The Monetary Authority of Singapore (MAS) will launch a consultation in the coming weeks on its proposal to include the managed phase-out of coal-fired power plants in the Singapore-Asia Taxonomy.
Formerly referred to as the Singapore Taxonomy, the guidelines were expected to be published in June. Instead, MAS will seek feedback on additional criteria from financial institutions “within the next few weeks”, says Gillian Tan, chief sustainability officer (CSO) of MAS.
The taxonomy was developed by the Green Finance Industry Taskforce (GFIT), an industry-led initiative convened by MAS, whose mandate is to help accelerate the development of green finance.
GFIT launched its third public consultation on the taxonomy in February — then thought to be the last round to provide feedback. Speaking at a media briefing on May 30, Tan says the central bank and regulator received “extensive feedback”. “So, we definitely want to take some time to really cover it well.”
The move comes as regional guidelines are being updated to include the managed phase-out of coal.
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In March, the Asean Taxonomy Board determined that projects phasing out coal can obtain transition financing, a first for any regional taxonomy.
These projects are graded on a “traffic light” model, with the lowest tier — “Amber Tier 3” — qualifying coal plants built between 2023 and 2027, provided they adopt best-in-class technology that are affordable, accessible, reliable and can be implemented within a reasonable timeframe.
A consultation paper by another regional taxonomy will be released in June. The Glasgow Financial Alliance for Net Zero Asia-Pacific (GFANZ APAC) Network has been developing guidance on how financial institutions can fund the managed phase-out of coal. This was first announced in October 2022 and MAS is part of the workgroup convened by the GFANZ APAC Network.
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MAS’s managing director Ravi Menon spoke about the launch in a speech at the Transition Finance towards Net Zero conference in October 2022: “There are about 5,500 operational coal-fired generators in coal plants in Asia, responsible for over 4.5 gigatonnes of carbon emissions per year. Asia’s coal plants are far younger than the coal fleets in the US and Europe, with the majority having decades left to operate. The GFANZ initiative will help to address the challenges involved in responsibly decommissioning these plants, including the fiduciary and reputation risks that financial institutions may face from the initial spike in financed emissions as a result of investing in such early phase-out projects.”
GFANZ was launched in April 2021 and brings together more than 500 global financial institutions from 45 countries committed to net-zero emissions by 2050. The regional offshoot of GFANZ began in June 2022, hosted by the Singapore Exchange (SGX), with support from MAS, Temasek and Bain & Company.
What should local banks do?
The proposed move could appear dissonant with banks’ efforts to decarbonise their portfolios. Singapore’s three local banks have pledged to reduce their exposure to coal assets from as early as 2019. In April that year, Oversea-Chinese Banking Corporation (OCBC) O39 became the first Southeast Asian bank to stop financing new coal-fired plants. DBS and United Overseas Bank (UOB) U11 followed within a month.
DBS D05 announced in 2021 that it will phase out thermal coal exposure by 2039. From January 2026, DBS will also stop financing customers who derive more than half of their revenue from thermal coal, except for their non-thermal coal or renewable energy activities.
Meanwhile, UOB has committed to stop financing the thermal coal sector by 2039. This is on top of its existing prohibitions on new project financing of greenfield or expansion of coal-fired power plants and thermal coal mines.
Singapore’s financial institutions should “take their dressing” from global best practices, standard-setters and science-based experts, says Tan, who was appointed in October following the exit of MAS’s first CSO, Darian McBain, after a year.
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The International Energy Agency (IEA), for example, has outlined the need to phase out unabated coal generation by 2030 in advanced economies and by 2040 in emerging economies, notes Tan. “If a bank finances the managed early phase-out of coal, they should only do it where it is helpful to the climate challenge and [if] it is credible.”
In the Asia-Pacific region, fossil fuels account for about 70% of power and electricity generation, while coal accounts for almost 60% of total generation. Coal is a huge part of this problem, says Tan, who is also assistant managing director (development and international) at MAS. “If we are going to transition Asia well, there needs to be a comprehensive approach for energy transition that takes into account a few Asia-specific features.”
Most of the coal-fired power plants in Asia are very young, says Tan, averaging between 10 and 20 years old. “They have at least another 30 to 40 years left. So, if we just say ‘No new coal’, it will not be enough to get us to where we need to be for the net-zero transition… We need to, difficult as it is, think about how to decommission these plants early and how to retire them early.”
Tan acknowledges that retiring coal-fired power plants ahead of time is an expensive endeavour. “The economic viability of it is an issue… A lot of early phase-out models [are] very much premised on us being able to bring the costs of borrowing down such that you can buy out the incumbents, and then bring the lifespan down.”
The industry needs to find innovative ways to solve those challenges, she adds, such as using carbon credits to “sweeten the economics slightly”.
The process is also labour-intensive, says Tan. “The problem is that currently we’re looking at it in a very transaction-by-transaction approach. If we could group together a set of power plants with similar characteristics and risk — maybe they come from the same permit jurisdictions [or share the] same set of decision-makers — if you can standardise that, you can actually scale it and bring it down to a good level.”
Ultimately, banks will need to look at the range of guidance that will be available and make a decision, says Tan. “You saw the decarbonisation targets that they put up, all the slight variations here and there, because they’ve made their assessments based on what experts have told them and what the shape of the portfolios look like. I think they will do likewise on the managed phase-out [of coal].”
OCBC unveiled its 2030 and 2050 sectoral decarbonisation targets in May, after its peers DBS and UOB published their plans in September and October 2022 respectively.
“It’s rare to see a central bank worry about coal,” says Tan. “But, we realised that it was something needle-moving for Asia’s transition… Someone needed to pull the different pieces together, get the different relevant organisations and parties in the same room and crack it, bit-by-bit.”
Last year, MAS announced it will walk away from equities and corporate bonds of companies that derive more than 10% of their revenues from thermal coal mining and oil sands activities.
“Such companies will be exposed to significant risks of asset stranding as the world increasingly shifts towards the use of cleaner or renewable sources of energy,” reads MAS’s second annual sustainability report, released on July 28, 2022.
MAS’s Menon said then that he is confident the central bank and regulator will hit this target “well in advance” of FY2030 and that “there will be no sacrificing returns”.
Photo: Albert Chua/The Edge Singapore
