Carbon credits set to become increasingly important

KUALA LUMPUR: Carbon offsets remain a crucial tool in facilitating the decarbonisation efforts of corporations, contrary to some critics, says Bursa Malaysia head of carbon market Dr Chen Wei Nee.

Carbon offsetting is an activity that compensates for the emission of carbon dioxide or other greenhouse gases by providing for an emission reduction elsewhere.

These offsets typically involve projects that either reduce or remove emissions from the atmosphere. At the core of carbon offsetting is an instrument known as carbon credits.

Over the years, some have critiqued carbon credits as delaying tactics and not incentives in decarbonisation efforts, as it appears that businesses can continue to pollute by “offsetting” emissions in other places.

Chen said there are reports which have revealed that corporations that invest in carbon offsets are twice as likely to decarbonise at a faster pace than those that did not.

“When companies buy carbon offsets, it is an annual commitment. Hence, they are actually incentivised to reduce their carbon emissions. There are certain sectors, such as oil and gas for instance, that have very expensive costs when it comes to decarbonising, especially those in the upstream segment.

“To reach a final investment decision will take many years. However, in those years, do you want to encourage those companies to support carbon offsets or do nothing? I think the answer to that is very clear. The key thing is to not give companies an excuse to delay their climate-mitigation actions.

“The important part here is the standards behind carbon offsets must be very credible,” she said during a panel discussion titled, “The Carbon Offset Controversy: Green Hero or Greenwashing?” at The Retirement Fund Inc’s (KWAP) Inspire Conference 2024 yesterday.

Currently, the Bursa Carbon Exchange (BCX), a platform where corporations trade carbon credits to offset emissions, only accepts carbon credits adhering to the Verified Carbon Standard, an international carbon-credits standard overseen by the standards body known as Verra.

Permodalan Nasional Bhd head of environmental, social and governance investments Dinagaran Chandra said a carbon market like the BCX is an important platform for raising climate financing for projects that would otherwise not get funded.

Dinagaran said, as such, in the short term, the carbon market needs to be scaled up.

“If we look at the demand for carbon credits, it is about a few billion US dollars annually. But come 2050, as countries and companies want to fulfil their net-zero pledges, they will have to access the carbon market to remove the last-mile residual hard-to-abate emissions.

“When that happens, in the most optimistic scenario, we are looking at a close to a trillion-dollar market.

“As an investor, we are monitoring the developments in the voluntary carbon market because we believe, in the future, there will be a lot more investable opportunities that we can also access,” he said.

Chen said the implementation of the right carbon pricing is very important to mobilise the take-up of carbon credits in the BCX.

“The liquidity in BCX is still very low for carbon credits, especially because it is still very new. It is still very difficult for corporations to voluntarily purchase carbon credits, as there is no compliance mechanism. The drivers for them to purchase credits are if their suppliers or customers are asking for it or from banks who are requesting them to demonstrate more decarbonising efforts.

“Therefore, the right carbon pricing is very important. If the government does choose to implement a carbon-pricing mechanism, which we believe they will do, the question is only when and how much.

“We also think that most likely they will have to introduce it in a very staggered manner, like Singapore, starting at a low price, but eventually the prices should come up,” she said.

Dinagaran said there is not enough time for businesses to wait for carbon markets to develop.

“I think we really need to think about the carbon mitigation hierarchy very closely, think about how to avoid emissions from your business activities, reduce emissions and that could vary from one sector to another.”

During the conference, KWAP also pledged to increase investment in transition assets to RM20bil by 2030.

KWAP chief executive officer Datuk Nik Amlizan Mohamed said the fund is solidifying its position as a sustainability thought leader, championing five sustainability pledges that will drive its commitment to innovative solutions benefiting all stakeholders.

The other four pledges are advocating for the social agenda, empowering partnerships for collective action, a net-zero portfolio by 2050 and enhancing sustainability governance.