ENERGY
Transition credits: How large could the opportunity for early coal retirement be?
Coal plants could remain operational for decades without additional intervention. Our analysis explores the potential supply of transition credits from accelerating their retirement, where that opportunity is concentrated, and what it could take to turn theoretical supply into transactions.
Retiring coal early could avoid gigatonnes of emissions, but doing so often creates significant costs for plant owners. Transition credits aim to bridge that gap by creating a new revenue stream linked to verified emissions reductions.
Introduction
Coal plants are likely to operate for decades without additional intervention
Coal remains deeply embedded in the global power system. Coal-fired power is the largest source of CO₂ emissions in the power sector, making accelerated coal phase-out central to the energy transition. The IEA's Net Zero pathway calls for no new unabated coal power generation and accelerated retirement of the existing fleet.
Yet retiring existing coal is a different challenge from slowing new development. Much of the fleet, particularly in Asia, is relatively young: the average coal plant in Southeast Asia is less than 15 years old, leaving many assets with decades of potential operation ahead. Many of these plants are also located in energy markets where financing the energy transition is particularly difficult.
For plant owners, closing these assets early can come at a significant financial cost. Many coal plants in Asia operate under long-term take-or-pay power purchase agreements, while continued operation can provide future revenues, capacity payments and a route to recovering the remaining value of the asset. Bringing retirement forward can therefore create significant costs and contractual challenges for owners while debt and other financial obligations remain.
Closing the plant is also only one part of the transition. Its electricity must be replaced while maintaining a secure and affordable power system, requiring investment in new generation and, potentially, supporting grid infrastructure. Decommissioning and support for affected workers and communities add further costs and complexity. The result is that, even where earlier retirement would avoid substantial emissions, the financial incentives facing asset owners can point in the opposite direction.
That is the challenge transition credits are designed to address: creating value from bringing forward coal retirement and the emissions reductions that result.
Figure 1. Coal plant additions and retirements by installed capacity (GW), World, 2000-2026.
Global coal fleet is growing, with new additions outpacing retirements.
In 2025, renewables overtook coal, ending coal's 100-year dominance of global electricity. However, coal still supplies a third of the world's electricity, and the global coal fleet continues to grow.
Source: Global Energy Monitor (GEM)
In numbers:
Coal is the single largest contributor: accounting for a third of global electricity generation, it produces 70% of power sector emissions and 15.8 gigatonnes of CO₂ every year
Source: IEA
Transition credits could help close part of the financing gap
Bringing forward the retirement of a coal plant can create a gap between the financial value an owner expects from continued operation and the value available from closing the plant early and replacing its generation. Owners may forgo contracted revenues and incur decommissioning costs, while remaining debt and other financial obligations may still need to be met.
Retirement and replacement can also create value. New generation provides a new revenue stream, while moving away from coal can avoid future fuel costs. But these benefits may not fully compensate for the value given up through early retirement and the investment required to replace the plant, leaving a residual value gap that can make earlier closure financially unattractive.
Conventional finance does not necessarily close that gap. Commercial lenders and investors require an economic return, while public and concessional finance can reduce financing costs but may not be sufficient to cover the remaining shortfall. Access to finance can also be constrained by financial institutions' restrictions on financing coal-related activities.
Transition credits are designed to help address this residual gap. Verified emissions reductions from bringing retirement forward can generate credits, creating an additional revenue stream that improves the economics of earlier closure. However, transition credits are not intended to finance the transition alone. They form one part of a wider financing package, alongside the capital required for retirement and replacement generation.
Figure 2. Illustrative example of how transition credits could help to bridge the value gap
Illustrative coal-fired power plant value gap based on a 1,000 MW plant being replaced with renewables by the same asset owner.
Source: The Carbon Trust analysis
How large could the transition credit supply opportunity be?
Estimating potential supply requires an assumption about when plants could credibly close
Estimating the potential supply of transition credits starts with asking: when would a given coal plant have been expected to close under existing conditions? Credits can only be generated from additional emissions reductions that result from bringing retirement forward, ahead of existing policy or technical lifespans, so establishing a credible baseline closure date is fundamental to understanding the potential opportunity.
Our analysis starts with 435 coal plants identified through a high-level eligibility screen. We then compare two scenarios for each plant. Under the Policy Business-as-Usual (BAU) scenario, we estimate retirement based on the earliest applicable economic, contractual, policy or scenario-driven closure date. Under the Accelerated Transition scenario, we ramp up the assumptions for the retirement date to reflect the potential impact of the policy and macro regimes of a transition scenario future. The difference between the two scenarios provides the basis for estimating the emissions reductions that could generate transition credits.
