Infrastructure, Energy and Utilities

The landscape for carbon credits in Malaysia is rapidly evolving as Malaysia advances its commitment to a decarbonised economy [1]. Carbon credits represent a sophisticated intersection of environmental stewardship and economic opportunity, enabling businesses to meet climate objectives while capitalising on sustainability initiatives. For prospective producers –encompassing landowners, project developers, and corporations investing in climate-positive ventures – the pathway from a climate-positive venture to a marketable carbon credit is one of significant potential, yet it is laden with complexity.

This article delineates the critical considerations that producers must address to successfully develop, register, and transact carbon credits. It serves as a strategic guide to ensuring project integrity, regulatory compliance, and commercial viability within Malaysia's dynamic carbon market.

1. Defining Carbon Credit

At its foundation, a voluntary carbon credit is a measurable and verifiable representation of climate action. It is generated when a project reduces or removes greenhouse gas emissions, with one credit corresponding to one metric tonne of carbon dioxide (CO2) or its equivalent.[2] It functions as a "credit" in that it can be used to offset the emission of an equivalent amount of CO2, thereby creating a tangible asset from a positive environmental outcome.[3]

While this serves as a universally accepted functional definition, the formal legal framework in Malaysia is still evolving. Currently, there is no single, overarching legal definition for a "carbon credit" under federal law. However, proactive legislative measures, particularly in Sabah and Sarawak, have established specific legal definitions and provide important clarity for projects in those states:

• In Sarawak, the Environment (Reduction of Greenhouse Gases Emission) Ordinance, 2023 of Sarawak, which complements the Forests (Forest Carbon Activity) Rules 2022, define a “carbon credit unit” as a unit of account representing one tonne of emission reductions.[4]These units are issued by a carbon standard according to its rules and are held in a carbon registry.[5] The rules are linked to a "forest carbon activity," which is any activity leading to verified emission reductions under a carbon standard.
• In Sabah, amendments to the Forest Enactment 1968 define a "carbon credit" as a tradable instrument for both domestic and international markets.[6] It is issued by a government or an independent certification body as a permit, licence, or certificate that results from a forest carbon activity.[7] The law also defines a "carbon credit unit" as representing one tonne of emission reductions.[8]

This distinction between a functional, market-accepted definition and the emerging, specific legal definitions within state jurisdictions is a critical consideration for any prospective producer in Malaysia.

2. The Malaysian Carbon Market Ecosystem

Malaysia's carbon ecosystem is uniquely characterised by its dual engagement with both international and domestic frameworks. This structure provides producers with distinct strategic choices:

The primary actors navigating this ecosystem include:

3. The Carbon Credit Lifecycle: From Concept to Asset

The generation of credible carbon credits follows a structured and meticulous project cycle, rigorously defined by leading international standards. While terminologies may differ slightly between standards, the fundamental stages are consistent and form a coherent progression from idea to issuance [9]:

4. Core Principles of Carbon Credit Integrity

The credibility and market value of carbon credits are anchored in several universally accepted principles [10]:

5. Avenues for Commercialization

Once issued, carbon credits can be monetized through various channels including the Bursa Carbon Exchange and others:

6. Key Legal Considerations for Producers of Carbon Credits in Malaysia

Aproactive and sophisticated legal strategy is indispensable for navigating the complexities of carbon credit development and commercialization. Experienced legal counsel provides pivotal value by transforming potential legal hurdles into managed risks and strategic opportunities.

A foundational legal imperative is the unambiguous definition and securement of carbon rights. In Malaysia, land ownership per se does not automatically confer rights to the carbon sequestered or emission reductions generated on that land. Legal professionals are crucial for conducting exhaustive due diligence on land tenure, including pre-existing encumbrances or overlapping claims. This is particularly intricate in Sabah and Sarawak, where unique state land laws and Native Customary Rights (NCR) necessitate specialized local legal acumen. Parties typically enter into bespoke "carbon rights agreements" or integrate precise specific clauses into broader land use or concession agreements. These instruments are essential not only for establishing clear ownership and control over the carbon asset but also for structuring equitable benefit-sharing mechanisms with landowners and indigenous communities, thereby fortifying the project's social license and the legal defensibility of its core claims. See our article Carbon Credit Series - Key Legal Lessons from the Sabah Nature Conservation Agreement for case study on issues that arose from the Sabah Nature Conservation Agreement.

