Although the MHI deal is relatively small in size, we believe it is an important one to observe as a starting point for transition bond issuance by the Japanese sovereign. In this deal, we question the transitional value of ammonia co-firing as a use-of-proceeds, considering that Scope 3 upstream emissions (CO2 from the production of the ammonia) seem to go unaccounted for.
There are many competing uses for green ammonia, some of them in harder-to-abate products and technologies, such as fertiliser and shipping, generating a potentially high risk that the ammonia sourced for co-firing will not actually be green, especially if the upstream emissions are not calculated.
We think investors should pair such risks with the lock-in effects from spending capex that prolongs the life of the coal plants where the ammonia will be co-fired. Finally, we note some translation inaccuracies: "coal-fired power" does not equal "steam power". Such wording adjustments in different language versions of the transition bond second party opinion (SPO) is not conducive to the credibility of the transition plan.