(DP 2025-05) Early Retirement of Coal Power Plants through Voluntary Carbon Credits? The case of ACEN in the Philippines

Abstract

This paper explores the possibility of using voluntary carbon credits to retire coal-fired power plants early. It introduces carbon emission trading using the example of the substantial European emissions trading market. It presents recommendations for phasing out coal power plants and discusses the challenges of calculating plant proprietors' losses and carbon emission savings. It also outlines the specific challenges of voluntary carbon credits and the need to monitor carbon credit deals. These issues are illustrated with the world’s first Energy Transition Mechanism transaction for the early retirement of a coal plant owned by ACEN in the Philippines: the South Luzon Thermal Energy Corporation (SLTEC). It analyzes the financial transactions carried out by the power plant owner and the envisaged use of voluntary carbon credits. The paper concludes that there are many obstacles to moving beyond a few pilot projects.

JEL Codes: Q54, Q58, I48