Carbon transition credits to finance the move away from coal

The carbon industry is exploring the innovative idea of carbon transition credits to support the early retirement of coal-fired power plants. However, this idea is still in its infancy and faces major challenges, including the need for a complex framework, political support, and an adequate carbon price.

Share:

Centrale à charbon

At the Asian Climate Summit 2023, held in Japan in October, experts discussed a promising new approach to accelerating the energy transition: carbon transition credits. This initiative aims to finance the early retirement of coal-fired power plants, a crucial step towards achieving the objectives of the Paris Agreement.

The importance of political support

However, carbon transition credits are still at an early stage of development and face several implementation challenges. The experts identified three main obstacles to overcome.

The jurisdictional accreditation approach

The first major challenge lies in creating a complex framework for the implementation of carbon transition credits. This approach requires strict standards and regulations to guarantee the transparency and credibility of the credits issued. In addition, robust monitoring and verification mechanisms are essential to ensure system integrity.

Government cooperation is essential

The second challenge is to win the political support of governments. Companies are looking to eliminate coal from their portfolios faster than national carbon neutrality targets require. This creates a mismatch between corporate commitments and government policies, making it difficult to obtain approval from the authorities.

Carbon transition credits: a piece of the puzzle

Finally, the third major challenge is to set a carbon price high enough to encourage companies to invest in transition credits. The costs associated with the early retirement of coal-fired power plants can be considerable, and it is essential that the credit mechanism adequately covers these costs.
Hendrik Rosenthal, Group Sustainability Director at CLP Holdings, a power generation company, emphasized the importance of overcoming these challenges. He explained that CLP was committed to eliminating coal-based assets by 2040 to comply with the Paris Agreement, but that this could be difficult to achieve in some markets, such as China and India, where national carbon neutrality targets are set for 2060 and 2070 respectively.

Mary Grady, Executive Director of the American Carbon Registry, presented a jurisdictional accreditation approach for carbon transition credits. This approach would enable coal-fired power plant decommissioning requirements to be tailored to specific regions, taking into account regional and national policies, as well as local electricity demand.

John Lo, founder of ACI, a new carbon registry based in Singapore, stressed the importance of cooperation with governments to avoid integrity problems. He noted that government and bank financial incentives would be needed to facilitate the transition away from coal.

Finally, it is essential to recognize that carbon transition credits are only one piece of the puzzle in accelerating the energy transition. Other measures, such as support for renewable energies, the construction of energy storage infrastructure and support for workers laid off from coal-fired power plants, are also needed to meet carbon emission reduction targets.

Nearly USD92bn will be invested by major American and international groups in new data centres and energy infrastructure, responding to the surge in electricity demand linked to the rise of artificial intelligence.
Nouakchott has endured lengthy power interruptions for several weeks, highlighting the financial and technical limits of the Mauritanian Electricity Company as Mauritania aims to widen access and green its mix by 2030.
Between 2015 and 2024, four multilateral climate funds committed nearly eight bn USD to clean energy, attracting private capital through concessional terms while Africa and Asia absorbed more than half of the volume.
The Global Energy Policies Hub shows that strategic reserves, gas obligations, cybersecurity and critical-mineral policies are expanding rapidly, lifting oil coverage to 98 % of world imports.
According to a report by Ember, the Chinese government’s appliance trade-in campaign could double residential air-conditioner efficiency gains in 2025 and trim up to USD943mn from household electricity spending this year.
Washington is examining sectoral taxes on polysilicon and drones, two supply chains dominated by China, after triggering Section 232 to measure industrial dependency risks.
The 2025-2034 development plan presented by Terna includes strengthening Sicily’s grid, new interconnections, and major projects to support the region’s growing renewable energy capacity.
Terna and NPC Ukrenergo have concluded a three-year partnership in Rome aimed at strengthening the integration of the Ukrainian grid into the pan-European system, with an in-depth exchange of technological and regulatory expertise.
GE Vernova has secured a major contract to modernise the Kühmoos substation in Germany, enhancing grid reliability and integration capacity for power flows between Germany, France and Switzerland.
The National Energy System Operator forecasts electricity demand to rise to 785 TWh by 2050, underlining the need to modernise grids and integrate more clean energy to support the UK’s energy transition.
Terna has signed a guarantee agreement with SACE and the European Investment Bank to finance the Adriatic Link project, totalling approximately €1bn ($1.08bn) and validated as a major transaction under Italian regulations.
India unveils a series of reforms on oil and gas contracts, introducing a fiscal stability clause to enhance the sector’s attractiveness for foreign companies and boost its growth ambitions in upstream energy.
The European Commission is launching a special fund of EUR2.3bn ($2.5bn) to boost Ukraine’s reconstruction and attract private capital to the energy and infrastructure sectors.
Asia dominated global new renewable energy capacity in 2024 with 71% of installations, while Africa recorded limited growth of only 7.2%, according to the latest annual report from IRENA.
US President Donald Trump's One Big Beautiful Bill Act dramatically changes energy investment rules, imposing restrictions on renewables while favouring hydrocarbons, according to a recent report by consultancy firm Wood Mackenzie.
On July 8, 2025, the Senate validated the Gremillet bill, aimed at structuring France's energy transition with clear objectives for nuclear power, renewable energies, and energy renovation.
Brazil, Mexico, Argentina, Colombia, Chile, and Peru significantly increase renewable electricity production, reaching nearly 70% of the regional electricity mix, according to a recent Wood Mackenzie study on Latin America's energy sector.
The Canadian government announces an investment of more than $40mn to fund 13 energy projects led by Indigenous communities across the country, aiming to improve energy efficiency and increase local renewable energy use.
The German Ministry of Economy plans to significantly expand aid aimed at reducing industrial electricity costs, increasing eligible companies from 350 to 2,200, at an estimated cost of €4bn ($4.7bn).
A major electricity blackout paralyzed large parts of the Czech Republic, interrupting transport and essential networks, raising immediate economic concerns, and highlighting the vulnerability of energy infrastructures to unforeseen technical incidents.