Singapore is making efforts to decarbonize by adding a plan to phase out coal-fired power plants to its taxonomy, after the second version of the ASEAN Taxonomy was updated in March.
The central bank, the Monetary Authority of Singapore (MAS), has announced plans to release the "Singapore Asia Taxonomy," which will set criteria for the early retirement of coal-fired power plants.
The aim of the taxonomy is to help banks and other financial institutions identify activities that are sustainable or moving towards sustainability, so that they can achieve their zero-carbon goals more quickly.
The decision was made in March after extensive consultation. In a media interview, Gillian Tan, MAS Chief Sustainability Officer, revealed that MAS is working to ensure that Singapore's Asian taxonomy is in line with European and Chinese taxonomies (30/5). The taxonomy was developed by the Green Finance Industry Taskforce, an industry initiative set up by MAS to accelerate the development of green finance in Singapore.
Singapura-Asia's taxonomy has embraced an innovative traffic light classification system to differentiate the impact of various activities on climate change mitigation. Under this system, activities labeled as "green" are eligible for green or sustainable financing, while those categorized as "yellow" can access transition financing.
However, activities falling into the "red" category, which are found to have caused "significant harm," will be disqualified from receiving any funding. This approach ensures that only environmentally responsible and sustainable initiatives receive financial support, promoting a greener and more resilient future.
In addition to this taxonomy, financial institutions can also follow the regional guidelines developed by the working group under the Glasgow Alliance for Net-Zero, with MAS as one of its members.
Singapore's local banks have their own decarbonization plans. One, OCBC Bank, became the first bank in Southeast Asia to stop financing new coal-fired power plants by 2019. It was followed by DBS Bank and UOB, which also pledged to stop financing coal power projects. Fossil fuels, particularly coal, still account for around 60% of total electricity generation in Asia Pacific.
Achieving a successful energy transition in Asia requires a comprehensive approach that takes into account the region's unique characteristics. Gillian Tan reminds us that as the population and economy continue to grow, so will the demand for energy. Therefore, there is a need for a just transition that maintains social balance and takes into account economic impacts, such as the impact on employment.
On the other hand, Tan also noted that accelerating the retirement of coal-fired power plants is key to this process. Many coal-fired power plants in Asia still have a long lifespan, so it is necessary to think about how to phase them out early.
Tan emphasized that banks should only support a coal phase-out if it can make a real contribution to tackling climate change and is financially credible. One common approach is to reduce the cost of borrowing so that existing coal plants can be bought out and retired early.
Tan also stressed the importance of credibility in this process. He stated that regulators, financial institutions, standard setters and scientific experts should work together to develop science-based criteria that must be met for a responsible and credible coal phase-out.
On the other hand, Professor Sumit Agarwal of NUS Business School noted that energy transition is a critical step in decarbonization efforts, and coal phase-out is an important first step for Singapore to achieve its zero-carbon goal. Banks can provide transition loans to coal plant owners to help them find cleaner alternatives.
In addition to the coal phase-out, MAS will also establish a roadmap for mandatory climate disclosure for financial institutions in Singapore, following the guidelines of the International Sustainability Standards Board (ISSB). The ISSB standards are currently being finalized and are expected to be released soon.
The regulator is also considering the possibility of incentivizing banks by giving a higher risk weighting to green or sustainable portfolios. However, this policy will need to be discussed and decided upon collectively at the global regulatory level.
To this end, Tan and his team continue to identify gaps in the financial ecosystem and markets to find solutions to existing problems. With Singapore's strong financial base and experience in infrastructure and energy, the country is well-positioned to address the challenges of the energy transition.
MAS's decision to include coal plant retirements in the classification scheme is a strategic step in steering the financial sector towards sustainable and green investments. With the support of local banks, Singapore can play a leading role in the energy transition in the Asia-Pacific region.
Source: The Straits Times | The Business Times | Business News
