Singapore is making decarbonization efforts 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 publish a “Singapore Asian Taxonomy” that may set criteria for the early retirement of coal-fired power plants.
The aim of the taxonomy is to assist banks and other financial institutions discover activities which are sustainable or are moving towards sustainability in order that they will achieve their zero carbon goals more quickly.
The decision was made in March after extensive consultation. In a media interview, Gillian Tan, MAS’s chief sustainability officer, revealed that MAS is working to bring Singapore’s Asian taxonomy in step with the European and Chinese taxonomies (30/5). The taxonomy was developed by the Green Finance Industry Taskforce, an industry initiative established by MAS to speed up the event of green finance in Singapore.
The Singapore and Asia Taxonomy includes an modern traffic light classification system to differentiate the impact of various climate change mitigation activities. Under this method, actions marked as “green” are eligible for green or sustainable financing, while actions classified as “yellow” can access transitional financing.
However, ‘red’ activities which are deemed to have caused ‘substantial harm’ might be disqualified from receiving any funding. This approach only provides financial support to environmentally responsible and sustainable initiatives, promoting a greener and more resilient future.
In addition to this taxonomy, financial institutions may be guided by regional guidelines developed by a working group inside the Glasgow Alliance for Net-Zero, of which MAS is considered one of its members.
Singapore’s local banks have their very own decarbonization plans. One of them, OCBC Bank, became the primary bank in Southeast Asia to stop financing latest coal-fired power plants by 2019. This was followed by DBS Bank and UOB, which also pledged to stop financing coal-fired energy projects. Fossil fuels, especially coal, still account for about 60% of total electricity production within the Asia-Pacific region.
A successful energy transition in Asia requires a comprehensive approach that takes into consideration the unique characteristics of the region. Gillian Tan reminds us that because the population and economy grows, the demand for energy will increase. Therefore, a just transition is required that preserves social balance and takes into consideration economic impacts, equivalent to the impact on employment.
On the opposite hand, Tan also noted that the important thing to this process is to speed up the phase-out of coal-fired power plants. Many coal-fired power plants in Asia still have long lifespans, so it’s important to take into consideration learn how to retire them early.
Tan emphasized that banks should support the phase-out of coal provided that it might probably make an actual contribution to combating climate change and is financially credible. One common approach is to scale back borrowing costs in order that existing coal-fired power plants may be bought out and retired sooner.
Tan also stressed the importance of credibility in the method. He said regulators, financial institutions, standard-setters and scientific experts should work together to develop the scientific criteria that have to be met for a responsible and credible coal phase-out.
On the opposite hand, Professor Sumit Agarwal from NUS Business School noted that the energy transition is a key step in decarbonization efforts, and phasing out coal is a crucial first step for Singapore towards achieving its zero-emissions goal. Banks can provide transition loans to owners of coal-fired power plants to assist them find cleaner alternatives.
In addition to phasing out coal, MAS will even develop an motion plan for mandatory climate disclosure for financial institutions in Singapore, in step with the International Sustainable Development Standards Board (ISSB) guidelines. The ISSB standards are currently being finalized and are expected to be published soon.
The regulator can be considering the opportunity of incentivizing banks by giving higher risk weighting to green or sustainable portfolios. However, this policy will have to be discussed and decided collectively at the worldwide regulatory level.
To this end, Tan and his team proceed to discover gaps within the financial ecosystem and markets to search out solutions to existing problems. With Singapore’s strong financial base and experience in infrastructure and energy, the country is well-positioned to fulfill the challenges of the energy transition.
MAS’s decision to incorporate the phase-out of coal-fired power plants in its classification system is a strategic step in steering the financial sector towards sustainable and green investments. With the support of local banks, Singapore can play a number one role within the energy transition within the Asia-Pacific region.
Source: The Straits Times | Business Times | Business news
