, we need to complement these efforts with market-based solutions.
9. Market-based approaches are not just purely theoretical, they are already being implemented with promising results. Such mechanisms are being pioneered through initiatives such as the U.S. Energy Transition Accelerator and the Just Energy Transition Partnership. Recent modelling by the Institute for Energy Economics and Financial Analysis (IEEFA) has found that the decommissioning of over 800 coal power plants in emerging economies can be achieved through large-scale investments in renewables and restructured power purchase agreements. All costs would be covered through this market-based approach, including financing PPAs, the development of renewables, retraining workers and upgrading grid infrastructure.
10. Given that market-based approaches are the focus of today’s event, I thought it would be useful for me to outline the key components of such an approach.
11. I would say there are three key components – the three “As”: ambition, arsenal and actors.
13. To concretely unpack how this can be achieved, MAS launched the Transition Credits Coalition (TRACTION) at COP28 with more than 30 members. TRACTION is exploring how to support the development of high-integrity supply and build up buyer confidence in transition credits. This means hearing from demand-side players, including sovereigns, corporates and sectoral bodies from both the compliance and voluntary markets. We are asking them what key attributes they look for when purchasing credits. This, in turn, feeds into TRACTION’s work on the supply side, to identify suitable coal retirement projects for the generation of such credits.
14. Beyond supply and demand, what makes TRACTION different is a third focus on making transactions scalable. This means looking beyond pilots. We are looking to build replicable ambition loops between demand and supply at scale. Part of this involves mapping the risks faced by stakeholders in a transition credit value chain, and identifying ways to mitigate these risks.
15. The second “A” in a strong market-based approach is arsenal. This refers to the need to develop an arsenal of tools and mechanisms to improve the economic viability and risk profile of coal decommissioning projects. Concessional capital is certainly a key tool, but it cannot be our only tool. Market-based approaches use a variety of complementary tools, such as blended finance, technical assistance, guarantees, and carbon credits. Each tool seeks to address a different gap.
16. Applying this to the example on Transition Credits, we need to be receptive to a wide arsenal of approaches even as we address the foundational issue of credit integrity. Several methodologies that prescribe how high integrity transition credits can be generated are being developed as we speak. Some of these are premised on a project-based approach, where the mitigation activity is implemented by each individual coal plant. Others use a sectoral approach where the mitigation activities are managed across a jurisdiction, at the national or subnational level.
17. TRACTION is examining both approaches. Let me share three initial observations:
a. First, project-based and sectoral approaches use different guardrails to meet high integrity standards and Just Transition needs. Importantly, these requirements also have to consider implementation practicalities.
- For instance, project-based methodologies require a just transition plan to be developed at the plant level with stakeholders. Sectoral approach would call for one at the national or subnational level.
- While the approaches may be different, both stipulate that part of the credit proceeds must be directed to just transition.
b. Second, jurisdictions and plant owners should choose a crediting methodology that suits their local context.
- For example, where there are no site-appropriate options for cleaner energy, a sectoral approach may be considered provided there is a national energy transition plan.
c. Third, with multiple approaches under development, stakeholders facing different circumstances will have more options to accelerate a just coal transition action globally.
- We must recognise that energy transition will not be homogenous as markets have their unique needs for energy security and growth. And the economics of energy transition for each market will also be different.
- This goes back to my point on the need to have an arsenal of tools. Different methodologies can and should be part of the toolkit to encourage more countries and plant owners to take action today.
18. The final “A” is actors. We need everyone to step up to the plate more decisively. We need better coordination across actors so that those with the ability to step in can quickly plug the gaps. Governments, development finance institutions, and philanthropies could provide concessional capital. Multilateral development banks can provide technical assistance, including advisory and structuring support, and commercial capital. We also need to more extensively harness the capabilities of financial institutions, such as insurance players, to provide innovative risk mitigation solutions across the project development lifecycle.
19. We are starting to see the beginnings of this in the Financing Asia’s Transition Partnership (FAST-P), the US$5bn blended finance platform that we launched at COP28 last year. One specific theme under FAST-P is the Energy Transition Acceleration Fund (ETAF), which is being developed in partnership with the Asian Development Bank (ADB) and the Global Energy Alliance for People and Planet (GEAPP). The fund focusses on energy transition projects in Asia, such as the early phaseout of coal assets and replacement with renewables. The ADB provides not just concessional capital from its donors, but also its structuring expertise, experience in working on the Energy Transition Mechanism in Asia, and a pipeline of potential projects. GEAPP, with its experience in the energy transition, and a network of willing partners with a focus on green energy access, is well placed to ensure that investments in the space are socially inclusive and just. We are also grateful for the World Bank’s partnership in FAST-P. Singapore is working with the International Finance Corporation (IFC) and other partners on a Green Investment Partnership under FAST-P to finance marginally bankable green infrastructure projects and companies in Asia. IFC’s experience in deploying blended finance and scaling infrastructure projects has been invaluable.
20. Market-based approaches are not just a novelty or an interesting talking point. They are a necessity if we are to accelerate the coal transition at the scale we need. For these approaches to work, I have outlined three key “A’s” that are essential: (i) Ambition loops to harness the market-making power of demand and supply, (ii) the ability and willingness to tap on a wide Arsenal of tools, and (iii) a strong ecosystem of Actors that readily step up to play critical roles.
21. I would also add a fourth “A” – Action. I have outlined some concrete workstreams and initiatives that can make decisive impact on coal transition. I hope you will step forward to contribute to this work.
22. With this, I look forward to the panel discussion that will cover a number of innovative market-based approaches, and to the fruitful discussions that will no doubt follow.
*****
[1] Ember, 2024 – with major processing by Our World in Data. In 2023, the global electricity production by source is as follows: Coal – 35.51%, Gas – 22.47%, Hydropower – 14.28%, Nuclear – 9.11%, Wind – 7.82%, Solar – 5.53%, Oil – 2.67%, Bioenergy – 2.30%.
[2] International Energy Agency, 2024. CO2 Emissions in 2023.
[3] Centre for Strategic and International Studies, 2023. Clean Energy and Decarbonisation in Southeast Asia: Overview, Obstacles, and Opportunities
[4] International Renewable Energy Agency (IRENA) puts the renewable energy contribution to electricity generation in Southeast Asia in 2019 at 26%, while the Renewable Energy Institute (REI) puts the same figure in 2021at 24.4%.
[5] International Renewable Energy Agency, 2022. Renewable Energy Outlook for ASEAN: Towards a Regional Energy Transition.
[6] Institute for Energy Economics and Financial Analysis, 2024. Accelerating the coal-to-clean transition.