Successfully navigating state-level approvals and dynamic jurisdictional frameworks is another domain demanding expert legal guidance, especially considering the proactive legislative measures in states like Sabah and Sarawak. Legal counsel provides ongoing interpretation of these specific state enactments, such as Sabah's Forest (Carbon Activity) Rules and Sarawak's Forests (Forest Carbon Activity) Rules 2022, alongside its Environment (Reduction Of Greenhouse Gases Emission) Ordinance, 2023. Additionally, the Sabah State Legislative Assembly recently passed the Forest Enactment (Amendment) Bill 2025 which introduces a regulatory regime over carbon credits activities in the state. This involves advising on the precise scope of mandatory licensing, assisting in the preparation of comprehensive applications to state authorities, and ensuring project plans meticulously comply with conditions relating to state revenue sharing or local benefit reinvestment. Such proactive legal engagement allows clients to anticipate regulatory shifts and maintain steadfast compliance.

The strategic structuring of the project entity itself profoundly influences long-term liability, taxation, governance, and access to finance. Legal advisors assist in selecting the optimal legal vehicle—be it a Special Purpose Vehicle (SPV) to isolate project-specific risks (including long-term liabilities like permanence failures), or a Joint Venture (JV) requiring meticulously crafted shareholders' agreements. These agreements must clearly delineate capital contributions, profit and carbon credit revenue distribution, robust governance protocols for project oversight, and incisive dispute resolution and exit strategies, all tailored to the unique nuances of carbon asset management and optimized under Malaysian tax law, inclusive of any applicable green incentives.

The commercial actualization of a carbon project often pivots on expertly drafted and negotiated Emission Reduction Purchase Agreements (ERPAs).These are not standard commodity contracts but highly specialized, bespoke agreements. Legal professionals are indispensable in structuring terms that strategically allocate a wide array of complex risks, including price volatility, credit delivery shortfalls, adverse changes in law or carbon accounting methodologies, and liability for potential credit reversal events. This involves tailoring clauses on credit specifications, conditions precedent to payment, robust representations and warranties concerning credit integrity and exclusivity, and effective default and remedy provisions, thereby securing the producer’s revenue streams and adeptly managing counterparty vulnerabilities.

In an era of intensifying scrutiny regarding environmental claims, maintaining ESG disclosure integrity and rigorously preventing the double counting of emission reductions is critical for corporate reputation and market credibility. Legal counsel advises on harmonizing a project's carbon credit transactions with broader corporate sustainability reporting obligations, such as those mandated by Bursa Malaysia or aligned with international frameworks like the TCFD and ISSB. This includes ensuring that contractual terms within ERPAs unequivocally delineate usage rights and effectively preclude the producer from inadvertently or otherwise making misleading environmental claims about emission reductions that have already been sold, thus mitigating greenwashing risks and potential legal challenges.

Furthermore, given that carbon projects typically demand substantial upfront capital, optimising project financing and establishing robust security interests are key concerns. Legal advisors play a pivotal role in enhancing a project's "bankability" by ensuring that all foundational legal elements—including unequivocally established carbon rights, requisite permits, and bankable offtake agreements like ERPAs—are sound and meticulously documented. They guide clients through the complexities of negotiating term sheets and loan documentation with financiers and undertake the often intricate legal work of creating and perfecting security interests over project assets. This may involve addressing novel legal questions concerning the use of future carbon credit streams as collateral, within the evolving parameters of Malaysian law.

