The Philippines tests ‘transition credits’ to cut coal use in novel
experiment
[December 11, 2025] By
ANTON L. DELGADO
CALACA, Philippines (AP) — The Philippines is testing a new type of
carbon credit aimed at encouraging companies to cut their climate
warming emissions by creating funds that can be used to turn coal-fired
power plants into renewable energy facilities.
Called transition credits, they are meant to help pay for phasing out
coal use by creating value out of the emissions that would prevent. The
funds would then pay to replace fossil fuel equipment with clean energy
gear.
Proponents say transition credits could unlock a windfall of investment
for the power hungry Asia-Pacific region and speed up Southeast Asia’s
transition to renewable energy. But some experts wary of longstanding
problems in the carbon market view them as a dead end.
Transition credits offer fresh take
A carbon credit represents one metric ton of carbon dioxide removed or
not sent into the atmosphere. Credits are bought and sold on carbon
markets by countries and companies trying to comply with emission
regulations, meet pollution reduction targets or offset environmental
impacts.
Transition credits differ because they put a value on prevented future
emissions caused by burning fossil fuels, which contributes to climate
change.
But integrity concerns plague carbon credit projects around the world.
Projects meant to save carbon-absorbing forests have been accused of
greenwashing, miscalculations and causing carbon leakage, a term for
when companies move to countries with looser emission rules. They've
been found failing to deliver on promised benefits to local communities
and linked to allegations of human rights violations in Cambodia and an
uptick in deforestation in Peru, among other problems.
The credits have pros and cons, like any untested new idea, said Ramnath
Iyer, of the United States-based Institute for Energy Economics and
Financial Analysis. He calculates that a transition credit could be
worth $11 to $52.
“There will be challenges and flaws, like in every deal,” Iyer said.
“But it’s not like we have a smorgasbord or buffet of climate change
solutions to choose from.”
Southeast Asia counts on coal
The world will likely overshoot the global goal of keeping Earth's
temperatures from warming above 1.5 degrees Celsius.
In November, the United Nations failed to negotiate an international
road map to phase out fossil fuels at annual climate talks, known as
COP30.
Emissions are rising as coal is used to meet growing energy demand in
the Asia-Pacific region's emerging economies, worsening air pollution.
Southeast Asia is the world's third largest coal-consuming region after
India and China, according to the International Energy Agency, which
forecasts regional electricity demand will double by 2050.
“There’s no question that efforts to support phasing out coal-fired
power plants are worthy, important and of critical need,” said Danny
Cullenward, of the University of Pennsylvania’s Kleinman Center for
Energy Policy. “But it is a really thorny issue to try to accurately
quantify the benefits of an intervention, like transition credits.”
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 Philippine pilot project splits
opinions
The transition credit experiment is playing out at the 270-megawatt
South Luzon Thermal Energy Corp. power plant in Calaca City, south
of Manila.
The site was built a decade ago by ACEN Corp., the energy arm of the
massive Philippine conglomerate Ayala Corp.
Coal plants typically can run for 50 years.
Southeast Asia's coal sites are on average under 15 years old, like
the one in Calaca. However, ACEN has committed to retiring the South
Luzon facility by 2040.
Transition credits may speed this up.
“If it works, there will be a playbook for coal asset owners and
their energy transitions,” said Irene Maranan with ACEN. “There will
be more believers than non-believers in this initiative."
The Rockefeller Foundation designed the transition credits concept
to help finance early retirement of coal plants by paying for
replacing fossil fuel gear with renewable energy equipment used to
keep generating power at the same sites.
“It would be irresponsible to just turn off a coal plant without a
replacement,” Maranan said. “The country still needs its energy
supply. There is a growing demand that isn’t stopping.”
Joseph Curtin, vice president of energy transitions at The
Rockefeller Foundation, said an independent non-profit carbon market
governance body is reviewing the transition credit method, which
already has been backed by business giants like Japan’s Mitsubishi
Corp.
There are about 60 coal plants in the Asia-Pacific region with
transition credit potential that together could attract $110 billion
in public and private capital by 2030, and the Calaca project is
needed to show the idea works, Curtin said.
“We want to do dozens of projects to drive real impact,” he said.
“But to have any credibility, we need to do one project and we need
to use that to learn and evolve.”
The problems with carbon credits
Skepticism over transition credits stems from the carbon market's
somewhat tarnished reputation.
Elle Bartolome, with the Philippine Movement for Climate Justice,
was among dozens of activists who protested what she called the
“carbon casino” in demonstrations during the COP30 in Brazil.
Given integrity issues in past projects, Bartolome said transition
credits will likely fall into the same trap of not benefitting local
communities, especially if reparations aren't provided for those
negatively impacted by the Calaca coal plant.
Patrick McCully, an energy transition analyst for Reclaim Finance,
wrote in a recent report that transition credits would likely repeat
failures of the carbon market," asserting the credits are a “dead
end” because the industry hasn't addressed false promises,
inaccurate carbon calculations and other issues.
Southeast Asia's focus and funding should prioritize “an
all-hands-on-deck, full court press” on building out renewable
energy, McCully said.
“This is old wine, in a new bottle,” McCully said. “It's going to
waste a lot of time, energy and money.”
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