This article first appeared in Forum, The Edge Malaysia Weekly on February 24, 2025 - March 2, 2025

Malaysia’s palm oil industry is a cornerstone of its economy, contributing nearly 7% to export earnings in the first half of 2024, according to the Ministry of Investment, Trade and Industry. However, this versatile commodity also finds itself under intense environmental scrutiny, particularly from Western critics who highlight its carbon footprint. These criticisms, while often exaggerated, underscore a need for more collaborative, innovative and sustainable approaches to reduce the sector’s carbon emissions.

Despite its economic significance, the Malaysian palm oil sector operates largely in silos, with stakeholders addressing sustainability challenges in isolation.

Producers have adopted standards such as Malaysian Sustainable Palm Oil (MSPO) and the Roundtable on Sustainable Palm Oil (RSPO) and International Sustainability and Carbon Certification (ISCC), yet significant carbon reductions remain elusive. Similarly, while technology providers introduce innovative solutions, limited industry investment stymies broader adoption.

Government road maps, such as the National Biomass Action Plan 2023–2030, provide guidance but lack the cohesive execution needed to achieve systemic change. Although progress is evident in making Malaysian palm oil more globally acceptable, the government has yet to establish a clear and robust strategy to fully leverage its low-carbon potential.

One of the most pressing issues is methane emissions from palm oil mill effluent (Pome). Methane, a greenhouse gas nearly 27 times more potent than carbon dioxide, remains largely unchecked, with only about 30% of mills equipped with methane capture systems.

The reason? Many mills are too remote for grid connectivity, making investments in methane capture systems financially unattractive.

However, a more collaborative approach involving producers, technology providers and the government could transform the landscape of methane capture and utilisation. By refocusing methane capture from its primary role in electricity generation to its use as a replacement for fossil fuels, Malaysia could reduce carbon emissions more effectively through carbon avoidance.

Government support, such as funding for the installation of methane capture systems, would be crucial in overcoming the financial barriers. Meanwhile, technology providers can reduce capital investment requirements through economies of scale, further easing the financial burden. Producers, on their part, should subscribe to the ISCC to ensure that their Pome generation is both audited and minimised. This commitment ensures that mills operate efficiently, avoiding unnecessary Pome generation and promoting sustainable practices. Additionally, the potential for generating carbon credits from methane capture could significantly offset the initial investment, making the initiative more financially viable in the long term.

Captured methane can be utilised in steam boilers, which would reduce mills’ reliance on palm kernel shells. These shells could then be redirected to biomass energy markets, such as Japan, where prices currently hover around RM350 per tonne. Alternatively, methane could be converted into bio-compressed natural gas (bio-CNG), providing an opportunity to fuel heavy vehicles such as crude palm oil tankers. Although some remain sceptical about the viability of bio-CNG, a successful bio-CNG plant in Sabah has demonstrated the feasibility and profitability of this technology, highlighting its potential for widespread adoption.

Beyond methane capture, palm oil biomass offers another valuable yet underutilised resource with significant potential for renewable energy production. Brazil’s Raizen and Indonesia’s recent pilot plant have showcased how agricultural biomass can be transformed into bioethanol and bio-based sugars, setting global benchmarks for sustainable bioeconomy practices.

Malaysia could follow suit by establishing its first biorefinery, funded by the government, to utilise palm oil biomass, such as empty fruit bunches, as the primary feedstock. Palm oil producers must ensure a steady and reliable supply of biomass. Technology providers, in turn, play a crucial role by not only ensuring system efficiency and reliability but also by offering innovative solutions such as flexible financing models and performance-based contracts. These measures ensure the economic viability of the project, making the adoption of sustainable technologies both attractive and feasible.

The bioethanol produced could either be blended with petrol or upgraded to sustainable aviation fuel (SAF). This is especially timely as the government moves towards rationalising fuel subsidies, narrowing the cost gap between bioethanol and conventional petrol. Additionally, the global SAF market is shifting towards second-generation fuels derived from biomass, offering Malaysia a promising export opportunity.

Sceptics might question the financial viability of these initiatives. However, the numbers tell a compelling story. According to Maybank Investment Bank, the Malaysian government amassed approximately 

RM23 billion in direct and indirect taxes from a selected list of corporates over a four-year period from 2020 to 2023. This figure suggests that the total taxes generated from the entire palm oil sector could be even higher.

Implementing a hypothetical five-year plan to equip the remaining oil mills with methane capture systems would require an annual investment of approximately RM0.77 billion, which represents just about 13% of the average annual taxes collected. Given that the palm oil sector contributes significantly to Malaysia’s tax revenues, this investment is relatively small and could be easily recouped through various revenue streams, such as the sale of palm kernel shells (see Figure 1).

Establishing a biorefinery would require a significant investment of approximately RM1 billion, which could initially appear to be a high barrier for the initiative. However, this expenditure is compelling when weighed against its revenue potential (see Figure 2). Beyond the environmental benefits, it presents a strategic economic opportunity to position Malaysia as a global leader in sustainable agricultural innovation.

By equipping each mill with methane capture systems and utilising half of the generated empty fruit bunches for bioethanol production, Malaysia could help avoid about 17 million tonnes of CO2 emissions annually. This impact is equivalent to taking nearly 4,000,000 passenger vehicles off the road, a significant achievement considering Malaysia had approximately 17.2 million registered vehicles by the end of 2023.

This collaborative approach not only addresses environmental concerns but also positions Malaysia as a leader in low-carbon palm oil production. By breaking down silos and fostering collaboration between producers, technology providers and government, Malaysia can transform its palm oil industry from a target of criticism into a global model of sustainability.

Eur Ing Hong Wai Onn, a chartered engineer and chartered environmentalist, is a fellow of the Institution of Chemical Engineers, the Royal Society of Chemistry and the Malaysian Institute of Management. He is also the author of A Chemical Engineer in the Palm Oil Milling Industry.

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