Finally, while meticulous contracting aims to pre-empt disagreements, the long operational lifecycle of carbon projects necessitates strategic and effective dispute resolution mechanisms. Legal counsel advises on, and drafts, tailored dispute resolution clauses in all critical project agreements. This typically involves considering multi-tiered approaches (e.g., good-faith negotiation, structured mediation) and, where necessary, binding arbitration, often specifying appropriate institutional rules and a suitable legal seat, such as the Asian International Arbitration Centre (AIAC) in Malaysia, to ensure that any emergent conflicts can be resolved efficiently and with commercial pragmatism.

Conclusion

The endeavor of becoming a successful carbon credit producer in Malaysia offers profound environmental and economic dividends. However, this path is intricately woven with multifaceted legal and regulatory considerations. Engaging experienced legal counsel proactively, from the earliest stages of project conception, is not merely a defensive risk mitigation tactic but a crucial enabler of sustained project success. By astutely navigating the legal terrain, prospective producers can develop robust, credible, and commercially viable carbon credit projects that contribute significantly to Malaysia's ambitious climate objectives and the broader global transition towards a sustainable and resilient economy.

[1] Malaysian Green Technology and Climate Change Corporation, 'Corporate Malaysia drives low-carbon transition' (6 December 2024) https://www.mgtc.gov.my/2024/12/corporate-malaysia-drives-low-carbon-transition/

[2] Legal High Committee for Financial Markets of Paris, Reporton the Legal and Regulatory Aspects of Voluntary Carbon Credits (16October 2024) https://www.banque-france.fr/system/files/2024-11/Rapport_66_A.pdf

[3] Ibid note 1.

[4] Section 2, Environment (Reduction of Greenhouse Gases Emission) Ordinance, 2023 of Sarawak.

[5] Ibid note 4.

[6] Sandra Sokial, ‘Mandatory licensing for carbon trading activities in Sabah after Forest Enactment amendments’ The Star (Kota Kinabalu, 17 April 2025) https://www.thestar.com.my/news/nation/2025/04/17/mandatory-licensing-for-carbon-trading-activities-in-sabah-after-forest-enactment-amendments

[7] Ibid note 6.

[8] Ibid note 6.

[9] UNFCCC, 'CDM: Project Activities' https://cdm.unfccc.int/Projects/diagram.html

[10] Integrity Council for the Voluntary Carbon Market, 'The Core CarbonPrinciples' (ICVCM) https://icvcm.org/core-carbon-principles/

‍

The growing interest in carbon markets in Malaysia has brought into sharp relief the need for legal clarity, governance oversight, and stakeholder alignment in carbon credit transactions. A case that underscores these complexities is the Sabah Nature Conservation Agreement (NCA), which attracted national and international attention due to its opacity, legal ambiguities, and stakeholder backlash.

Signed in 2021, the Sabah NCA involved a proposal to monetise carbon credits from more than two million hectares of forest reserves in Sabah through a 100-year agreement between the state government and Hoch Standard Pte Ltd, a little-known Singapore-based private company. The company was purportedly granted exclusive rights to develop and monetise nature conservation and carbon credit initiatives within the designated forest areas.[1]

The agreement was met with immediate controversy due to several reported flaws:

• Lack of transparency: The terms of the agreement were not publicly disclosed, nor were they tabled before the state legislative assembly. This created concerns about governance, public accountability, and regulatory compliance.[2]
• Questionable corporate profile: Hoch Standard Pte Ltd was described as having no prior track record in carbon markets or conservation work. It had minimal publicly available corporate history and an unclear funding structure, which raised red flags regarding its capacity to execute such a large-scale initiative.[3]    
• Failure to consult stakeholders: Indigenous communities and other key local stakeholders were reportedly not consulted in advance of the agreement. This raised concerns over Free, Prior and Informed Consent (FPIC) obligations, a cornerstone     principle in international environmental and human rights law.[4]    
• No clear benefit-sharing framework: Critics highlighted that the agreement lacked transparent mechanisms for sharing financial benefits with local communities or reinvesting in forest conservation.[5]    
• Bypassing procurement norms: There was no evidence of an open bidding or selection process, raising issues of compliance with public procurement laws and principles of fair competition.[6]    
• Concerns over additionality: The forests involved were already gazetted as protected areas, casting doubt over the additionality of any claimed carbon benefits. This raised questions about the environmental integrity and legitimacy of the credits that could be generated under the agreement.[7]

These concerns culminated in a backlash from civil society, scrutiny from legal commentators, and calls for the agreement to be reviewed or annulled. The Sabah Attorney General ultimately suspended the agreement for further investigation.

