Defining Green and Transition Activities with the Singapore-Asia Taxonomy and Accelerating Coal Phaseout with Transition Credits at COP28

The landscape for attaining net zero by 2050 has been met with challenges, particularly in Asia. Coal-fired power plants (“CFPPs“) in Asia account for one-sixth of the global greenhouse gas (“GHG“) emissions and needs to be phased out ahead of their usual run-time to avoid exhausting the carbon budget aligned with the Paris Agreement. Climate-friendly transition activities across the economy also face financing hurdles in the face of greenwashing risks and narrowing bankable capacity. These issues were addressed at the COP28 Singapore Pavilion Finance Day on 3 December 2023 with Monetary Authority of Singapore (“MAS“) launch of the first version of the Singapore-Asia Taxonomy for Sustainable Finance (“Singapore-Asia Taxonomy“) and a Transition Credits Coalition (“TRACTION“), among other transition financing initiatives.

The present Singapore-Asia Taxonomy is finalised following four rounds of public consultations, since January 2021, and focuses on climate change mitigation, which is one of the five environmental objectives intended to be addressed. It sets out detailed thresholds and technical criteria for defining green and transition activities in eight focus sectors: Energy, Real Estate, Transportation, Agriculture and Forestry/Land Use, Industrial, Information and Communication Technology, Waste/Circular Economy, and Carbon Capture and Sequestration.

In addition, the Singapore-Asia Taxonomy provides a credible framework to phaseout CFPPs, by setting out both entity and facility-level criteria that are aligned to a 1.5 degree Celsius scenario. Such criteria include that the electricity generated from the phased-out CFPP has to be fully replaced with clean energy within the same electricity grid and the CFPP must have a just transition plan.

This Update gives you a snapshot of the key features of the Singapore-Asia Taxonomy and salient highlights of Singapore’s coal phaseout plan using transition credits. To help you better navigate the nuances of this significant development, please contact our multi-disciplinary specialist teams at Rajah & Tann Singapore’s Sustainability Practice who are well-poised to advise you on the adaptation of your business to take into account sustainability and ESG (environmental, social and governance) issues.