The contrast is significant. Under the Policy BAU scenario, 305 of the 435 plants (70%) reach the end of their useful economic life before closing, while 42 (10%) close in line with national Net Zero commitments and 88 (20%) retire earlier under existing policy conditions. This leaves 80% of eligible plants closing for reasons that generate no creditable abatement – retirement is not brought forward relative to the baseline and therefore does not generate additional emissions reductions. Under the Accelerated Transition scenario, 279 plants move into early retirement, while 115 still operate until the end of their useful economic life (25%), 11 close in line with national Net Zero commitments and 30 follow an announced plant retirement. These scenarios are illustrated in the Sankey diagrams below.
This is an assessment of theoretical potential, not a forecast of expected plant closures or future credit issuance. The modelling applies a simplified version of Verra's VM0052 methodology and assumes full replacement with renewable generation, a 15-year crediting period and a 15% uncertainty range. The scenarios test what could become available if retirement can credibly be accelerated under those assumptions. A number of eligibility criteria were not applied due to data limitations. We expect that a detailed application of all the criteria could sharply reduce the eligible plant pool identified.
Furthermore, passing the high-level eligibility screen used in the analysis does not mean a plant would generate credits. Of the 435 plants identified, only 205 ultimately contribute to the modelled supply profile. This is due to the baseline ensuring that only plants which are retiring earlier than current policy suggests issue credits in the forecast.
Figure 3. Breakdown of plant closure triggers under a policy business-as-usual (BAU) or accelerated transition scenario
Under the Accelerated Transition scenario, 221 more eligible plants retire early than under Policy BAU. Green shading indicates plants which are creditable.
Source: The Carbon Trust analysis
The theoretical supply opportunity is substantial, but concentrated
Under these assumptions, our modelling indicates that transition credit supply could reach around 200 MtCO₂e a year by the early 2040s, with a total of around 2.5 GtCO₂e over the 2029-45 assessment period. Although an issuing cohort of 205 plants appears relatively modest, their resulting emissions impact is substantial.
The opportunity is also highly concentrated geographically. Southern and Southeastern Asia account for more than three quarters of modelled supply over the assessment period, rising to as much as 83% of annual supply by the early 2040s. India represents the largest individual opportunity, accounting for around a third of the total, followed by Viet Nam and Indonesia.
Concentration becomes more pronounced as supply grows. Across the three five-year periods shown below, the share represented by the largest supplying countries increases, with the top countries accounting for an increasing proportion of total volume. Overall, just seven countries account for around 80% of modelled supply.
This concentration has important implications for how the opportunity might develop. It creates a relatively focused set of countries in which targeted engagement could unlock a significant share of potential supply. But it also creates risk – the global supply outlook depends heavily on what happens in a comparatively small number of national power systems and enabling environments. Given energy is a politically sensitive policy area, a political cycle driving unsupportive policy change in a major supply country could potentially take a material share of supply offline.
The scale of the theoretical opportunity therefore tells only part of the story. Whether that supply can ultimately be realised depends on the characteristics of the plants themselves and the conditions in which they operate.
Figure 4. Distribution of forecast transition credit supply
Supply is focused around South and Southeast Asia, with the largest single supply jurisdiction being India followed by Viet Nam, Indonesia and Thailand.
Source: The Carbon Trust analysis using a modified version of the Global Energy Monitor (GEM) coal asset database combined with baseline and transition scenarios. The uncertainty range is 15%.
Figure 5. Top 10 countries’ transition credit supply outlook by 5-year period
Supply becomes increasingly concentrated among the largest supplying countries over time.
Source: The Carbon Trust analysis using a modified version of the Global Energy Monitor (GEM) coal asset database combined with baseline and transition scenarios. The uncertainty range is 15%.
What does the theoretical supply opportunity look like in practice?
Much of the opportunity comes from relatively young plants that still play an active role in power systems
The theoretical supply opportunity is not primarily a pool of old, lightly used coal plants approaching the end of their lives. Around 86% of modelled credit supply comes from plants built since 2000, including 36% from plants built between 2010 and 2015. This means that realising a large share of the opportunity would require bringing forward the retirement of assets that may otherwise have many years of operation remaining.
The same pattern is evident in the role these plants play in their electricity systems. Baseload and mid-merit plants account for 91% of forecast supply, compared with a relatively small contribution from reserve and flexible plants. There is therefore limited scope to unlock significant volumes simply by retiring peripheral assets. In many cases, early retirement means replacing generation that is actively serving the grid, making adequate replacement capacity, and the approvals, construction and grid connections needed to deliver it, a central dependency.
Scale adds a further dimension. Plants above 700 MW account for 71% of forecast supply, while plants of 300 MW or less contribute only 7%. Smaller plants may offer more manageable entry points for early transactions, but achieving material scale would ultimately require retirement and replacement of much larger assets.
Taken together, this makes the theoretical opportunity more challenging than its headline size suggests. The largest volumes depend on successfully retiring relatively young, operationally important plants and replacing their electricity-system role. Plant age, size and role therefore matter alongside credit volume when assessing which opportunities are realistically actionable.
