Initiatives and Market Mechanisms for Climate Change Actions in Malaysia
This study briefly encompasses the current initiatives and alternative market mechanisms such as clean development mechanism, fiscal and financial incentives, regulatory requirements and insurance provision to address climate change actions in Malaysia. The government has taken many initiatives including promoting utilisation of renewable energy, energy efficiency in industry, building and transport sector, restructuring public transport system, cleaner fuel, stringent emission standards and alternative industrial processes technique. There is also a substantial Clean Development Mechanism (CDM) potential in Malaysia of up to 100 million tonnes CO2 equivalent for the period 2006 to 2012. At market prices between US$ 3 and 10 per tonne, this corresponds to a total capital inflow to Malaysia from sales of CDM credits (CERs) in the range of RM 1.14 to 3.8 billion. Bilateral and multilateral CDM projects might typically leverage project financing 3 to 4 times this amount, hence contributing substantially to foreign direct investment and technology transfer. Although, the Malaysian government has given much efforts to managing climate change issues, there is still need for improvement includes: integration of programmes in various agencies, adjustment of current sectoral-based approaches, stakeholders consultation and cooperative actions and expansion of the use of market based instruments as well as carbon taxation and a cap-and-trade programmme augmented by regulatory systems. In addition, there is urgent need to address research and development (R and D) for both adaptation and mitigation. This balancing is required to avoid compromise in economic growth and sustainable development of this country.
Received: May 05, 2010;
Accepted: June 03, 2010;
Published: August 21, 2010
Malaysia ratified the United Nations Framework Convention on Climate Change
(UNFCCC) in July 1994 and Kyoto Protocol in September 2002. The National Focal
Point for the country is the Ministry of Natural Resources and Environment (MONRE).
The Ministry also hosts the National Steering Committee on Climate Change and
coordinates the necessary follow up with respect to the Convention. In response
to the obligation to UNFCCC, Malaysia submitted its Initial National Communication
(INC) in 2000 with the support from UNDP/GEF. In preparation of the Second National
Communication (NC2), the Ministry of Natural Resources and Environment (NRE)
has created three main working groups in accordance to three thematic areas,
i.e. National Greenhouse Gas (GHG) Inventory, Vulnerability and Adaptation and
Mitigation. The preparation of Second National Communication (NC2) is a continual
step towards further implementation of the UNFCCC at national level which aims
to generate a comprehensive report on climate change related issues in Malaysia.
Malaysia is experiencing a warming trend for the past few decades. Deni
et al. (2008) also found that in the southern areas of peninsular
Malaysia, the frequency of long dry periods tended to be higher with a significant
increase in the mean and variability of the length of the dry spells whereas,
all the indices of wet spells in these areas show a decreasing trend. Increasing
temperatures and long dry days would result in more extreme weather and climate
variability. In Malaysia, the temperature and rainfall are projected to increase
between +0.6 to 3.4°C and -1 to +32% in 60 years respectively (INC,
2000). The rise in sea level is about 13-94 cm in 100 years (INC,
2000). These can lead to impacts on water resources, food supply, coastal
zone, public health and others and necessitate national and international responses
to face climate change.
The primary energy supply and demand have been increasing in tandem with economic
growth from 1990 to 2005, showing the economic development and energy consumption
have yet to be de-coupled. In addition, the largest contributor to the ecological
footprint for each Malaysian is energy consumption (Begum
et al., 2009). The escalating consumption of energy over the years
that heavily relied on fossil fuels had resultant significant increment in emission
of greenhouse gas (mainly carbon dioxide) from the sector (Begum
and Pereira, 2009a). Over the years, GHG emissions have been increasing
in Malaysia. Per capita emission rose from 4.21 tonnes in 1994 to 6.29 tonnes
in 2001 (Tiong et al., 2007). The Ninth Malaysia
Plan (2006-2010) expects the overall national energy demand to increase at an
average rate of 6.3% annually from 2006 to 2010, with the industrial sector
consuming 38.8% of total demand. The plan also identified several energy-intensive
industries to remain the major consumers. Unless this demand is provided by
using renewable or alternative energy, coupled with energy efficiency efforts,
greenhouse gas emissions will continue growing compared to the previous years.
