Saturday 13 Apr 2024
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This article first appeared in Forum, The Edge Malaysia Weekly on December 25, 2023 - January 7, 2024

The global energy landscape is changing as low-carbon energy becomes a priority in Southeast Asia and beyond.

Southeast Asia’s greenhouse gas (GHG) emissions are projected to continue growing in the coming years, with expanding fossil-fuel consumption driven by carbon-intensive industries. This growing energy demand is shifting the energy conversation.

There are now more than 70 emissions tax schemes and carbon taxes globally, with Southeast Asian countries Malaysia, Singapore, Vietnam, Thailand and Indonesia all having implemented, or are considering implementing, a number of such instruments.

Malaysia’s own net zero commitments require careful balancing of the energy trilemma — ensuring sustainable, secure and affordable energy for the nation. Achieving this goal will demand a focus on emerging solutions such as carbon capture, utilisation and storage (CCUS) and adjacent low-carbon hydrogen opportunities.

Implementing and scaling out CCUS will enable the transition from fossil fuels to cleaner energy sources. It will assist in reducing emissions from hard-to-abate sectors, ensuring energy security and empowering low-carbon economic value generation. Finally, it will provide a low-carbon transition pathway to maintain jobs in previously carbon-intensive industries while unlocking new employment opportunities.

Hydrogen will play an important parallel role in this new energy ecosystem. With the application of CCUS to enable high-volume, low-carbon hydrogen production, hydrogen can be positioned as an important new fuel that strengthens energy security while supporting the new dynamics of energy generation and storage.

Energising the CCUS and hydrogen landscape

The hydrogen and CCUS industries are at a relatively nascent stage in Malaysia, making it imperative to develop and implement policies and regulations that can catalyse growth. It is important that Malaysia defines an overall strategy, principles, framework structures and terms that reflect the local context and path to creating economic value.

Developing standards and fit-for-purpose liability frameworks are vital first steps. This will help underpin the safe development of CCUS and hydrogen technologies.

Implementing a robust carbon market that introduces carbon costs and incentivises the capture of GHG emissions will provide a strong impetus for industry development.

An effective hub strategy could be a game changer in building a resilient hydrogen economy, reducing the levelised cost of hydrogen. Hubs involve large-scale, co-located operations designed within a specific area and can supply multiple industry partners simultaneously. Hubs provide the potential to cover a substantial share of the hydrogen value chain. For instance, the US-Inflation Reduction Act introduced the 45V Hydrogen Production Tax Credit, and together with the Bipartisan Infrastructure Law — aimed at providing funding to catalyse clean hydrogen production — led to the creation of the Regional Clean Hydrogen Hubs Programme.

Creating hubs provides a path to streamline regulatory and permitting processes, as well as leverages public direct investment to develop cost-effective shared infrastructure and, in doing so, lowers overall costs and increases commercial viability.

CCUS could benefit from a similar strategic approach. The government should look to provide development and scaling support for the financing of CCUS projects. Directly investing in transport pipelines and storage facilities would be an important strategic step. Co-locating high-emission industry players in CCUS clusters would allow industry stakeholders to invest in and utilise shared CCUS infrastructure.

Malaysia should look to build cross-border cooperation for technology development in these nascent industries. This will facilitate the evolution of viable business models with regional implications. Transborder agreements will be critical to facilitate carbon dioxide transfer from carbon-emitting countries to carbon-sequestering nations.

A strategic regional approach with a fully integrated hub would not only address local demand but also tap into intra-regional economic opportunities.

There are already successful examples of countries establishing integrated CCUS and hydrogen cross-border hubs. Nations such as Australia and Oman have developed large-scale, export-oriented hubs with significant investor interest.

Australia has reportedly allocated up to A$3 billion for its hydrogen, clean energy and CCUS industries, with plans to become a global hub for low-cost clean energy, leveraging its favourable access to onshore and offshore gas and natural CCUS infrastructure.

This strategy includes a guarantee of origin scheme for hydrogen exports and certification of green exports. It also envisions low-emission manufacturing sites using hydrogen and ammonia. This is all complemented by strategically located CCUS facilities.

Making the most of opportunity in Malaysia

Malaysia can take inspiration from these success stories, leveraging its own abundant resources and strategic location. Its position at the gateway of the Asia-Pacific makes it an ideal storage site for international carbon, including for major markets in Japan and Korea.

Integrating CCUS with a hydrogen hub will unlock the potential for trading low-carbon liquid natural gas, reducing emissions for this important regional transition fuel. Co-locating renewable energy and hydrogen hubs will also enable the creation of green hydrogen — hydrogen extraction powered by zero-carbon renewable energy — to build capacity for long-term green hydrogen exports.

Under the National Energy Transition Roadmap, Malaysia aims to establish a low-carbon hydrogen hub by 2030 and two more hubs by 2050, bringing the total to three hubs. Sarawak is one area that is uniquely positioned to capture this opportunity, with favourable conditions for renewable energy, hydrogen and CCUS.

Developing the maturity of the industry could build a platform to establish integrated clean energy hubs in Sarawak, bringing together the low-carbon, complementary benefits of renewables, hydrogen and CCUS. This is a crucial dynamic for Malaysia to explore to unlock synergy across all three levers.

Sarawak already has ambitions to establish itself as a renewable energy hub, with the goal of generating a minimum of 15% income from foreign markets, including sales of domestically generated green energy. The state has wider ambitions to position itself as a pioneer in the global renewable energy supply chain.

It is clear that Sarawak has major resource potential and capabilities to harness remarkable hydropower capacity and floating solar potential, linked with synergistic opportunities to produce green hydrogen. In addition, there are infrastructure-related synergies to produce blue hydrogen through CCUS.

Sarawak’s total technical hydropower potential is 20GW, around five times the existing installed capacity. The storage potential of nearby depleted gas fields is as much as nine million tonnes of carbon dioxide, proven and ready for development. Two proposed hydrogen hubs are already on the horizon for Sarawak, with both Bintulu and Kuching generating interest.

Sarawak may be a leading candidate for this opportunity, but the potential for a fresh energy paradigm powered by hydrogen and CCUS has important implications for Malaysia as a whole. It is important that the right strategies are in place to capture this opportunity while providing a long-term path of value for the nation.

Dave Sivaprasad is Southeast Asia lead for climate and sustainability at Boston Consulting Group. Priyanshu Kumbhare is a partner at Boston Consulting Group.

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