Figure 6. Per plant credit supply vs. plant age, classified by plant size (installed capacity), policy context and sub-region
Bubble size represents modelled transition credit supply per plant. The distribution illustrates that significant potential sits in relatively young and large plants, rather than being concentrated only in older assets approaching retirement. Shape denotes policy strength: ☐ Weak policy, ◯ Emerging policy, △ Strong policy.
Source: The Carbon Trust analysis using a modified version of the Global Energy Monitor (GEM) coal asset database combined with baseline and transition scenarios. The uncertainty range is 15%.
The largest credit opportunities require bringing retirement forward substantially
The scale of the challenge becomes clearer when we consider how far retirement would need to be accelerated. Several of the larger opportunities identified in our modelling combine around 20-25 years remaining until baseline retirement with an acceleration of 15-22 years. Realising these volumes would therefore mean bringing forward closure by well over a decade, rather than simply accelerating the retirement of plants already approaching the end of their expected lives.
That has important implications for asset owners. Forgoing many years of expected operation can mean changing or forgoing future revenues and value associated with existing contractual arrangements. Earlier retirement may therefore require owner compensation and potentially substantial contractual restructuring, alongside the wider financing needed to support the transition.
The implied timetable can also be demanding. For several sizeable opportunities, the combination of remaining operating life and acceleration would bring retirement to within roughly five to ten years. Replacement capacity, financing and the necessary approvals would therefore need to come together within a relatively short period.
Importantly, the relationship is not uniform across plants. Assets with similar remaining operating lives and acceleration requirements can generate very different volumes of credits. Identifying the most actionable opportunities will therefore require plant- and grid-level assessments, rather than assuming that the longest or most accelerated retirements necessarily offer the greatest potential.
Figure 7. Per plant years remaining to baseline retirement vs. years of acceleration
Several large-volume opportunities require retirement to be brought forward by 15-22 years.
Source: The Carbon Trust analysis using a modified version of the Global Energy Monitor (GEM) coal asset database combined with baseline and transition scenarios. The uncertainty range is 15%.
Large volumes cannot simply be unlocked by retiring lightly used plants
Bringing retirement forward also needs to account for the role each plant plays in the power system. Large volumes of transition credits cannot simply be unlocked by targeting lightly used assets: none of the plants in our analysis combines low utilisation with high credit supply, while every opportunity above 60 MtCO₂e operates at a capacity factor of between 50% and 70%.
This relationship is partly structural. A plant that generates more electricity also produces more emissions, increasing the potential emissions reductions available from bringing its retirement forward. As a result, some of the largest credit opportunities are associated with plants that are still generating substantial amounts of electricity. This highlights a central technical challenge in realising these opportunities; low carbon replacement capacity needs to be delivered at sufficient scale, while maintaining a secure power system.
At the same time, the largest opportunities are not necessarily the most intensively used plants. High-volume opportunities cluster around capacity factors of 50-70%, rather than above 80%. This suggests there may be scope to target substantial volumes without starting with the most heavily utilised plants, although lower utilisation does not necessarily mean a plant is straightforward to remove, some may still provide important peak or local reliability services.
More than 90% of forecast supply comes from baseload and mid-merit plants, reinforcing the scale of the replacement challenge. Retiring these plants means replacing not only their electricity output but potentially their wider role in the power system (ancillary services). VM0052 reflects this by requiring confirmation that retirement will not adversely affect security of supply, grid stability or electricity affordability. The pace at which replacement generation and supporting grid infrastructure can be delivered is therefore fundamental to how much theoretical transition credit supply can ultimately be realised, and how quickly.
Figure 8. Per plant credit supply vs. capacity factor, sized by capacity and coloured by sub-region
The largest modelled opportunities are not lightly used plants; high-volume opportunities operate at material capacity factors.
Source: The Carbon Trust analysis using a modified version of the Global Energy Monitor (GEM) coal asset database combined with baseline and transition scenarios. The uncertainty range is 15%.
Much of the opportunity also sits in challenging policy environments
The plants with the greatest technical potential are not necessarily located in the countries where early retirement will be easiest to deliver. Much of the modelled supply sits in power systems where coal remains deeply embedded in national energy policy and domestic energy supply.
Around 71% of modelled transition-credit supply comes from countries that have no national coal phase-out commitment and significant domestic coal reserves. By contrast, only 6% comes from countries that combine a coal phase-out commitment with what we classify as a strong policy environment. A further 18% sits in phase-out countries where the wider policy environment is still emerging.
