Carbon registry Verra has launched a new rulebook for generating carbon credits from the early phase-out of coal power plants that are replaced with cleaner energy sources.

Carbon credit projects using the methodology will aim to monetise emissions avoided through the retirements of plants ahead of schedule. The sale of offsets will help compensate coal plant owners for the money they miss out on by not keeping the plants running and selling the electricity and offer a new financial incentive for operators, according to the backers of the scheme.

While no such carbon-offset funded closures currently exist, the US-based philanthropy Rockefeller Foundation – which led the development of the rulebook – hopes to sign up 60 coal power plants to the scheme by 2030.

Joseph Curtin, managing director for power and climate at The Rockefeller Foundation, said that “we are closer than ever to unlocking new benefits to people with credits that will help communities transition to clean, affordable energy”.

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But some climate experts have raised doubts over the suitability of tapping into carbon markets to fund the transition from coal and over the integrity of the carbon credits generated.

The methodology does not require project developers to replace all the coal power generating capacity retired and gives them the option of switching to biomass, which has been criticised for its potential negative climate and environmental impact.

Will O’Sullivan, policy advisor at E3G, said that offsets may play a role in finding the money to phase out coal power globally by 2040 but they’re unlikely to be “a silver bullet for an issue that’s fundamentally political”.

“Credits also rest on accurately predicting future emissions, a question this methodology does not fully address,” he added.

‘Just transition’ plans

The scheme’s supporters say the projects will put in place clear safeguards for people affected by the switch away from coal power.

Mandy Rambharos used to work for South African electricity company Eskom, leading its work transitioning away from coal power. Now Verra’s CEO, she said the methodology “empowers energy providers to make that shift in a way that doesn’t leave workers or communities behind and doesn’t inadvertently exacerbate energy poverty”.

Project developers will have to submit a plan for a ‘just transition’ detailing, for example, how coal workers will be offered compensation, training or new job opportunities.

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But money for these activities will not come from the carbon market. Project developers will instead need to find other funders – including governments, philanthropies or private or public banks – willing to provide grants or loans equal to at least 2% of the revenue expected from the sale of carbon credits issued by the project.

A spokesperson for Verra said this approach ensures that funding is in place “when it is needed” in the planning and implementation stages and is not subject to changing market values for the carbon credits.

Faltering coal phaseout

Coal remains the leading source of electricity generation and the biggest single contributor to carbon dioxide (CO2) emissions globally with most coal-fired power plants in China.

But no electricity should be produced from unabated coal power plants by 2040 if the world is to meet the Paris Agreement goal of limiting global warming to under 1.5C, according to the International Energy Agency (IEA).

Starting from 2021, some coal-reliant nations – Indonesia, Vietnam and South Africa – have been involved in multi-billion-dollar Just Energy Transition Partnerships (JETPs) with rich nations in an attempt to accelerate their shift towards cleaner energy sources.

But the programmes have faced multiple challenges delaying their implementation. The latest setback came in March 2025 when US President Donald Trump pulled American support for the initiative.

Carbon credits have long been touted as a potential alternative source of funding for the costly coal switch-off, but the idea has never been tested.

Climate and environmental concerns

Environmental groups previously raised concerns over the use of offsetting mechanisms to finance the retirement of coal plants. They claimed that uncertainties in the calculation of the emission reductions risk generating an excessive number of credits that could ultimately undermine global climate ambition.

A New Climate Institute report last year said it is difficult to predict how long – and at what intensity – coal plants would have kept running for if they had not shut down early by carbon offset sellers.

Verra’s new methodology will apply to grid-connected coal power plants that began construction before the end of 2021 and are locked into a long-term purchase agreement for the electricity produced.

The projects need to pair the phased-out coal capacity with new renewable energy, replacing at least 40% of the generating capacity displaced. That could mean, for example, putting solar panels on the same site of the coal plant or buying renewable electricity from other operators on the market.

“To ensure the highest integrity, beneficiaries of the credits should be able to prove that renewables have directly and incontrovertibly replaced lost coal capacity, rather than being incidental to the replacement”, said E3G’s O’Sullivan.

The methodology offers a list of power sources including solar, wind and hydro, but also biomass power plants which produce energy by burning wood, crops or organic waste.

In certain cases, biomass plants can produce more carbon dioxide (CO2) emissions per unit of energy than coal plants because fuel like wood needs to be burned in higher volumes, according to separate research by Ember and the US-based Partnership for Policy Integrity.

Rockefeller Foundation is working with partners on a first pilot project based on the methodology that would see the closure of the South Luzon coal power plant in the Philippines ten years ahead of its planned closure, replacing it with solar and wind power combined with battery storage.

The project could avoid up to 19 million tons of carbon dioxide (CO2) emissions – similar to one year’s emissions from the whole of Ghana – according to an assessment commissioned by the Rockefeller Foundation and ACEN, the plant’s operator.

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First carbon credit scheme for early coal plant closures unveiled