Carbon market initiative to open door to private capital for climate action

 National Carbon Market Policy can serve as a financing mechanism by attracting private investment into low-carbon projects and environmental conservation.

Climate change is causing increasingly unpredictable weather patterns, including extreme heat. (Bernama pic)

PETALING JAYA:

Climate change, which has led to increasing incidence of extreme weather patterns, has evolved from just an environmental issue to one with severe economic consequences.

In 2025 alone, floods caused RM636.9 million in losses in Malaysia. In 2024, the damage was even more costly — at RM933.4 million. Homes, infrastructure, public assets, agricultural land, vehicles and business premises have been damaged or destroyed.

The World Bank has estimated that heat stress, floods and declining crop yields could lower Malaysia’s gross domestic product (GDP) by up to 8.3% by 2050 if measures are not taken to adapt to climate change.

Against this backdrop, financing remains a key challenge as the transition to clean energy, low-carbon technologies, waste management, forest restoration and climate-resilient infrastructure requires substantial investment.

To counter the impact of climate change, the government has introduced a framework to develop a transparent and high-integrity carbon market.

The initiative under the National Carbon Market Policy (NCMP) that was launched by natural resources and environmental sustainability minister Arthur Joseph Kurup on April 21, 2026, will include mechanisms for the generation, verification and trading of carbon credits.

In simple terms, one carbon credit represents a tonne of carbon dioxide equivalent (tCO₂e) that has been prevented from entering the atmosphere or removed from it.

Universiti Kebangsaan Malaysia environmental economics lecturer Norlida Hanim Salleh said greenhouse gas (GHG) emissions from activities such as the burning of fossil fuels, transportation, agriculture and landfills contribute to global warming.

Norlida Hanim Salleh.

“GHGs are essential to keep the Earth’s temperature at a suitable level to sustain life. But a high concentration of it traps heat in the atmosphere, causing temperatures to rise,” she told FMT.

“Higher temperatures not only cause hotter climates but also leads to extreme weather patterns such as more frequent floods,” she added.

More than just trading carbon credits

Universiti Sultan Zainal Abidin Faculty of Applied Social Sciences dean Khairul Amri Kamarudin said NCMP should not be viewed merely as a system for buying and selling carbon credits.

Instead, he said, it could serve as a climate-financing mechanism to attract private capital into low-carbon projects.

Khairul Amri Kamarudin.

“Climate change is not only an environmental issue. It is also a development financing issue,” he said.

Khairul said climate-related projects are costly, and the government could not be expected to shoulder the entire financial burden, making the private sector, financial institutions and international funding sources important.

However, he said the carbon market should not become an excuse for companies to continue polluting and simply buy credits to offset their emissions.

“First, we must make reducing emissions the priority, then use carbon credits for the emissions that are difficult to avoid.

“This includes improving energy efficiency, using renewable energy, clean technologies and low-carbon production processes,” he said.

According to the natural resources and environmental sustainability ministry (NRES), Malaysia has the potential to reduce up to 56 million tonnes of carbon dioxide equivalent (MtCO₂e) by 2030, with about 70% of this achievable through low-cost solutions such as energy efficiency.

The remaining 30% involves emissions that are more difficult to reduce and require more expensive mitigation technologies.

The NCMP could potentially help finance such projects through the carbon market, while also encouraging investment in solar energy, waste management, forest restoration and low-carbon technologies.

Credits must deliver real impact

Khairul said the success of the carbon market would ultimately depend on the extent to which it delivers actual emissions reductions, rather than merely increasing the volume of credit transactions.

He said forest conservation, for example, not only absorbs carbon but also regulates water flows, protects catchment areas, reduces erosion, and preserves biodiversity.

NCMP is among the economic instruments aimed at helping Malaysia meet its nationally determined contribution (NDC 3.0) target of reducing emissions by an absolute 15 million to 30 million tonnes of CO₂ equivalent by 2035, before achieving net-zero GHG emissions by 2050.

NRES said NCMP would also lay the foundation for future carbon-pricing instruments such as an emissions trading scheme (ETS) and carbon tax.

It also supports Malaysia’s participation in international carbon markets under Article 6 of the Paris Agreement.

At the same time, the National Climate Change Bill, which is being finalised, is expected to strengthen the legal framework, emissions reporting and verification, as well as the national carbon registry.

This is important to ensure carbon credits can be tracked openly, and to reduce the risk of double counting. - FMT