Issue 7: Asia Pacific climate change policy series: Malaysia

Introduction

The Copenhagen Accord called on Annex I countries to make their climate change pledges, and on Annex II countries to identify their nationally appropriate mitigation actions by 31 January 2010.

In this edition of the Asia Pacific climate change policy series we examine the regulatory framework and climate change investment opportunities in Malaysia.

Key points on Malaysia:

• the Green Technology Strategy remains the principal strategy through which Malaysia intends to meet its carbon intensity reduction goals
• the recent 10th Malaysia Plan concerns the period 2011 to 2015 and outlines a gradual scaling up of the focus on renewable energy
• current investment opportunities in the CDM sphere are in the biomass sector
• future investment opportunity is likely in energy efficiency, research and development, and clean tech.

Copenhagen Accord commitments

The Malaysian Prime Minister, Datuk Seri Najib Tun Razak, announced on 17 December 2009 (at Copenhagen) that Malaysia would cut "40 per cent of its 2005 GDP emission intensity levels by 2020 as its contribution to combat climate change". This in principle commitment has, however, been undermined by a lack of subsequent action. Malaysia is yet to submit a document in accordance with the Copenhagen Accord setting out its formal commitments. An EU delegation to Malaysia in May 2010 called on Malaysia to "associate itself with the Copenhagen Accord and thus become part of the progress in the negotiation process and all its benefits". The EU delegation also noted its hope that Malaysia will develop a mitigation policy and engage with the international community on forestry issues.

Regulatory framework

In mid 2009 Malaysia launched its Green Technology Strategy, which remains the principal strategy through which Malaysia intends to meet its carbon intensity reduction goals. The strategy outlines short, medium and long-term goals for Malaysia's clean energy future. Malaysia's short-term goals include public awareness and advocacy campaigns, efficiency standards and labelling campaigns, initiatives for increased foreign and domestic investment in green technology manufacturing and services and the expansion of research institutes in green technologies. Medium-term goals are less certain and include making green technology preferred for procurements, promoting market share for green technologies in local and regional markets and increasing research in green technologies in collaboration with universities and multi-national companies. Long-term goals are less developed and include "inculcation of green technology in Malaysia culture" and "significant reduction in national energy consumption".

The Green Technology Strategy lists specific goals for 2010, which include:

• restructuring of Malaysia Energy Centre as the National Green Technology Centre
• hosting the International Exhibition on Green Technology (IGEM)
• developing Putrajaya and Cyberjaya as green townships
• giving priority to environmentally friendly products in government procurement contracts
• implementing the RM1.5 billion (approximately US$438 million) Green Technology Financing Scheme.

The funding allocated to the Green Technology Financing Scheme is to support the development, supply and utilisation of green technology in Malaysia from 1 January 2010. To date 33 projects have been certified, with a further 27 currently under review. The scheme can fund up to 100 per cent of the costs of a green technology project or a maximum of RM50 million (approximately US$15 million) for supplier companies and RM10 million (approximately US $3 million) for user companies. A government guarantee will be provided for 60 per cent of the financing for a green technology project. In order for a green technology project to obtain funding under the Green Technology Financing Scheme, it must:

• minimise the degradation of the environment
• reduce greenhouse gas emissions
• be safe for use and promote a healthy and improved environment for all forms of life
• conserve the use of energy and natural resources
• promote the use of renewable resources.

The Small Renewable Energy Power (SREP) Program, in place since 2001, aims to promote the wider use of the renewable energy resources available in Malaysia. Eligible renewable energy sources include biomass, biogas, municipal waste, solar, mini-hydro and wind. The program allows for small power generation plants utilising renewable energy (under 10 MW) to sell their electricity to the utility through the distribution grid system. Under the program, project developers enter agreements with the utility for the supply of renewable electricity to the grid and licences for 21 years of supply are issued. Costs can be high for project developers (particularly in light of the small size of the projects) because the project developer must pay for the grid connection and ongoing transmission of the electricity. As at March 2010, 43 projects were approved under the SREP Programme, producing a total of 286.15 MW of power.

There are currently 83 registered CDM projects in Malaysia, representing about 3.5 per cent of all CDM project activities. These projects are principally in the biomass and methane recovery sectors.

Malaysia's principal forward looking policy agenda is outlined in the Malaysia Plans, the latest being the 10th Malaysia Plan (10MP), tabled in early June 2010 by the Prime Minister. 10MP specifically concerns the period 2011 to 2015 and regards all economic, social and environmental sectors. Of particular relevance for Malaysia's climate policy in 10MP however are developments in the energy sector. 10MP outlines a gradual scaling up of the focus on renewable energy. Policies for the 2011 – 2015 period include:

• two new coal fired electricity generation plants
• rationalising energy pricing
• accelerating energy efficiency initiatives
• expanding electricity supply throughout rural Malaysia
• removal of subsidies for natural gas (currently at 50 per cent) by 2015
• removal of some subsidies on petroleum/gasoline (however no mechanism for this is yet identified)
• a proposed feed-in tariff for renewable energy, guaranteeing income (ranging from 0.07 US$ per MWh for small-scale hydropower to US$0.37-0.52 per MWh for solar) from renewable energy sources guaranteed for between 16 and 21 years (depending on the source)
• the promotion of palm oil for use in biofuels.

10MP lists the 12 key economic areas for development for the 2011 – 2015 period. The top two are oil and gas and palm oil and related products. In order to meet its stated goal of 40 per cent energy intensity reduction from 2005 levels by 2020 Malaysia will require further and stronger legal and policy measures reducing carbon emissions.

Investment opportunities

Given Malaysia's agricultural focus and the prevalence of palm oil and other biofuels, the main investment opportunity in Malaysia in the CDM sphere is in the biomass sector. The Malaysian government is however beginning to look more at energy efficiency, research and development opportunities, clean tech and developing a more comprehensive renewable energy policy including feed-in tariff proposals. Investment opportunities are therefore likely to increasingly arise in these sectors:

• biomass
• energy efficiency in buildings
• renewable energy
• capacity building for government and private sector institutions.

For more information on renewable energy in Malaysia, please refer to our Asia Pacific renewable energy manual.

Experience

Norton Rose Group has one of the leading and best resourced legal practices across Asia Pacific and have acted and advised on a number of carbon investment projects in the region. With our in-depth understanding of the carbon markets and legislative regimes in these countries, we are well placed to assist our clients maximise the investment opportunities associated with the inter-linkages throughout the jurisdictions. Recent experience includes:

• advised a Japanese carbon company in respect of the purchase of CERs from a landfill gas project in Malaysia
• advising a Japanese trading house in relation to a post-2012 Emissions Reduction Purchase Agreement (ERPA) regarding a major emissions reducing project in Malaysia.
• commenced due diligence in respect of a portfolio of CDM projects in Malaysia
• a recent appointment to advise a large European utility in respect of its due diligence on CDM projects in Malaysia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.