New analysis from the Carbon Trust, supported by The Rockefeller Foundation, explores the potential global supply of transition credits and what it could take to bring this emerging market to scale.
Overview
Coal-fired power remains a major source of global emissions, but retiring coal plants early can create significant financial, contractual and power-system challenges. Transition credits are an emerging form of carbon finance designed to help address this challenge by generating revenue from verified emissions reductions achieved through the early retirement of coal-fired power plants.
In this first part of our analysis of policy options for catalysing transition credits, the Carbon Trust examines the potential global supply opportunity. Our modelling identifies around 2.5 GtCO₂e of potential transition credit supply between 2029 and 2045, with the opportunity heavily concentrated in South and South-east Asia. India, Viet Nam and Indonesia alone account for around 60% of modelled supply.
However, theoretical supply does not necessarily translate into viable projects. Many of the largest opportunities involve relatively young plants with substantial operating lives remaining, while 91% of modelled supply comes from baseload and mid-merit plants whose generation is key to grid operations, and would need to be replaced. Realising these opportunities will therefore require transition credits to sit alongside wider financing, replacement power, supportive policy and engagement with asset owners and governments.
The report provides policymakers, carbon market participants and transition-finance stakeholders with a clearer picture of where transition credit supply could emerge, the characteristics of that supply, and the conditions that could determine whether it can be realised. A second part of the analysis will examine the wider question of market viability, bringing supply together with potential pricing, sources of demand and policy options for catalysing the market.
