This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

The launch of “Mobilising Investments for Clean Energy in Malaysia: Community Report” is an important milestone not only for sovereign fund Khazanah Nasional Bhd’s framework for its own investment strategies, given its significance across the government-linked investment company (GLIC)/government-linked company (GLC) sphere, but also serves as a guide for others as well.

This report aligns Khazanah with the green transition outlined in the series of policy documents released by the unity government led by Prime Minister Datuk Seri Anwar Ibrahim in recent months, including the Ekonomi Madani Framework, National Energy Transition Roadmap (NETR), New Industrial Master Plan 2030 (NIMP 2030) and the Mid-Term Review of the 12th Malaysia Plan.

In the recently launched NIMP 2030, the government has adopted a “mission-based” approach instead of a sectoral approach. The idea of a “mission economy” was popularised by London-based Italian-born economist Mariana Mazzucato. Her core ideas are that the public sector is not just the last resort rescuer in the case of a market failure, instead private investments should be steered towards some form of public purpose “moonshots”, which in turn generate society-wide benefits.

In other words, it is alright to make money but profits should be made on innovations that solve common societal problems, and not just rent-seeking or profit maximisation without benefiting society.

The NIMP outlines four missions: (i) increasing the complexities of our economy and industries; (ii) “tech-up”, which means more automation, digitalisation and adoption of technologies; (iii) push for net zero; and (iv) economic inclusivity and security. These missions are not mutually exclusive and efforts should be made to achieve them simultaneously.

This Khazanah-World Economic Forum report is exactly the sort of mission-based approach to mobilise capital to solve societal problems.

I am particularly honoured and glad to have launched the report as I have been trying to impress upon various stakeholders that the green transition is not necessarily a burden but an investment opportunity. Green transition means green businesses and green jobs.

Take Sabah. The state doesn’t have sufficient energy for household use, not to mention industrial usage. However, its energy profile is also peculiarly interesting: no coal is used in the generation of electricity. When everyone else needs to go through the painful process of transitioning away from coal, Sabah is ahead.

The Malaysian Investment Development Authority (Mida) and I have been working with Sabah Finance Minister Datuk Seri Masidi Manjun and State Industrial Development and Entrepreneurship Minister Phoong Jin Zhe to put forward a “leapfrog” plan. Lagging states and regions are usually told to “catch up”. But development is a moving subject, “catching up” often means being forever a latecomer. Leapfrog carries a different connotation in that at some point, the latecomer can jump ahead.

Without coal in its energy mix, Sabah is unwittingly ahead of others. What is needed now is massive investment in renewable energy  to fulfil its households’ energy needs and carefully planned industrial usage. If indeed those investments in RE could be mobilised, Sabah will be able to leapfrog.

This 23-page “country deep dive” report is part of a World Economic Forum series, which its CEO Jeremy Jurgen told me is the second in Southeast Asia after Indonesia, and one of five throughout the world. The publication is a collaboration of Khazanah, Khazanah Research Institute and Accenture.

Malaysia aims to achieve net zero greenhouse gas emissions as early as 2050 and to reduce the GHG emissions intensity of its gross domestic product (GDP) by 45% by 2030 relative to 2005 levels. This report attempts to “surface key challenges and solutions for Malaysia to attract clean energy finance at the scale and pace needed to realise its ambition”.

A working group that included both public and private sector actors, including the Ministry of Natural Resources, Environment and Climate Change, Petroliam Nasional Bhd and Tenaga Nasional Bhd, chose to focus on four key areas of investments: (i) solar and storage; (ii) coal retirement projects; (iii) transmission and distribution; and (iv) carbon capture, utilisation and storage (CCUS).

The report recommended four policy messages — policy planning and implementation; regulatory environment; renewable energy tariff regime and incentive mechanisms; and power purchase agreement (PPA) practices. Four non-policy solutions were also recommended: renewable energy zones; residential solar subscriptions; harnessing new pools of capital for clean energy; and CCUS hubs.

Elsewhere I have argued that subsidy rationalisation should not be projected as cuts but should be framed as the introduction of a one-time green subsidy to move away from fossil fuel. The report cited a case study in India, in which the lowering of fuel subsidies was accompanied by a gradual increase of subsidies for renewables. More impressively, poor rural families were given a solar battery pack (200 to 300 watt-peak (WP) with a battery bank), five LED lights, a direct-current (DC) fan, and a DC power plug. The off-grid connection also included repair and maintenance for five years.

I hope more economists from within and outside the government will move beyond the idea of targeted subsidy, which doesn’t take into consideration the urgent need to deal with climate change. The targeted subsidy presupposes that the M40 and T20 households do not deserve subsidies and should pay for the full cost of fuel consumption. Many so-called M40 or even some T20 households are living precariously.

The report made an important recommendation that Malaysia should consider tapping the climate financing and expertise of multilateral development banks such as the World Bank and Asia Development Bank. Previously, poverty alleviation was the primary function of these institutions, which led to Malaysia “self-graduating” from borrowing since 1993 as it became more prosperous.

Climate change has become a more salient concern for the World Bank, especially under its new president Ajay Banga. Some multilateral development banks built up extensive global knowledge, expertise and experiences on a wide range of issues, especially green transition, which Malaysia can tap into. Conventional financial institutions would feel more reassured by “blended financing”, which includes the expertise and participation of the multilateral development banks.

In good humour, I asked Khazanah managing director Datuk Amirul Feisal Wan Zahir when the next edition of the Khazanah-World Economic Forum report would be produced as I noticed an omission: transport. The current report opened by acknowledging that transport produces the highest emissions, at 37.6%, yet only focuses on energy transition, which admittedly is already a massive subject.

But the emissions from transport require serious attention if Malaysia is serious about net zero. I hope Khazanah will lead in stimulating investment in public transport and also put an end to urban sprawl, which results in highly inefficient use of infrastructure and a permanent dependence on private passenger cars. Khazanah could signal to all its subsidiaries and other GLCs/GLICs that among its missions would be an attempt to rejuvenate the inner cities throughout the nation and to build more compact cities, thus more sustainable living for the next generation.

Green transition is a once-in-a-generation opportunity for Malaysia to transform the game plan and leapfrog in its economy.

Liew Chin Tong is deputy minister of investment, trade and industry

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