Key Legal Considerations for Purchasers Demonstrated by the Sabah NCA

The Sabah NCA serves as a practical case study for carbon credit purchasers. The key legal takeaways include:

1. Legal provenance of carbon rights: Buyers must assess whether the entity offering credits has a clear and legitimate legal right to generate and sell them. This involves reviewing concession agreements, land titles, and the basis of carbon ownership under domestic law.
2. Regulatory compliance: Ensure that the transaction complies with national and subnational laws governing land use, conservation, and public procurement.
3. Stakeholder consultation: Purchasers should require proof that Indigenous and local communities have been consulted and that FPIC obligations have been fulfilled.
4. Due diligence on counterparty: Review the financial health, track record, and capacity of the project developer or intermediary. Lack of transparency or inexperience can expose buyers to reputational and contractual risk.
5. Verification vs. legal due diligence: Even where a project is verified by a voluntary standard (e.g., Verra or Gold Standard), legal advisors must still verify the enforceability of underlying rights and compliance with local law.
6. Benefit-sharing arrangements: Credibility and sustainability of carbon projects are bolstered by clear, fair, and documented benefit-sharing mechanisms with impacted communities.
7. Environmental integrity and additionality: Buyers should question whether the project meets genuine additionality. If the land is already protected, then carbon benefits may not be new or incremental, potentially affecting the credibility and market value of the credits.

The Sabah NCA highlight show legal risks in the origination of carbon credits can cascade to buyers, potentially undermining their ESG commitments and inviting scrutiny from investors, regulators, and civil society.

A well-advised transaction in the carbon market requires more than technical validation or registry-level certification. Legal counsel plays an essential role in evaluating the enforceability of carbon rights, ensuring alignment with local and international legal norms, and managing transaction risks across regulatory, contractual, and reputational dimensions. By conducting targeted legal due diligence and advising on structuring and compliance, lawyers help ensure that buyers enter the market with confidence, mitigating the very risks that surfaced in the Sabah NCA.

[1] The Edge Markets, “Cover Story: Getting Carbon Markets Right”, 22 September 2022. https://theedgemalaysia.com/article/cover-story-getting-carbon-markets-right

[2] Free Malaysia Today, “Sabah’s carbon credit deal: Why the secrecy?”, 5 November 2021. https://www.freemalaysiatoday.com/category/nation/2021/11/05/sabahs-carbon-credit-deal-why-the-secrecy/

[3] Eco-Business, “UN investigates contentious forest carbon pact in Malaysian Borneo”, 19 March 2024. https://www.eco-business.com/news/un-investigates-contentious-forest-carbon-pact-in-malaysian-borneo/

[4] Mongabay, “Sabah’s secretive carbon deal sparks alarm over Indigenous rights, forest protection”, 3 November 2021. https://news.mongabay.com/2021/11/sabahs-secretive-carbon-deal-sparks-alarm-over-indigenous-rights-forest-protection/

[5] Details emerge around closed-door carbon deal in Malaysian Borneo”, 24 November 2021. https://news.mongabay.com/2021/11/details-emerge-around-closed-door-carbon-deal-in-malaysian-borneo/

[6] Malaysiakini, “Questions mount over Sabah’s opaque forest carbon deal”, 3 November 2021. https://www.malaysiakini.com/news/598291

[7] Ibid note 1.

‍

Environmental, Social, and Governance (ESG) considerations are no longer just a corporate responsibility; they are a business imperative. Investors, regulators, and consumers are increasingly scrutinizing ESG claims, and businesses that misrepresent their sustainability efforts—whether by exaggeration (greenwashing) or excessive silence (greenhushing)—face legal, financial, and reputational risks.

The Global Crackdown on Greenwashing

Regulators worldwide are intensifying efforts to combat misleading ESG claims. In Europe, litigation has resulted in the removal of misleading sustainability advertisements, with courts and regulators shifting toward imposing financial penalties and securities fraud charges.

In the Netherlands, KLM faced legal action over its marketing campaign that implied air travel with the airline was sustainable due to its carbon offset program. Environmental groups challenged these claims, arguing that offsetting did not equate to genuine emission reductions. The case resulted in KLM retracting its advertising campaign, setting a precedent for stricter enforcement against misleading environmental claims in the aviation industry[1]. In Italy, oil giant Eni was fined EUR 5 million by the Italian Competition Authority for falsely marketing its diesel product as "green"[2]. The investigation revealed that Eni's claims were misleading because they referred only to a minor bio-based component of the fuel rather than the entire product. The ruling reinforced the principle that environmental claims must be fully substantiated and not selectively framed to mislead consumers.

The legal consequences have since escalated beyond advertising breaches. The Mercer Super annuation case in Australia serves as a clear warning—Mercer was fined AUD 11.3 million (USD 7.2 million) for falsely marketing its “Sustainable Plus” pension fund as excluding fossil fuels, gambling, and alcohol investments, when in reality, such investments were present[3]. Similarly, Deutsche Bank subsidiary DWS faced significant penalties after German authorities and the U.S. Securities and Exchange Commission (SEC) investigated its ESG claims. In 2023, DWS was fined a combined USD 25 million for overstating its ESG credentials in investment products and failing to establish a proper anti-money laundering program[4]. These cases highlight a regulatory shift from simple compliance warnings to substantial financial penalties and legal consequences under securities fraud and misrepresentation laws.

ESG Enforcement in Southeast Asia

While Southeast Asia has yet to impose similar financial penalties, enforcement is increasing. Advertising regulator in Singapore has begun scrutinizing greenwashing claims, and regulatory frameworks are evolving to align with international ESG standards. This shift signals that businesses must proactively strengthen compliance efforts to avoid regulatory scrutiny and potential financial repercussions in the near future.

A notable case is the VietJet incident in Singapore, where the Advertising Standards Authority of Singapore (ASAS) ruled against the airline’s misleading green marketing campaign. VietJet promoted its “Green Friday” sale, suggesting that discounted air tickets contributed to a greener future, and made claims about the environmental benefits of its fleet and digital services. ASAS determined that the claims were misleading, lacking substantiation, and ordered their removal. This case underscores the increasing regulatory vigilance in the region and the expectation for businesses to ensure transparency and accuracy in their ESG-related claims.[5]

Key Greenwashing-Related Legal Frameworks in Malaysia

From a legal standpoint, misrepresenting ESG commitments may constitute corporate fraud, misleading advertising, or securities violations. In Malaysia, key statutes that regulate corporate misrepresentation and deceptive business practices include:

• Capital Markets and Services Act 2007 (CMSA) – Prohibits false or misleading statements in securities offerings, which could include ESG-related financial disclosures.
• Companies Act 2016 – Addresses fraudulent trading and misrepresentation in business dealings.
• Financial Services Act 2013 – Regulates misrepresentation in financial products, including sustainability-linked investments.
• Consumer Protection Act 1999 – Prohibits misleading claims in advertising and marketing, including environmental claims.
• Malaysian Anti-Corruption Commission (MACC) Act 2009 – Covers governance failures that may arise from unethical ESG reporting.

Given this legal landscape, businesses must recognize that ESG deception or greenwashing can expose them to regulatory enforcement, lawsuits from stakeholders, and significant reputational damage.

The Cost of Inaction is High

For corporate leaders, the message is clear: ESG compliance is no longer optional. Regulators are tightening enforcement, investors are demanding transparency, and consumers are holding businesses accountable. Companies that fail to substantiate their ESG commitments risk financial penalties, regulatory scrutiny, and loss of investor trust.

If you have any questions or require any additional information, please contact Andreanna Ten Maven or the partner you usually deal with at Zaid Ibrahim & Co.