This matters because plant-level factors are only one part of the retirement decision. Where countries have domestic coal resources and no agreed phase-out timetable, governments may have strong reasons to maintain coal generation, including concerns around energy security and dependence on imported fuels, and will maintain policy environments to support this. Under these conditions, the challenge is not simply to make an individual plant retirement financially attractive. It is also to establish a credible pathway for replacing the plant within the wider power system and securing the support of governments, asset owners, utilities and regulators.
The challenge is particularly visible in some of the markets with the largest modelled supply.
India represents the largest single supply opportunity in our analysis, but has no formal coal phase-out timeline. Indonesia has attracted significant international transition-finance commitments, yet progress in converting these into coal-retirement transactions has been difficult. Viet Nam offers a different picture, with a more supportive policy direction but theoretical supply concentrated in a relatively small number of young plants.
This concentration is both a constraint and an opportunity for transition credits. Limited existing phase-out policy can make early retirement harder to secure, and creates a risk that coal plants continue operating for longer. But it also means that well-designed transition-credit transactions could help enable earlier retirement in markets where existing policy alone may not otherwise bring retirement forward. Scaling the market will therefore require engagement with precisely these more challenging countries, rather than relying only on the smaller pool of opportunities in already supportive policy environments.
Even then, policy support alone will not be sufficient. Retirement must be compatible with security of supply, grid stability and electricity affordability; replacement generation needs to be financed and connected in time; workers and communities affected by the transition need to be supported; and the remaining financing requirement must be met alongside credit revenues. These considerations are reflected in emerging transition-credit methodologies, for example, VM0052 requires a funded just transition plan. Transition credits should therefore be viewed as one component of a wider coal-transition package, rather than a standalone mechanism.
Figure 9. Supply concentration by country and policy context
71% of modelled supply comes from countries without a national coal phase-out commitment and with significant domestic coal reserves.
Source: The Carbon Trust analysis using a modified version of the Global Energy Monitor (GEM) coal asset database combined with baseline and transition scenarios. The uncertainty range is 15%.
Takeaways
What would be needed to turn theoretical supply into real volume?
Our analysis points to a substantial potential supply of transition credits, but converting that potential into transactions will require several conditions to come together. The challenge is not simply to identify plants with large emissions reduction potential, plant transitions will need to work for asset owners, power systems, governments, financiers and affected communities at the same time. Transition credits could help address part of the financing gap, but the necessary technical, economic, policy and social conditions will need to align before a viable transaction can proceed.
Asset-owner participation and viable economics
Plant owners need to be willing to pursue early retirement and replacement, and the overall proposition needs to be financially viable relative to continued operation. This may require restructuring existing contracts and addressing remaining financial obligations, alongside capturing the value created by replacement generation. Transition-credit revenues can help improve those economics and create an additional incentive for earlier retirement.
Replacement power and grid planning
More than 90% of modelled supply comes from baseload and mid-merit plants. Replacing substantial volumes of actively used generation without compromising security of supply, grid stability or affordability will require replacement generation and supporting infrastructure to be developed in step with retirement.
Host-country support
Much of the opportunity sits in countries without national coal phase-out commitments, including countries with significant domestic coal resources. Developing transactions in these markets will require engagement to shift the policy pathway and alignment between governments, plant owners, utilities and regulators.
A wider financing package
Transition credits are intended to help address the value gap associated with earlier retirement, rather than finance the transition alone. Commercial, public and concessional capital will therefore need to combine with credit revenues to finance retirement, replacement generation and the wider transition.
Buyer demand and offtake
Ultimately, transactions also need buyers willing to purchase credits at the right time and at a price that supports viability. Demand pathways for transition credits remain uncertain, and long-term procurement commitments are still emerging. Developing credible supply will therefore need to happen alongside efforts to build buyer confidence and provide greater certainty over future demand.
The scale of theoretical supply should not be confused with the scale of the near-term transaction pipeline.
Transition credits can create additional value for earlier coal retirement, but cannot on their own resolve the commercial, technical and policy conditions that keep coal plants operating. Progress will depend on identifying the subset of plants where these conditions can credibly be brought together and turning them into a vanguard of investable retirement and replacement transactions.
Those transactions will ultimately need demand. Understanding how that demand could develop, and what could stimulate it at scale, is therefore the next part of the transition-credit market challenge. This question, moving from supply opportunity to a view of market viability, is covered in a subsequent report to be released shortly.
Notes:
1 2024 is the latest year of fully available IEA and UNEP data. UNEP Emissions Gap Report 2024 - Total Global GHG emissions in 2023 of 57.1 GtCO2e. IEA WEO 2024 - Coal is 30% of energy related emissions (11.3 GtCO2), which totalled 37.8 GtCO2 in 2024. Energy sector is therefore 66% of global emissions. 30% of 66% is ~19.9%.
2 'Since the technical lifetime of a coal plant is typically 40 to 50 years, many plants potentially have decades of operation ahead.' - World Energy Outlook 2024 - IEA
