A World First: Carbon finance can now fund the phase-out of fossil fuel generators

This is a Press Release by Gold Standard, shared by illuminem, to update the global sustainability community with the latest relevant updates.

First methodology to support just transition away from fossil  fuel generators launched by Gold Standard and Sustainable Energy for All

The Joined-up Sustainable Transition (JUST): Fossil Fuel Generators methodology enables activities to generate carbon finance by replacing fossil fuel generators with renewable energy solutions. Revenues from carbon credits can help finance clean power deployment while supporting workers, communities and local economies through the transition. This approach helps address a key barrier to early fossil fuel phase-out: the upfront cost of deploying clean energy alternatives while ensuring energy access and economic stability as fossil fuel generators are phased out. 

Margaret Kim, Chief Executive Officer of Gold Standard, said:

"Across many emerging markets, communities and businesses rely on fossil fuel generators  because cleaner alternatives remain difficult to finance. As the first carbon market methodology designed to support a just transition at this dispersed scale, it helps make carbon finance accessible to those who need it most, unlocking investment to replace fossil generators with renewable energy while maintaining reliable electricity and supporting local economies."

Damilola Ogunbiyi, CEO and Special Representative of the UN Secretary-General for Sustainable Energy for All, said: 

“Displacing fossil fuel generators is essential for ensuring energy security, supporting economic development and achieving net-zero emissions targets. This new Sustainable Energy for All (SEforALL) and Gold Standard methodology will go a long way in mobilizing climate finance, and catalysing the energy transition across the world, particularly in developing countries still heavily reliant on these polluting sources of energy.'” 

The methodology is the first in the carbon market designed specifically for small-scale, distributed energy systems, where millions rely on fossil fuel generators due to unreliable or unavailable grid electricity. 

Across developing and emerging economies, diesel generators form a widespread “shadow grid,” with an estimated 350–500 gigawatts in operation. While essential, they are costly and polluting, with businesses losing an estimated $82 billion annually due to unreliable electricity and reliance on backup generation.  

Insights from SEforALL’s Beyond Gensets: Advancing the Energy Transition in Lagos State report  further highlight the critical role of replacing fossil fuel generators in achieving a just energy transition. 

On 12 March 2026, Gold Standard also published its JUST: Coal Decommissioning methodology, which enables carbon finance to support the early retirement of coal-fired power plants when they are replaced with renewable energy. Together, the two methodologies now provide frameworks to support fossil fuel phase-out across the full spectrum of electricity generation – from large grid-scale coal plants to smaller distributed generators. 

Activities using the methodology must demonstrate verified decommissioning and  replacement of fossil fuel generators, ensure continued energy reliability and meet strict  safeguards to prevent over-crediting and emissions leakage. The framework also includes mandatory Just Transition safeguards to support workers and communities as energy systems  shift to cleaner alternatives. 

Gold Standard and SEforALL will convene a webinar to introduce the methodology and support project developers in putting it into practice, with further details to be shared soon.

Background for the reader:

How carbon finance supports the transition 

Projects applying the fossil fuel generators methodology can issue carbon credits for verified emissions reductions achieved by replacing fossil fuel generators with renewable energy systems. 

Companies and organisations that purchase these credits help finance the transition by providing a revenue stream that supports:

• installation of renewable energy systems 
• replacement of existing fossil fuel generators
• maintaining reliable electricity services
• investment in community benefits and local economic development

Beyond Coal: Expanding Transition Credits to Dispersed Energy Solutions for a Just Future 

Gold Standard previously examined the scale and impacts of this “shadow grid” in its report Beyond Coal: Expanding Transition Credits to Dispersed Energy Solutions for a Just  Future, which highlights the significant economic, health and development benefits that could  be achieved by replacing fossil fuel generators with clean energy systems. 

Methodology Application Benefits: 

Simplified Registration for High-Barrier Regions 

• Projects in regions with significant development challenges can bypass complex and costly financial proofs. The methodology includes a "Positive List" where activities are automatically deemed additional if located in a Least Developed Country (LDC) or a Small Island Developing State (SIDS). This also extends to Lower-Middle-Income  Countries in "Special Underdeveloped Zones" (electrification rates below 20%), reducing the administrative burden for developers. 

• With 70% of the least electrified nations still below the 20% access threshold,  the methodology provides the fast-track registration needed to bridge the gap in Sub Saharan Africa. 

• This methodology provides a fast-track for regions like Lagos, Nigeria, where 80% of energy demand is currently met by fossil fuel gensets due to grid deficits. 

Strategic Alignment with National Climate Goals (NDCs) 

• The methodology features built-in support for the Paris Agreement. By applying a Downward Adjustment Factor (DAF) to the baseline, the methodology ensures that  a portion of the total mitigation directly contributes to the host country’s Nationally Determined Contributions (NDCs). This allows the project to support national climate targets without those specific reductions being claimed as carbon credits, facilitating easier government approval. 

• This facilitates easier government approval in countries like Nigeria, which has a clear Energy Transition Plan but currently sees 70% of its power sector emissions coming  from fossil fuel generators. 

Accessible Pathways for Small-Scale Projects 

• Small projects often struggle with the high cost of proving financial viability. This methodology addresses this by allowing a "Barrier Analysis" instead of a complex  investment analysis. Developers only need to document significant local hurdles, as high upfront capital costs, lack of access to affordable financing, or a scarcity of local technical expertise, rather than providing years of detailed financial spreadsheets.

• SEforALL identified that 8 out of 10 people without power live in rural areas. This pathway makes it viable for small developers to reach these remote markets where traditional financing is scarce. 

Scalable Implementation for Distributed Assets 

• To ensure community-led projects remain viable, the methodology supports Programmes of Activities (PoAs). This allows developers to "bundle" hundreds of tiny installations (like solar kits for households or shops) into a single registration to spread out auditing costs. It also permits statistically robust sampling to verify the decommissioning of old generators, making it logistically possible to manage thousands of distributed sites. 

• In cities like Lagos, where 80% of demand is met by self-generation, this allows for the mass-displacement of generators across entire neighbourhoods at scale. 

Commitment to a Just Transition (JUST) 

• Beyond carbon savings, the methodology mandates a "Joined Up Sustainable Transition" to ensure that moving away from fossil fuels benefits the local community. Projects must comply with requirements to support those economically affected by the transition, such as local workers or small-scale fuel vendors. This ensures the shift to clean energy is inclusive and provides long-term socio-economic stability. 

• In the African context, decentralised fossil fuel networks support informal jobs. Projects must provide a plan to support those economically affected neighbourhoods where the "generator economy" is a primary source of income. 

Health & Air Quality 

• Replacing fossil fuel generators removes toxic pollutants from the air people breathe every day. Using the methodology’s voluntary annex, projects can quantify the reduction in Black Carbon and PM2.5. This provides an improvement in respiratory health for families and local shop owners who live and work near their power sources.