As Malaysia has experienced phenomenal economic growth in the last two decades
and has undergone a major structural transformation, moving from a agriculture
to manufacturing-based economy, with significant social changes. With a per
capita income of US$6477 in 2007 (EPU, 2008), Malaysia
has been classified as a transition economy and there is no longer traditional
approaches (donor support) as an option for the development activities. This
rapid development has brought about significant impacts to the natural environment
(Begum and Joy Jacqueline, 2008). Development, therefore,
cannot confer lasting benefits unless environmental considerations and related
climate and ecosystem changes are protected as integral parts of development
planning and decision making. This can only be done by formulating appropriate
policies and programmes to ensure development proceeds hand in hand with sound
management of the environment. As there is a sizeable private sector presence
(private consumption and investment constitute 68% of GNP in 2007) (EPU,
2007), public-private partnership could play a significant role to the climate
action. This partnership allows government to implement policies that will drive
the necessary actions and changes and private sectors to respond rapidly to
these drivers in a positive way (Jones, 2008). This study
briefly encompasses the current initiatives undertaken by the government and
private sector as well as other players on adaptation, mitigation and technology
issues to climate change. The study also explores the alternative market mechanisms
for example, Clean Development Mechanism (CDM), fiscal and financial incentives,
regulatory requirements (building by-laws) and insurance provision to address
climate change actions in Malaysia.
CLIMATE CHANGE INITIATIVES
A Cabinet Committee on Climate Change has been instituted in January 2008,
chaired by the Prime Minister of Malaysia. Establishment of this committee exhibits
Malaysias higher commitment in addressing climate change and is important
to integrate the issue of national development planning. The Cabinet Committee
will primarily determine the policy directions and strategies in addressing
climate change issues. Malaysia like other developing countries is also experiencing
adverse effects of climate change on key economic sectors such as energy, industries,
transport, forestry, agriculture, water and coastal resources, public health
and waste sector. Immediate responses through adaptation and mitigation approaches
are necessary to reduce the risks and potential losses and optimise the beneficial
opportunities. To reduce the impact of climate change and the emission of GHGs,
government has taken various actions and programs in all relevant sectors. To
address the climate change issues, Ninth Malaysia Plan (RMK9) initiates and
promotes the following mitigation programmes:
||Increase supply and utilisation of alternative fuel such as
Renewable Energy (RE)
||By 2010 about 300 MW of RE is expected to be generated and connected to
the TNB Grid in Peninsular Malaysia and 50 MW to SESB Grid in Sabah
||For the power generation of RE sources, the government has approved a
higher price of 21Sen per kWh for connection to the grid. This price is
a premium over other sources of power generators
||RE projects utilising municipal waste will be promoted
||The Clean Development Mechanism (CDM) under the Kyoto Protocol will be
utilised to provide support for the implementation of Small Renewable Energy
||Supply to 55,000 unit of houses electricity generated from technologies
such as hybrid solar system and micro-hidro
||Encourage energy efficiency in industrial, building and transport sectors
||Protect forest areas via sustainable forest management to ensure the forest
areas are maintained as sink to greenhouse gas, i.e., carbon dioxide
According to the Economy Report 2007/2008 (ER 2007/2008), Government encourages
the use of solar energy as RE and initiated the National SURIA 1000 Programme
jointly promoted by the Government, United Nations Development Programme (UNDP)
and Global Environment Facility (GEF). This programme enables residential and
commercial property owners to enjoy between 40 to 75% rebates on the installation
of Building Integrated Photovoltaic (BIPV) equipment and installation cost.
The adoption of this programme will create a market for BIPV technology, reduce
carbon emissions, improve air quality and reduce dependence on fossil fuels
as well as address long-term energy diversification objectives. Oh
and Chua (2010) also revealed how energy policies in Malaysia have evolved
over the years with concerted efforts from the government to minimize its carbon
footprint through numerous energy efficiency implementations. A series of programmes
has introduced and implemented to promote the use of renewable energy and improve
energy efficiency. These programmes include (KeTTHA, 2010;
||Small renewable energy power programme (SREP)
||Malaysian Industrial Energy Efficiency Improvement Project (MIEEIP)
||Biomass generation and cogeneration in Malaysian palm oil mill industry
||Establishment of renewable energy business fund
||Information for the commercialisation of renewables in ASEAN (ICRA)
||Energy audit program in government buildings
||Malaysian building integrated photovoltaic project (MBIPV)
||Roadmap for solar, hydrogen and fuel cell
The Ninth Malaysia Plan and several existing national programmes that may directly
address or indirectly contribute to managing issues on climate change adaptation
based on specific sectoral context and needs (Tiong et
al., 2009). The following adaptation programmes are also initiated under
Ninth Malaysia Plan (2006-2010):
||Conduct Coastal Vulnerability Index (CVI) study
||Implement coastline protection programme
||Develop Integrated Coastal Zone Management
||Implement flood mitigation programme such as the Stormwater Management
And Road Tunnel (SMART) Project
||Undertake study to identify the relationship between the impacts of climate
change and vector-borne diseases
Ministry of Natural Resources and Environment has taken the following climate
change related projects and activities in conjunction with the UNDP/GEF, government
agencies, universities, non-government organisations and the private sectors:
||2nd National Communication (NC2) Project
||National Capacity Self Assessment (NCSA) Project
||GEF: Resource Allocation Framework 4 (GEF-RAF4)
||Policy Study on Climate Change
||Preparation of GHG Inventory
||Comparative Study on Carbon Sequestration
||Development of CDM Secretariat
||Public Awareness and Training Programmes
The Institute for Environment and Development (LESTARI) also initiated a research
study entitled economic impacts and vulnerability assessment of climate change
on public health in Malaysia with support from the Ministry of Health and Institute
of Medical Research (Mia et al., 2009). The above
initiatives and its implication to adaptation, mitigation and technology, are
the important issues to the climate change actions in Malaysia. The subsequent
section discusses the alternative market mechanisms to address climate change
actions in Malaysia.
MARKET MECHANISMS IN CLIMATE CHANGE ACTION
The public sector plays a pivotal role in responding to climate change, such
as affect countrys spending priorities, revenue raising opportunities,
insurance markets, investment options and capital markets. This will include
ensuring a stable investment climate that encourages private sector efforts
to deal with climate change and its consequences; ensuring the domestic rules
that allow the country to take better advantage of international financing opportunities;
and managing available policy, economic and financial instruments to integrate
climate change adaptation and mitigation into the planning of economic development
in a systematic way. The Institute for Environment and Development (LESTARI)
conducted a survey on the issue of climate change, business and sustainability
through Malaysian Network for Research on Climate, Environment and Development
(MyCLIMATE), with support from the Ministry of Natural Resources and Environment.
The survey reflected that corporate managers in Malaysia are well concerned
about climate change, demonstrating a wide general awareness of the issue. In
the context of climate change and its responsibility, a majority of corporate
managers perceived that the government should take responsibility while half
of them were of the opinion that the business and corporate sector should also
take responsibility (Begum and Pereira, 2009b). Therefore,
mobilising public-private partnership is required to support actions on adaptation
and mitigation in a cost-effective manner (Climate Group,
2007). The Malaysian government designs a set of market based mechanisms
which meets the specific conditions in the country, for creating positive and
cost-effective market incentives to reduce emissions and finance adaptation.
This section explores the alternative market mechanisms for example, Clean Development
Mechanism (CDM), fiscal and financial incentives, regulatory requirements (building
by-laws) and insurance provision to address climate change actions in Malaysia.
Clean Development Mechanism (CDM): The purpose of the CDM is to assist
non-annex 1 parties in achieving sustainable development (e.g., transfer of
GHG reducing technologies) and to assist annex 1 parties to achieve their emission
reduction targets by resulting in real, measurable and additional emission reductions.
The following projects that have the potential to reduce GHG emissions in Malaysia
(CDM Malaysia, 2005):
||Renewable energy projects, including PV, hydro and biomass
||Industrial energy efficiency
||Supply and demand side energy efficiency in domestic and commercial sector
||Landfill management (flaring or landfill gas to energy)
||Combined heat and power projects
||Fuel switch to less carbon intensive fuels (e.g., from coal to gas or
||Biogas to energy (from POME or other sources)
||Reduced flaring and venting in the oil and gas sector
||Land-use, land-use change and forestry (LULUCF) projects (afforestation,
reforestation, forest management, cropland management, grazing land management
Projects in the energy sector especially Renewable Energy (RE) and Energy Efficiency
(EE) have been given priority for CDM implementation in Malaysia. Besides financial
contribution to projects reducing GHG emissions, these projects are in line
with the sustainable development strategies in the energy sector. Figure
1 provides an overview of the percentage of CDM projects registered with
CDM Executive Board (EB). As of 30th April 2010, a total of 2,172 CDM projects
registered in UNFCCC, among them, 81 projects are registered from Malaysia.
