LETTERS: MALAYSIA aspires to reduce greenhouse gas (GHG) emissions by 45 per cent by 2030 and Net Zero Emissions (NZE) by 2050.
The main challenge is twofold. First, there is limited funding from the private sector in renewable energy and climate technologies.
Second, the existing climate policy frameworks are not sufficiently comprehensive to support decarbonisation.
Hence, carbon credits are a potential instrument to mobilise funding from the private sector.
A carbon credit allows the emission of one tonne of CO2 (carbon dioxide) or its equivalent (tCO2e). Companies can purchase these credits, enabling emissions to a pre-determined limit.
One of the important mechanisms implemented under the Kyoto Protocol was the establishment of the Clean Development Mechanism (CDM), where many carbon credit projects were developed.
Entities that reduce emissions below a certain baseline can generate carbon credits from either reduction, avoidance or removal projects. Once an international carbon standard body verifies the projects, the carbon credits can be sold.
Malaysia is ideal for carbon credit generation due to its prime geographical location and natural resources, including ample rainfall, sunshine and water.
Our extensive forests sequester around 259 megatonnes CO2 equivalent annually, potentially generating up to 40 million tCO2e of carbon credits annually.
Malaysia can generate high-quality carbon credits by implementing nature-based projects such as reforestation and renewable energy.
Recognising this untapped capacity, Bursa Malaysia has launched Malaysia's first syariah-compliant voluntary carbon market — the Bursa Carbon Exchange (BCX).
In 2019, the average price for carbon credits was US$4.33 per tonne. This spiked to US$5.60 per tonne in 2020 before settling to an average of US$4.73 in the first eight months of the following year, according to Investopedia.com.
The market for compliance credits related to regulatory carbon caps is substantially larger with estimates ranging as high as US$272 billion for 2020.
As emitters face the economic repercussions due to carbon emissions, they are motivated to pursue low-carbon solutions.
Over time, with increasing demand for carbon credits, entities that emit excessive GHG emissions may face increased costs in purchasing carbon credits to offset their emissions.
Carbon credits can also stimulate innovation and attract investments in renewable energy projects and low-carbon technologies, promote shifts between fuel types, and encourage increased investments in low-carbon assets.
Thus, carbon credit mechanism emerges as a pivotal tool propelling Malaysia towards achieving NZE by 2050.
Adopting carbon credits sends a market signal of the nation's commitment to NZE, attracting capital towards developing renewable energy projects and positioning Malaysia as a promising hub for generating and selling high-quality carbon credits.
EO SHAO YIM
Kuala Lumpur
The views expressed in this article are the author's own and do not necessarily reflect those of the New Straits Times