This article first appeared in The Edge Malaysia Weekly on May 16, 2022 - May 22, 2022
Globally, governments and businesses are pursuing their own paths to achieve their net-zero goals. Many countries aim to reach net zero by 2050, including Malaysia.
But here’s a problem: details on many of these plans are scarce. This was highlighted in the United Nations Environment Programme’s (UNEP) report last October, which described current net-zero promises as “vague” and inconsistent with most 2030 national climate commitments.
In addition, the non-profit Energy & Climate Intelligence Unit, which supports informed debate on energy and climate change issues in the UK, assessed net-zero targets of 4,000 countries, cities and companies last year. It found that only 20% meet the minimum criteria for robustness set out by the United Nations’ Race to Zero Campaign. The use of carbon offsets without firm conditions and lack of specifics on short-term actions were major problems.
If all the net-zero pledges of countries are fully implemented, however, it could reduce the predicted global temperature rise to 2.2°C, according to the UNEP.
Minister in the Prime Minister’s Department Datuk Seri Mustapa Mohamed has said that a net-zero carbon framework, which details how Malaysia plans to reach its goal, may be released later this year.
Regardless of what strategy Malaysia chooses to adopt, it will have implications for Malaysian businesses. For effective implementation, the government needs collaboration from the private sector, which would ideally align its net-zero strategies with the national direction. Consequently, consultation between the two stakeholders is crucial.
Some industry leaders in Malaysia have taken it upon themselves to carry out this task. The CEO Action Network (CAN), an informal network of CEOs and board members from 56 leading businesses, and Climate Governance Malaysia (CGM), a network of non-executive directors, organised 14 roundtable sessions with industry players on this topic last year.
The sessions were attended by industry leaders from four sectors: energy, plantation, property and telecommunications. They also engaged with government agencies, including the Ministry of Environment and Water, in the process.
A report on the proceedings of the roundtable sessions was released in late April. In it are recommendations from each sector on how industry players can reach their own — and the country’s — net-zero goals, and how the government can assist in these efforts. The roundtable sessions for 2022 were also launched last month.
“These conversations recognise that we need a whole-of-society approach. No one group can resolve this. We need to widen and deepen the conversation through more roundtable sessions by reaching out to other economic sectors and key stakeholders, such as the states and cities, youth and the Orang Asli,” says Datin Seri Sunita Rajakumar, founder of CGM.
According to Malaysia’s biennial update report to the UN in 2020, the major sources of greenhouse gas emissions (GHG) in Malaysia (as at 2016) are from the energy sector (including transport), followed by industrial processes and product use and waste. Over 70% of the emissions are removed by forest land remaining forest land and other land use-related activities.
This means that net-zero strategies will have to tackle these major emissions sources while protecting forests.
Consequently, several of the recommendations from the sessions revolved around increasing the penetration of renewable energy, incentivising the use of low-carbon materials and conserving forests. Several also called for mandatory carbon accounting or an increase in the capacity for measuring GHG emissions.
The report does not seek to provide a consensus on the pathways to net zero but instead, creates a platform for dialogue and crowdsourcing for local solutions, says Sunita.
One of the high-level findings in the report is the importance of access to open and timely data. The industry players also urged the government to provide the right policy signals to lead the way.
Another key message is that businesses are ready to step up. A few of the sectors, for instance, called for the implementation of carbon pricing to incentivise the take-up of low-carbon solutions.
“Every segment of our society and economy will need to step up to meet the very real risks and opportunities which we face today. Concurrently, governmental support by way of policies and incentives are crucial in facilitating this journey,” says Sunita.
“When government policy is explicit and relatively predictable, then we can rely on the private sector to act accordingly to enable a smooth transition for the businesses and public alike.”
Regulations, incentives and improved governance were the main focus of the recommendations from the property and construction sector. These have to be introduced to reduce energy consumption, waste and carbon emissions from the materials used in construction.
According to Malaysia’s biennial update report to the United Nations in 2020, the manufacturing and construction sector was the third biggest contributor of carbon dioxide emissions in 2016.
It is also responsible for 50% of final energy use (excluding industrial buildings), say the sector representatives from the roundtable in an email reply to ESG. “Considering these factors, key areas of focus in the sector for lowering carbon emissions are energy efficiency, renewable energy, low-carbon building materials and waste minimisation.”
The secretariats for the sector’s sessions are green building certification body Green Real Estate and Sime Darby Property Bhd. The Ministry of Housing and Local Government, two federal agencies, two non-governmental organisations and 13 associations, including the Real Estate and Housing Developers Association and Master Builders Association Malaysia, were engaged in the sessions.
“The country’s (net zero) plan will likely take time to implement and may likely be quicker to be implemented if it is clear which ministry will be the focal point for driving the carbon neutral (goal),” they say.
Some of the recommendations include enacting the Energy Efficiency and Conservation Act (EECA), making green building certification mandatory with appropriate incentives, reinstating the net energy metering incentive for solar power installation, and implementing staged grid reforms to allow for distributed power generation.
In addition, they called for the replacement of concrete with green cement, which is made available at competitive rates, and the introduction of incentives for Industrialised Building Systems (IBS). IBS enables construction with less waste and more accuracy.
The sector representatives hope that any regulations that arise will be implemented across all types of businesses to even the playing field.
In the plantation sector roundtable sessions, many recommendations revolved around the generation of bio-based renewable energy and the efficient use of natural resources.
This is because the sector is a big contributor of methane due to the treatment and discharge of palm oil mill effluent (POME). In addition, the sector produces a lot of biomass waste. Both of these can be used to generate energy, which then reduces the carbon emissions from electricity generation.
