From Theory to Reality: Building Credible Transition Credit Projects

This report by RMI details the development of transition credits to accelerate the retirement of coal-fired power plants, using a pilot project at the South Luzon Thermal Energy Corporation (SLTEC) plant in the Philippines as a case study. It outlines a four-phase framework for moving from project origination to concept development, emphasizing the need for high-integrity baselines, clean energy replacement portfolios, and just transition planning to ensure additionality and avoid moral hazard.

• Transition credits are designed to monetize emissions reductions from the early retirement and replacement of coal assets with clean energy, addressing financing gaps where concessional capital from multilateral development banks is limited.
• RMI proposes a four-phase framework for evaluating transition credit projects: Project Screening (eligibility and constraints), Defining Evaluation Scope (cost categories and clean replacement options), Pre-Feasibility Analysis (quantitative assessment of baselines and revenues), and a final decision phase on whether to proceed to project design and financial structuring.
• The SLTEC pilot in the Philippines aims to pull forward the retirement of a 246 MW coal plant from 2040 to 2030. A pre-feasibility analysis suggests that a base case renewable energy build could reduce system-wide emissions by up to 19 million metric tons of CO2, with breakeven credit prices aligning with market expectations.
• For the SLTEC project, the proposed replacement portfolio to cover 100% of business-as-usual output consists of 1,000 MW of solar, 250 MW of wind, and up to 4,800 MWh of battery storage.
• High-integrity transition credits require rigorous baseline setting to establish additionality. In the SLTEC case, the existing 2040 retirement date established by a previous Energy Transition Mechanism (ETM) transaction serves as the counterfactual baseline.
• The feasibility of transition credits is sensitive to several risks, including 'leakage' (emissions increasing from other grid sources), the availability of land for renewables, grid constraints, and the need for flexible technologies like battery storage which may require updated crediting methodologies.
• To ensure credibility and avoid perverse incentives, asset owners must demonstrate public commitments to coal phaseout. ACEN's commitment to no new coal plants and its decarbonization goals are cited as a template for this requirement.
• Implementation of the SLTEC pilot involves international cooperation, including a August 2024 Memorandum of Understanding (MOU) between the Philippines and Singapore under Article 6 of the Paris Agreement to enable international carbon trading.

APA

RMI (2025). From Theory to Reality: Building Credible Transition Credit Projects. https://rmi.org/resources/from-theory-to-reality-building-credible-transition-credit-projects/

Chicago

RMI. From Theory to Reality: Building Credible Transition Credit Projects. 2025. https://rmi.org/resources/from-theory-to-reality-building-credible-transition-credit-projects/.

Wikipedia

{{cite report |author=RMI |title=From Theory to Reality: Building Credible Transition Credit Projects |date=2 May 2025 |url=https://rmi.org/resources/from-theory-to-reality-building-credible-transition-credit-projects/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{rmi2025from, author = {{RMI}}, title = {{From Theory to Reality: Building Credible Transition Credit Projects}}, institution = {RMI}, year = {2025}, month = may, url = {https://rmi.org/resources/from-theory-to-reality-building-credible-transition-credit-projects/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }