Malaysia’s upcoming Climate Change Act could see the establishment of a domestic emissions trading scheme, according to a draft bill published by the Ministry of Natural Resources and Environmental Sustainability (NRES).
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The introduction of an “emissions threshold” will require organisations to comply with requirements set under the emissions trading scheme, said the draft bill, which was published on Saturday for public consultation.
“The threshold introduced will be the basis for allocating allowances and is based on emissions released from the sector or facility,” it said. The bill did not define what a facility is, but said that “initial emphasis should be placed on hard-to-abate sectors or large emitters.”
Malaysia’s largest sources of emissions as of 2022 were the energy, road transportation and manufacturing sectors.
According to the draft bill, the establishment of an emissions trading scheme is in line with Malaysia’s commitments under the Paris Agreement, specifically Article 6, which allows for countries to collaborate on emissions reductions via mechanisms such as carbon trading.
“The [Climate Change Act] intends to regulate processes related to…internationally transferred mitigation outcomes as per the United Nations Framework Convention on Climate Change,” it said.
The publication of the draft bill follows many months of discussions NRES has had with other federal and state government actors about the upcoming Climate Change Act, slated to be tabled at Parliament in February 2025. The ministry is now inviting public feedback on the draft bill, as promised by minister Nik Nazmi Nik Ahamd in July. Consulting firm Deloitte Malaysia was appointed by the ministry a year ago to develop the bill.
This draft was also published a week after the launch of the National Climate Change Policy 2.0 by NRES, which sought to update the country’s first climate policy published in 2009. While the policy did not mention an emissions trading scheme, it said that a national carbon market policy would be developed even as a feasibility study on carbon pricing is ongoing.
New regulatory powers
The draft bill proposed that the NRES minister would have the power to make emissions reporting mandatory, in line with globally recognised standards such the GHG Protocol. Additionally, the minister would be empowered to set or adopt targets, definitions, standards and emissions reduction mechanisms to achieve national climate commitments, it said.
“The Minister of NRES may set targets at the national level, with approval from [the Malaysian] Cabinet in line with Malaysia’s Nationally Determined Contribution (NDC) and Long-Term Low Emissions Development Strategies (LT-LEDS),” it said.
The proposed Act will also empower the minister to gather climate data and information, as well as to decide on punitive measures against individuals that commit offences under the upcoming Act.
At a sub-national or state level, however, a clear mandate would be given to state authorities to provide data for Malaysia’s international reporting obligations.
In addition to granting powers to the minister, the draft bill also proposed that a new “regulatory entity” will be established under NRES to implement the act. This entity would be responsible for “operationalising emissions reductions”, which includes setting standards for carbon projects and trading mechanisms. It would also manage the accreditation of renewable energy initiatives and other climate-related activities.
“The regulatory entity shall have the authority to impose and enforce punitive measures, including fines and imprisonment, to ensure adherence to the law,” said the bill.
The new entity will also oversee mandatory emissions reporting requirements, which could see it setting annual reporting deadlines, methodologies and reporting standards that are aligned with internationally recognised guidelines, such as those set forth by the United Nations’ Intergovernmental Panel on Climate Change (IPCC).
Data repositories and climate fund
Two new data collection systems will also be established under the upcoming Act. The first is a National Integrated Climate Data Repository, which will “modernise the way Malaysia will store, analyse, integrate, track, monitor, report and present climate actions and reporting.”
“At present, Malaysia has not instituted a formal framework for the disclosure and collection of climate-related data and information,” said the draft bill. “The absence of a structured system has led to an inefficient and fragmented approach, often ad hoc in nature, which has resulted in inconsistencies and a lack of standardisation in the data submitted.”
To address this, the upcoming act will also set out clear deadlines and frequency for submissions to this repository.
Secondly, to support Malaysia’s participation in the global carbon market, a National Registry for Climate Change will be established. The draft bill also calls for the establishment of a system for the measurement, reporting and verification of carbon projects, as well as monitoring and evaluation.
“This system will enhance transparency, efficiency, and trust in the carbon market,” it said.
On top of that, a National Climate Fund will be set up to address the financing gap needed to help Malaysia meet its NDC, which is to reduce its carbon intensity to 45 per cent of gross domestic product in 2030 compared to its 2005 level.
Malaysia also recently committed to achieving net zero emissions by 2050 via the government’s Climate Action Council, chaired by prime minister Anwar Ibrahim.
The fund will draw on sources including the national budget allocation to NRES, fees from carbon trading participants and project developers, international financing and philanthropy, said the draft bill.
According to the Climate Change Performance Index, a monitoring tool by independent enviromental and human rights organisation Germanwatch that tracks climate mitigation progress globally, Malaysia ranked “low” on climate policy in 2024, ranking 53 out of 67 countries.
The index recommended that Malaysia adopts more overarching and comprehensive strategies to avoid emissions. The LT-LEDS is considered among the more important as there is currently “no real roadmap” to reach the country’s current emissions target.
