Infrastructure, Energy and Utilities

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 (in association with KPMG Law) 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. (in association with KPMG Law). This article was prepared with the assistance of Cheng Yen, Associate at Zaid Ibrahim & Co (in association with KPMG Law).

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

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