Table 1 shows the current status of Certified Emission Reductions
(CERs) issued from CDM projects in Malaysia.
First CERs from Malaysia were issued in October 2006 and until now, 708,028
CERs have been issued. There is a substantial CDM potential in Malaysia of up
to 100 million tonnes CO2 equivalent for the period 2006 to 2012
(CDM Malaysia, 2005).
||Percentage of registered project by host countries (as of
30th April 2010). Source: UNFCCC (2010)
|| CERs issued from CDM projects in Malaysia (as of 29th April
|Source: UNFCCC (2010)
At market prices between US$ 3 and 10 per tonne, this corresponds to a total
capital inflow to Malaysia from sales of CDM credits (CERs) in the range of
RM 1.14 to 3.8 billion. Bilateral and multilateral CDM projects might typically
leverage project financing 3 to 4 times this amount, hence contributing substantially
to foreign direct investment and technology transfer. Thus, CDM projects in
Malaysia show an example of Public Private Partnership (PPP) where the private
sector engages to work with the governments and other stakeholders that meet
the objectives of the Framework Convention on Climate Change and Kyoto Protocol.
As a non-annex 1 party to the UNFCCC, Malaysia is not subjected to any commitments
towards reducing greenhouse gases (GHGs) emission under the Kyoto Protocol.
However, through participation in the CDM activities under the Protocol, Malaysia
already began to benefit from the investments in the GHG emission reduction
projects, that also contribute towards the overall improvement of the environment
and to some extent bring additional economic benefits.
Fiscal and financial incentives: In addressing climate change issues,
Malaysian government encourages to initiate public-private partnership that
leads to the private sectors cost savings. The following fiscal and financial
incentives are given to encourage companies to invest in the reduction of greenhouse
gas emissions to undertake energy efficiency and the use of renewable energy
(Malaysia, 2007; UNEP, 2006):
||Income derived from trading of CERs certificates be given
||Tax incentives for companies generating renewable energy (RE) as follows:
Pioneer Status (PS) with tax exemption of 100% of statutory income (10 years)
or investment tax allowance (ITA) of 100% on the Qualifying Capital Expenditure
(QCE) incurred to be set-off against 100% of statutory income (SI) for each
year of assessment (5 years) and import duty and sales tax exemption on
equipment used to generate energy that are not produced locally and sales
tax exemption on equipment purchased from local manufacturers
||Tax incentives for companies providing energy conservation/ energy efficiency
services as follows: PS with tax exemption of 100% of SI (10 years) or ITA
of 100% on the QCE incurred to be set-off against 100% of SI for each year
of assessment (5 years) and import duty and sales tax exemption on energy
conservation that are not locally and sales tax exemption on the purchase
of from locally produced equipment
Malaysia spends US$14 billion for subsidising petrol, diesel and gas every
year. Recently, the Malaysian government increased petrol prices by 41% to RM2.70
or US$0.83 a litre (old price: RM1.92 or US$0.59 L-1) and diesel
prices 63% to RM2.58 or US$0.79 a litre (old price: RM1.58 or US$0.48 L-1)
(Associated Press, 2008). With the reduction in subsidies
of petrol and diesel prices, the government is encouraging use of public transportation
which contributes less pollution and better allocation of resources, as inaccurate
pricing of resources lead to wastage and inefficiencies. This is another example
of how economic instruments influence human behaviours and contribute to a better
environment. The government acknowledges that an efficient, safe and integrated
network of transport systems is necessary to meet the transportation needs of
the public, reduce congestion and emissions as well as increase productivity
(Economic Report, 2007). The government has taken the
following initiatives and incentives to improve the efficiency of the transportation,
system in partnership with private sector (EPU, 2000,
||Privatisation in public transportation of rail services such
as Monorail System in Kuala Lumpur, Express Rail Link (ERL) from Kuala Lumpur
to Kuala Lumpur International Airport (KLIA), Light Rail Transit System
I (LRT-STAR) and LRT-System II (LRT-PUTRA) provided a fast and efficient
alternative transportation system and contributed to alleviate the urban
traffic congestion and reduce the travelling time
||Allocation RM 1 billion for environmental preservation programmes and
announced to establish Bio-diesel fund of RM500 million
||Provision of a grant of RM25000 each to existing buses which convert to
natural gas vehicles (NGV) by the end of 2008