“Methane from POME typically accounts for 60% to 70% of a plantation group’s carbon dioxide equivalent annual emissions. It’s one of the more harmful greenhouse gases,” says Datuk Henry Sackville Barlow, independent non-executive director of Sime Darby Plantation Bhd (SDP) and chairman of the company’s sustainability committee. SDP, IOI Corp Bhd, Musim Mas Group and six other organisations and individuals took part in the roundtable sessions.
“Methane capture is done economically in larger mills and used for power generation, but it appears less economical for smaller mills currently. I would suggest the government offer a time-limited scheme where favourable depreciation rates are applied over a few years to encourage plantation groups to eliminate methane emissions from POME,” says Barlow.
At the end of the scheme, the government should introduce an annually increasing tax targeting methane emissions, he adds.
All new palm oil mills from 2014 are already required to install biogas trapping or methane avoidance facilities. According to Malaysia’s biennial update report to the United Nations in 2020, out of 454 palm oil mills, 104 had such facilities in 2017.
“The plantation industry has got to pull its socks up really quickly. There’s a sense that the industry is tending to drag its feet on all this. Now is a time when we have enormously high profits due to the high palm oil prices. There’s no excuse for the industry not to [use this chance] to put things in order. We’ve got a long way to go,” says Barlow.
The use of biomass to generate electricity is something that Barlow believes can be extended beyond the sector.
“There might be a case for the industry to work with Tenaga Nasional Bhd and accumulate (surplus organic waste) at a regional centre to generate electricity from renewable sources. That’s something the government ought to look at,” says Barlow.
Other sources of greenhouse gas emissions for the sector are electricity, transport, usage of fertilisers and historical deforestation.
The industry players also suggested the introduction of carbon pricing and improving carbon accounting practices among companies, in light of carbon pricing mechanisms introduced by other countries.
The government must lead these initiatives, Barlow adds. “I think there is increasing pressure on the government to take decisive steps and interact more actively with the plantation sector.”
Oil palm plantation companies have been accused of deforestation, draining peatlands and illegal burning over the years, resulting in boycott campaigns. Even if the major plantation companies have zero burning, no deforestation, no peat and no exploitation policies, it can be challenging to monitor the effectiveness of these actions down the supply chain.
With such a context, will investors or consumers trust in these companies’ net-zero targets?
“I think one of the ways the industry can improve its image is to ensure all crude palm oil-related products are produced sustainably,” Barlow suggests. All Malaysian palm oil companies have had to comply with the Malaysian Sustainable Palm Oil (MSPO) standards since 2020, but the industry could go a step further and adhere to the stricter Roundtable on Sustainable Palm Oil standards, he adds.
“I think the government can also start applying pressure to insist that no banking facilities are offered to any plantation company that is not, at the very least, MSPO-compliant. This kind of arrangement should also be extended to the central bank authorities in Singapore and Indonesia.”
Last December, Boston Consulting Group (BCG) and World Wildlife Fund-Malaysia (WWF) launched a report exploring the various pathways Malaysia could take on its path to net zero.
The report illustrates several scenarios. With the current trajectory of stated plans, the net-zero goal will not be achieved as absolute emissions continue to rise. The low-carbon ambition pathway models the phasing out of coal instead of following through with the medium-term power development plan, which involves the building of coal plants in the 2030s. In this case, net zero can be reached by at least 2058.
To achieve net zero in 2050, there may be a need for carbon removal technology like carbon capture and storage (CCS).
“Achieving net zero emissions by 2050 is technically feasible for Malaysia given the current technology outlook. The country has a strong starting position, given its extensive forest cover and access to various sources of cost-competitive renewable energy, for example. Moreover, there is large potential for the country to also benefit from the jobs and growth created by new green industries,” says Joel Kwong, partner at BCG.
“There will need to be widespread sectoral transformation, timely reskilling and transitioning of the workforce from brown to green industries and mobilising of siginificant climate financing.”
However, CCS technologies are currently very expensive. Kwong acknowledges that it is challenging without some level of carbon pricing, although the costs of CCS are rapidly declining with increased investments. “Malaysia has some natural advantages in that area because we have some depleted oil fields and saline aquifers, which are ideal storage locations for carbon dioxide.”
The report also highlights 10 net-zero priorities for Malaysia. These include protecting the country’s natural assets and carbon sinks, decarbonising the energy sector, accelerating low-carbon transport and pricing carbon.
While there are policies currently in place to promote these trends, news of deforestation is often reported, and the national energy mix comprises more natural gas than renewable energy in the next decade. Many highways are being built even as public transport networks are expanded.
Is Malaysia on the right path to net zero? Kwong says achieving net zero has to be balanced with other goals in Malaysia, such as economic development and energy security.
“For example, natural gas is not a zero-emissions power source, but it has an important role to play as a transition fuel in the power sector, as it enables decarbonisation from coal-fired power while providing grid stability and effective demand response. This cannot be provided by intermittent sources of renewable energy such as solar power.”
On the other hand, to avoid “net zero” being used as a greenwashing tool, standards, safeguards and verification bodies are very important, in Kwong’s view.
“Initiatives like the science-based targets initiative are extremely critical, for instance, because they create a common standard that enables the differentiation between efforts that truly contribute to decarbonisation and corporate greenwashing. It is critical that these standards continue to mature and develop, in addition to other safeguards to ensure that real decarbonisation is achieved in the economy,” says Kwong.
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