Malaysia is poised to become one of Asia's leading carbon markets, according to global consulting giant McKinsey & Co.
Carbon markets are a crucial instrument for nations to reduce their greenhouse gas emissions and fulfill their Paris Agreement goals.
Such a market would help the country meet its climate goal and bolster new economic activities, said the consulting firm.
McKinsey & Co partner Vaibhav Dua, in responding to queries from StarBiz, said Malaysia has substantial natural endowments that could help it generate carbon credits. For example, it has about 18 million hectares of forest cover.
“Our modelling suggests that the country could generate up to 40 tonnes carbon dioxide equivalent (40 MtCO2e) of carbon credits annually through activities such as restoring degraded forests, mangroves and peatlands, and through better land management.”
“According to the consultancy’s analysis, Malaysia is among the top 10 countries in the world with the highest potential to generate credits through nature-based sequestration,” he said.
He noted that Malaysian demand for carbon credits might increase in the upcoming years, as nearly one-third of the top 80 Malaysian companies have announced their emission-reduction targets
Many of these companies operate in the energy and industrial sector, in addition to in-sector emissions reductions, carbon credits may be required to compensate for residual emissions, Vaibhav added.
Commenting on the economic side, McKinsey & Co engagement manager Rohan Jain said the potential for annual 40 MtCO2e of carbon credits could create a new US$0.5bil (RM2.32bil) to US$1bil (RM4.63bil) market for carbon credits in Malaysia.
He said the carbon markets could be a helpful instrument to enable Malaysia to meet its climate targets and keep companies competitive and create new economic activities in the country.
Malaysia has pledged to reach carbon neutrality by 2050. It requires not only reducing emissions but also maximising the carbon sequestered in its natural environment to fulfill the target, Rohan said.
Carbon markets are an effective tool to support those objectives, he added.
Rohan said carbon markets could help local companies meet their own climate targets, for example, by compensating for their hard-to-abate emissions.
He noted that high-quality carbon credits could be utilized to generate new offerings like “carbon neutral” products and services, as consumer sentiment globally is shifting towards environmentally friendly businesses.
“Generating carbon credits requires a host of new activities such as developing and executing carbon projects, validating carbon project design and verifying effective execution of carbon projects.”
“New services such as carbon financing, trading and advisory will also be demanded. Such services do not currently exist in Malaysia and will help create new capabilities in the country,” Rohan said.