As the Philippines accelerates its shift toward renewable energy, the role of carbon credits has become a focal point in the transition strategy.

Seen as a critical financial mechanism, these credits are poised to support the country’s ambitious goal of phasing out coal-fired power plants while scaling up clean energy infrastructure. However, the journey toward fully implementing a carbon credit framework remains fraught with challenges.

While the push for carbon credits in the local power sector is gaining traction, Eric Francia, president and CEO of Ayala-backed ACEN Corp., pointed out that some critical steps are still missing.

“It’s progressing nicely,” Francia said in a recent interview with reporters.

However, he pointed out that achieving the coal-to-clean energy transition requires more than momentum — it demands robust systems and international agreements.

For instance, a government-to-government (G2G) agreement between the Philippines and Singapore, anchored in Article 6 of the Paris Agreement, is essential to ensure the integrity of carbon credits.

Transition tool

“We need the credits to be of high value to support the coal-to-clean transition,” Francia explained, emphasizing the need to manage the social and economic impact on workers, communities, investors and customers.

In August, the Philippines and Singapore signed a memorandum of understanding (MoU) — a promising start, but not enough to guarantee progress. “The next step is to have that implementation agreement,” Francia said.

For Francia, high-quality credits are non-negotiable. Without the proper framework — including a credible carbon registry and accounting system controlled by the Departments of Environment and Natural Resources and Energy (DoE) — there’s a risk of double or triple counting, which could undermine the value of the credits.

“If you don’t have that G2G agreement, it puts the value of these credits in question,” Francia warned.

Francia also sought to dispel misconceptions about the need for a carbon tax.

“We don’t need a carbon tax to set up a proper registry and accounting system,” he said, adding that there is a difference between establishing a framework and introducing potentially contentious policies.

Singapore’s existing carbon tax system, which allows companies to purchase high-integrity international credits as offsets, presents an opportunity for the Philippines to position itself as a supplier of high-end energy carbon credits.

“That’s what we’re planning to tap as a source of demand for these transition credits,” Francia said.

‘We don’t need a carbon tax to set up a proper registry and accounting system.’

However, this potential hinges on swift action. Francia underscored the importance of aligning with Singapore’s system and leveraging the international market.

“We could be suppliers of high-end energy carbon credits,” he said but cautioned that delays or missteps could derail this vision.

To recall, ACEN has been pushing for the early retirement of the South Luzon Thermal Energy Corp. (SLTEC) coal-fired power plant in Calaca, Batangas, using transition credits.

In August, ACEN announced a Memorandum of Understanding with GenZero and Keppel Ltd. to conduct a study on utilizing transition credits to accelerate the plant’s decommissioning and replace its 246 MW baseload with a solar-powered Integrated Renewables and Energy Storage System.

The initiative aims to retire SLTEC a decade earlier, by 2030, and support broader efforts to shift away from coal.

If successful, SLTEC will be one of the first coal plants globally to generate transition credits.

Coal-fired power plants remain the largest source of global carbon dioxide emissions, with Southeast Asia’s relatively young fleet contributing significantly to the challenge.

The initiative aligns with the government’s renewable energy targets of achieving at least 35 percent in the power generation mix by 2030 and 50 percent by 2040.

According to the DoE, renewable energy is projected to supply 11.4 percent of the total power demand in 2024.