This article is for general information only and is not a substitute for legal advice

[1] https://www.bloomberg.com/news/articles/2024-03-20/klm-loses-dutch-greenwashing-case-on-climate-advertising

[2] https://www.reuters.com/business/energy/italys-top-administrative-court-upholds-eni-appeal-against-biofuel-fine-2024-04-24/

[3] https://asic.gov.au/about-asic/news-centre/find-a-media-release/2024-releases/24-173mr-asic-s-first-greenwashing-case-results-in-landmark-11-3-million-penalty-for-mercer/

[4] https://www.reuters.com/legal/dws-pay-25-mln-over-us-charges-over-esg-misstatements-other-violations-2023-09-25/

[5] https://www.eco-business.com/news/vietjet-promotion-for-eco-friendly-budget-air-tickets-scrapped-after-greenwash-ruling-by-singapore-ad-watchdog/

‍

In late September 2024, Malaysia saw significant developments in its environmental sector when the Ministry of Natural Resources and Environmental Sustainability (“NRES”) announced the new national policy on climate change (“NPCC 2.0”). A consultation paper (“Consultation Paper”) for a national climate change bill (“NCCBill”) followed soon after, inviting public opinion and input for Malaysia’s climate change act.

The release of both documents was long awaited and arguably overdue, given that Malaysia’s last climate change policy (“NPCC 1.0”) was released almost 15 years ago. Since 2019, both the Pakatan Harapan and Perikatan Nasional administrations have made various announcement about an upcoming climate change act.

What does NPCC 2.0 contain and how does it differ from NPCC 1.0? What does Malaysia’s climate change act aim to achieve and how does it compare against climate change legislation in other jurisdictions? Most importantly, how does the NPCC 2.0 affect Malaysia and Malaysians? Amin Abdul Majid and Cheng Yen of Zaid Ibrahim & Co.’s Infrastructure, Energy and Utilities Practice Group briefly explore these important questions.

National Policy on Climate Change 2.0

NPCC 2.0 is a formidable instrument, more than double the length of NPCC 1.0 and similarly extensive in reach.

NPCC 2.0 was released in the context of Malaysia having recently gone through various extreme climate events, including suffering RM7.9 billion losses from floods, while on the other hand, increasing greenhouse gases emissions by more than 30% since 2005. In the light of these sobering statistics, NPCC 2.0 pushes for and authorises the development of regulatory instruments for Malaysia’s climate related strategies, to help put things right.

NPCC 2.0 attempts to do this through its four guiding principles:

• upholding the principle of “common but differentiated responsibilities” which lies at the heart of the Paris Agreement;
• ensuring a just and equitable transition;
• adopting a whole of society and nation approach; and
• forming integrated and multi-sectoral solutions to address climate mitigation and adaptation.

The first principle was one that we had already seen in NPCC 1.0, but the other guiding principles in NPCC 2.0 displays a more serious commitment to our national climate agenda and international obligations.

There are five strategic thrusts arising from the guiding principles, and they are depicted below.

Interestingly, unlike the earlier NPCC 1.0, NPCC 2.0 contains what appears to be deliverables for the Malaysian Government, termed ‘catalytic initiatives’ under each Strategic Thrust, which are intended to boost Malaysia’s climate actions. They are as follows:

There are no fixed timelines for each of these catalytic initiatives and it would appear that they can all be implemented concurrently. This will allow Malaysia to adopt what is commonly known in climate change circles as the “all of the above” approach for climate action.      

In summary, the NPCC 2.0 is a promising development for Malaysia and has the potential to encourage initiatives and investments in the many areas and activities that it covers. As one example, and which we discuss in more detail below, the prospective climate change act can facilitate the collection of reliable data, leading to the strengthening of confidence in our climate research, our proposed climate actions and direction of travel. The focus on carbon pricing and carbon markets in NPCC 2.0 also means that the business community and investors can anticipate active developments in this area, most likely following the path that led to Malaysia’s voluntary carbon market and our responses to the European Union’s Carbon Border Adjustment Mechanism.