Regulatory requirements (Building by-laws): In terms of private financing,
governments set the rules for the markets in which investors seek profits. If
current market rules are failing to attract private investors into low carbon
and climate-proof alternatives, governments can introduce policies or incentives
to address these market failures. This includes regulations and standards to
overcome policy-based barriers to entry; taxes and charges to make the polluter
pay; as well as subsidies and incentives to pay the innovator. Particularly
in developing countries, shifting financing to climate change related investments
has to be taken economic and social development priorities into account. In
Malaysia, initiatives that are currently being persuade for increasing energy
efficiency include the preparation of a legislative framework that will provide
regulations on the efficient management of electrical energy, energy efficiency
elements for the inclusion in Uniform Building Bylaws and guidelines for energy
efficiency-related equipment. The following specific sectoral legislations could
contribute a significant role to the mitigation and adaptation of climate change
issues in Malaysia.
||Electricity Supply Act 1990 regulates electricity generation
||Petroleum Mining Act 1972 covers management of all oil and gas reserves
||Road Transport Act 1987 controls the use of different types of motor vehicles
||Occupational Safety and health Act 1994 regulates the use of all equipment
in working areas and among others
||National Forestry Act 1984 (amended 1993) regulates management of forestry
and other natural resources
Insurance provision: Due to more intense and greater severity of extreme
weather events that occurred locally and globally, the insurance industry is
now preparing for an increase in catastrophic risk through several measures,
which may contribute the countrys policy responses to climate change.
These include development of new risk models that take into account climate
change, adequate pricing, substantial deductibles based on the respective exposure,
accumulation control, loss prevention, improved claims settlement, liability
limits, exclusion of certain hazards, exclusion of particularly exposed areas,
reinsurance and retrocession as well as public-private partnership.
Insurance provision for climate change is also an opportunity to be positioned in public-private partnership initiatives to share losses and promote adaptation, monitor loss trends, improve catastrophe modeling, address the causes of climate change and prepare for and adapt to the climate change impacts. Insurance and financial institutions need to work closely with other stakeholders to achieve integrated adaptation programmes. In this regards, Malaysian insurance industry should also be taken into account when planning and financing adaptation measures.
The above initiatives and market responses could play a significant role to the climate change actions and its implication to adaptation, mitigation and technology in Malaysia. To foster the public-private partnerships, rigorous consultation with the private players on the policy initiatives and responses on climate change is essential. While ensuring awareness of the private sector of the potential implications of such initiatives and responses to their activities, it allows the government to leverage on the expertise, knowledge and experience of the private sector. These partnership efforts are an invaluable contribution to provide many efforts in financing climate actions, formulating climate policy and strategies, participating in and monitoring international negotiations, strengthening networks, building capacity and raising of awareness.
Although, the Malaysian government has given much efforts to managing climate change issues, there is still need for improvement includes: integration of programmes in various agencies, adjustment of current sectoral-based approaches, stakeholders consultation and cooperative actions and expansion of the use of market based instruments as well as carbon taxation and a cap-and-trade programme augmented by regulatory systems. In addition, there is urgent need to address research and development (R and D) for both adaptation and mitigation. This balancing is required to avoid compromise in economic growth and sustainable development of this country.
The authors are greatly acknowledged to the research grant Dana Operasi Universiti Penyelidikan (OUP) in the Universiti Kebangsaan Malaysia (Ref. No. UKM-OUP-PI-25-111/2009). An earlier version of this article was presented at the Conference on Financing for Climate Change- Challenges and Way Forward in Dhaka, Bangladesh, 16-17 August 2008.
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