World's pioneering Transition Credits strategy debuts, courtesy of Verra
In a significant stride towards combating climate change, Verra, the world's largest carbon credits certifier, has finalised a methodology for generating a novel class of carbon credits known as transition credits. These credits are generated through the accelerated retirement of coal-fired power plants and their replacement with renewable energy.
The methodology, which has garnered growing regulatory support globally, involves a three-step approach: retiring coal-fired plants, generating replacement renewable electricity, and ensuring that the project demonstrates "additionality," meaning it wouldn't have happened without the credits.
The methodology emphasises environmental impact and community protection. It requires projects to demonstrate regulatory surplus, complete an investment comparison analysis, and submit a common practice analysis to ensure the accelerated retirement is financially additional and not typical in the area.
The crediting period is determined by the shorter of the "standard crediting period" or the "accelerated retirement period." The standard period can be 7 years (renewable up to 21 years) or a fixed 10 years, but it adjusts if the accelerated retirement is sooner.
However, there is no specific information provided about the percentage of revenues allocated towards implementation in the available updates. Projects typically need to demonstrate that they comply with requirements like additionality and just transition principles.
Technological verification plays a crucial role in the methodology. Blockchain, satellite tracking, and AI are increasingly used to verify, track, and audit credits, enhancing transparency and reducing fraud.
The momentum for transition credits is growing, with corporate demand increasing as companies commit to net-zero goals, making these credits a valuable tool in climate finance. The methodology quantifies emissions reductions from early coal phase-out projects by using the counterfactual of what a plant would have emitted over its expected lifetime.
The finalised methodology will only be applied to coal power plants with long-term power purchase agreements of at least 20 years. The Integrity Council for the Voluntary Carbon Market (ICVCM) has launched a continuous improvement stakeholder group to look at the requirements for the new class of carbon offsets, transition credits.
The Asian Development Bank (ADB) is exploring the use of transition credits to shut down a 200-MW coal plant in Mindanao, the most coal-reliant island in the Philippines. This could potentially slash around 19 million tonnes of carbon dioxide emissions, according to previous estimates.
The methodology was first mooted as a financing mechanism by the Singapore central bank and consulting giant McKinsey in September 2023. It has since been expanded to include deregulated electricity markets, in addition to regulated markets. The new methodology, developed in partnership with the Coal to Clean Credit Initiative (CCCI), includes strengthened just transition requirements for affected workers and communities.
[1] Verra, "Verra Launches Methodology for Transition Credits," [website], [date]. [2] ICVCM, "ICVCM Announces Continuous Improvement Stakeholder Group for Transition Credits," [website], [date]. [3] McKinsey & Company, "Transition Credits: A New Financing Mechanism for Clean Energy Transitions," [website], [date].
- The new class of carbon credits, transition credits, have been finalized by Verra, a leader in sustainability and carbon certifications, to promote the energy transition towards renewable energy.
- These credits are generated through the retirement of coal-fired power plants and their replacement with clean energy, reinforcing environmental impact and community protection in the process.
- The methodology for generating transition credits involves three steps: retiring coal-fired plants, generating replacement renewable electricity, and demonstrating additionality to ensure the project's financial viability.
- The crediting period can span for up to 21 years or a fixed 10 years, adjusting based on the accelerated retirement timeline, but specific information about the revenue allocation for implementation remains undisclosed.
- Technological verification plays a crucial role in the methodology, with tools like blockchain, satellite tracking, and AI being used to enhance transparency, reduce fraud, and verify the credits.
- As businesses commit to net-zero goals, the demand for transition credits in the corporate sector is growing, making them a valuable tool in climate finance.
- The Asian Development Bank (ADB) plans to use transition credits to shut down a coal plant in Mindanao, Philippines, potentially reducing around 19 million tonnes of carbon dioxide emissions. This innovative financing mechanism was first proposed by the Singapore central bank and McKinsey in 2023, and has since been expanded to deregulated electricity markets.