A final point that should be mentioned is that Malaysia would benefit from learning our lessons from NPCC1.0 and assessing how it fared, and how the new policy can do better. It is not insignificant that the NPCC 1.0 sets out important principles, strategic thrusts and key actions, yet did not appear to consistently guide Malaysia’s development of climate strategies. In fact, the NPCC 1.0 received no specific mention in Parliament when climate-related legislation such as the Renewable Energy Act, Sustainable Energy Development Authority Act and Energy Efficiency and Conservation Act were debated and passed. It would be advisable for NRES to investigate the reasons for this and come up with improvements to better facilitate the successful implementation of NPCC 2.0, upon which so much of our environment and wellbeing depends.    

National Climate Change Bill

In 2019 and 2020, the Malaysian Government announced that a national climate change framework was being drafted and a climate change act for Malaysia was imminent. Working on these announcements, and given that no legislation was in fact introduced, in 2021 our Infrastructure, Energy and Utilities Practice Group attempted to envisage what the important legislation would prescribe, and an article was published with the aim to facilitate discussion.

Our article expressed expectations and hope that the legislation would at least contain a definite emissions target; the concept and application of accountability to achieve such target; the establishment of an institution to assist the Malaysian Government to obtain independent advice on climate change; and regulations on an emissions trading scheme or system. Looking at the Consultation Paper issued by NRES in early October 2024, it appears that the NCC Bill will have these and more.

One can gather from the Consultation Paper that the NCC Bill would have the following sections and provisions:

Of these proposed provisions, the following subject matters are of special interest:

• the formulation and implementation of national targets, with clear benchmarks for emission reductions sustainable practices;
• the establishment of a regulatory entity to administer, implement and enforce the legislation;
• the mandating of data and information requirements through the development of a national integrated climate data repository;
• the establishment and regulation of carbon trading and an emission trading scheme (“ETS”); and
• the establishment of a national registry for climate change.

On the subject matter of national targets, it is encouraging that the Government intends to prescribe that the NRES Minister will regularly set targets, consistent with Malaysia’s obligations to submit Nationally Determined Contributions under Article 4, Paragraph 2 of the Paris Agreement. Unlike legislation in other jurisdictions, such as the United Kingdom and Denmark, the responsibility of the Minister does not appear to extend to bearing responsibility for the targets set. It seems also that the important commitment to come up with targets that are progressively better has been omitted – making it possible that Malaysia’s targets at some point may be less ambitious than the previously declared aspiration. This is also rather disappointing, considering the need to introduce and implement the catalytic initiatives discussed above.

The proposed sections on data and a national registry in the NCC Bill are commendable, not least in facilitating the collection of reliable data that will enable repeatable research and analyses. Malaysia already has considerable expertise in data collection as demonstrated in the databases hosted by the Department of Statistics, the Energy Commission and National Hydraulic Research Institute of Malaysia, to name a few. The intended mandating of data input is likely to improve this process, especially if contributions from all agencies and States can be secured on a regular basis. It is possible too that the data required for the implementation of the eventual Climate Change Act will need to focus on carbon emissions, measurements and monitoring; some of which are new areas for Malaysia. It should be noted that other jurisdictions may not have this component in their climate change legislation, but this is often because countries such as New Zealand, the Philippines and the state of Victoria in Australia already have legislation relating to access to information and data.

In as far as carbon trading and the ETS are concerned, the Malaysian Government’s intent to introduce carbon taxes have been made clear in the recent Budget speech in October. Malaysia must therefore implement carbon taxes and other related initiatives in accordance with best practices. This includes adopting a phased approach to allow for refinements, as has been the practice in Singapore. Singapore’s Government seta carbon tax of S$5/tCO₂e for the first five years from 2019 to 2023 to provide a transitional period for emitters to adjust. To support its net zero target, Singapore raised its carbon tax to S$25/tCO₂e with effect from 2024. It will be raised to S$45/tCO₂e in 2026 and 2027,with a view to reaching S$50-80/tCO₂e by 2030. This phased approach has given the Singapore Government more time to socialise the new fiscal measure, making it more palatable.

