Malaysia must address its excess carbon emissions — rooted in entrenched fossil fuel reliance across power generation, transport and heavy industry — and accelerate decarbonisation across all sectors to meet its 2050 net zero target.

Other than increasing the penetration of renewable energy, electric vehicles and other solutions to reduce carbon emissions, there is also a need for investments in natural and technological carbon sinks, such as carbon capture, utilisation and storage (CCUS), say several industry observers ESG spoke to. This is alongside mechanisms for compensation, such as high-quality carbon markets.

In this regard, Malaysia has passed the CCUS Bill, which seeks to regulate and promote CCUS technologies. Globally, CCUS will deliver nearly 15% of cumulative emission reductions by 2070, according to the International Energy Agency’s (IEA) Sustainable Development Scenario.

In fact, IEA head Fatih Birol says, “Without CCUS, our energy and climate goals will become virtually impossible to reach.”

On the carbon market side, Malaysia is currently operating its voluntary market through the Bursa Carbon Exchange (BCX), while exploring a carbon tax and emissions trading scheme to establish a compliance framework.

BCX is a shariah-compliant multi-environmental product exchange that facilitates the trading of carbon credits and renewable energy certificates via standardised contracts.

The role of CCUS and carbon credits in the global transition has often been scrutinised, amid concerns that entities may lean on these mechanisms as substitutes for deep decarbonisation — and that, without proper safeguards, they could cause harm to surrounding environments and communities.

However, some industry observers believe that carbon markets are critical, because the shift to net zero cannot happen overnight and the funding is needed for the transition. The ultimate goal is to incentivise firms to cut their own emissions, and channel funds into carbon reduction projects or into nature-based solutions such as reforestation and peatland restoration.

ESG spoke to several industry observers on what Malaysia should do in these areas to ensure it can truly achieve net zero emissions and decarbonise its industries.