A novel form of carbon credits intended to channel more private capital toward the early phase out of coal-fired power plants has been endorsed by a key standards body.

Verra, a major rules-setting group and registry for the carbon credits sector, has launched a methodology for generating so-called transition credits from retirements of the assets, Chief Executive Officer Mandy Rambharos said on Tuesday at the Ecosperity conference in Singapore.

The credits are intended to monetize the reduction of emissions delivered by retiring a coal plant earlier than originally intended. Sales of the credits can help offset a shortfall in revenue from those power assets shuttered ahead of schedule.

“This approach enables real emissions reductions only when the coal is replaced with new and renewable energy and critically, coupled with just transition so building a retention for workers and communities,” Rambharos said.

Verra’s new methodology on the credits, drafted by a group led by the Rockefeller Foundation, would boost buyer confidence in their credibility and potentially allow them to be sold on key exchanges. The methodology is intended for grid-connected coal plants and doesn’t yet apply to so-called captive ones, Joseph Curtin, managing director for power and climate at the Rockefeller Foundation, said during a panel session at Ecosperity.

Amazon.com Inc. and PepsiCo Inc. have joined a platform called Kinetic Coalition of 20-plus potential buyers and sellers of the credits, Nathaniel Keohane, president of the Center for Climate and Energy Solutions announced during the session.

Banks including Standard Chartered Plc and HSBC Holdings Plc are among those exploring possible deals involving the instruments. Shuttering a 1 gigawatt plant about five years early would require about $310 million of financing, McKinsey & Co. and Singapore’s central bank calculated in 2023.

Verra’s support of transition credits comes as controversy persists over the credibility and efficacy of similar instruments used by polluters in their climate accounting, which critics say do little to cut actual planet-warming emissions.

A major challenge in Asia, which accounts for more than half of the world’s greenhouse gas emissions, is that much of the region’s coal fleet is relatively new. Facilities in China and India are typically about 20 years younger than in Europe, the International Energy Agency said in a 2021 report.

The Monetary Authority of Singapore is also working with The Integrity Council for the Voluntary Carbon Market, a separate oversight body, on plans for the organization to recognize the transition credits, which would signal they meet certain integrity standards. That could help spur demand and enable the instruments to attract a price premium.

“We’re all trying to understand how to unlock private finance to support the energy transition, especially at a time where there’s less public finance for climate action generally,” ICVCM CEO Amy Merrill said in an interview on the sidelines of the conference.

— With assistance from Sheryl Tian Tong Lee