One general observation is that the NCC Bill, as currently proposed, will facilitate our collective achievement of international climate commitments. But this may not be enough to address other interplaying issues that arise from climate change. From the information that can be gleaned from the Consultation Paper, there is a focus on greenhouse gases, carbon emissions and credits but the NCC Bill could perhaps benefit from more directly addressing other matters raised in the new NPCC, such as utilising climate action to catalyse economic growth and climate justice.

As mentioned in the NPCC 2.0, the transition to a low carbon economy and climate resilient development must be careful and responsible, taking into account and being empathetic towards the livelihoods of Malaysians, particularly vulnerable groups. Since we wrote on the potential climate change legislation for Malaysia, the country has seen the introduction of various relevant policies such as the Renewable Energy Roadmap, the National Energy Transition Roadmap and the National Industrial Masterplan which focuses on a just transition, but it is unclear if and how these national plans will be facilitated by the NCC Bill.

Furthermore, we have noticed that civil society organisations have highlighted that the Bill focuses more on mitigation when adaptation and loss and damage should also be prioritised. Delay in paying attention to these areas can lead to poor upholding of climate justice in Malaysia.

The NCC Bill could be more robust from a climate justice perspective by introducing provisions to empower the Minister to prescribe regulations on adaptation and loss and damage and give national plans on these areas the force of law. Such regulations could, for instance, provide for funding to be given to local governments to enable them to implement necessary changes to adapt to loss and damage.

The regulations could also create mechanisms to enable vulnerable communities who have been impacted to have their say on measures to address loss and damage. Inspiration could be taken from other countries, for example:

• Japan’s Climate Change Adaptation Act 2018 allows authorities to take effective adaptation measures in various fields based on reliable scientific information. It also requires municipalities to establish local climate change adaptation plans.
• Philippines’ Climate Change Act 2009 expressly requires local government units to formulate local climate change action plans in accordance with the Local Government Code, the Framework and National Climate Change Action Plan of Philippines and treat adaptation as one of the irregular functions.

Conclusion

The recent release of the NPCC2.0 and the NCC Bill are very much welcome developments in Malaysia. However, in as far as the NCC Bill is concerned, there are a few aspects that can be improved. It is encouraging that NRES has opened an avenue for feedback, giving the public more than one month to provide their inputs. It is hoped that this opportunity of input and feedback created by NRES can be fully utilised. Given the complexities of a seminal legislation such as a climate change act, stakeholders including civil societies must be given sufficient time to provide their views.

If you have any questions or require any additional information, please contact  Amin Abdul Majid or the partner you usually deal with in Zaid Ibrahim & Co. This article was prepared with the assistance of Cheng Yen, Associate at Zaid Ibrahim & Co.

This alert is for general information only and is not a substitute for legal advice.

Climate change, net-zero and carbon neutral commitments are now fuelling the growth of electric vehicle (EV) sales. Other factors such as high oil prices come into play too and they contribute to the global shift to emission-free motoring. Across ASEAN, many countries are aiming for a more significant impact for the EV industry by introducing policies encouraging the use of EVs. These lead to the implementation of EV roadmaps, the introduction of tax exemptions and incentives and collaborations with the private sector.

This publication sets out how ASEAN is driving towards green mobility with a focus on the growth of the EV industry. Increased government support will lead to more investors in the region, which in turn will encourage more regional growth and choices in the EV market. The future of EV is promising, offering much choice for existing assets and incumbent players alike, and provide new opportunities and promising returns.

‍

In this publication, we share our insights on the recent developments in ASEAN on the promotion of renewable energy generation and tackling climate issues. From the increasing importance of solar and other renewable energy sources, energy efficiency efforts, development of regulatory and fiscal policies and frameworks in stimulating renewable energy generation, to the growing case for green finance and investment opportunities, we hope this publication gives you a useful and holistic overview of how ASEAN can and is rising to the challenge.

‍