Its troubles are compounded by sluggish global demand for carbon credits and a delay in deforestation risk maps by the world’s largest carbon credit certifier, Verra.
The latest blow comes in the form of the resignation of Nik Nazmi Nik Ahmad, Malaysia’s minister of Natural Resources and Environmental Sustainability (NRES). He was one of two cabinet ministers who opted to step down from their ministerial roles last month after losing internal elections for the People’s Justice Party, led by Malaysian prime minister Anwar Ibrahim.
Nik Nazmi has championed a common carbon framework for the Asean region under Malaysia’s chairmanship of the regional bloc this year.
Verra’s regional representative for East and Southeast Asia Tan Win Sim said that Nik Nazmi’s resignation is one of several factors challenging progress in the region’s carbon market.
“For many of the policies (under Nik Nazmi’s purview), please expect further delay,” he said at the Asia Carbon Conference in Kuching last month.
Among the major policies NRES has been working on since the minister’s appointment in 2022 are a national climate change bill, which Nik Nazmi previously aimed to table in Parliament this year, as well as a national carbon market policy.
Simon David, deputy undersecretary of NRES’ climate change division and head of the ministry’s unit on Reducing Emissions from Deforestation and Forest Degradation (REDD+), said that the national carbon market policy has reached its final stage, having spent one and a half years in development.
“The policy will cover the institutional and operational framework for Article 6 implementation,” he said at the same event. A national marginal abatement cost curve is also being developed.
The ministry is also considering allowing the national carbon tax, which will come into effect in 2026 for hard-to-abate industries, to include provisions for carbon offsets. “We are looking at (an offset allowance) of 5 per cent right now,” said David.
Malaysia is currently preparing its own protocol for Forest Carbon Offsets (FCO), which is being spearheaded by the Malaysia Forest Fund, an agency under NRES. The agency is currently inviting public feedback on the methodologies being used for the FCO, which include REDD+; afforestation, reforestation and restoration; improved forest management and wetland restoration.
With voluntary carbon markets otherwise facing weak demand, Verra chief executive Mandy Rambharos recently said that voluntary carbon markets must move towards compliance and regulation.
Methodology delays
However, government support for nature-based carbon projects has not been enough to galvanise project development.
Although countries such as India, Bhutan and Nepal have a “positive list of methodologies”, which prioritises and welcomes investments in certain types of carbon projects, securing those projects has not been simple, said Tan.
The complexity of methodology documents has made them difficult to understand.
“So, what (Verra) has been doing behind the curtain…is working with governments to explain the nuances of these methodologies,” he said.
However, the lack of public and investor access to official land and forest-related data has also hindered carbon project development, said Tan.
“We are trying to work on solutions with governments so that we can have some data publicly available, but not to the extent that it would threaten or give (rise to) insecurities for the government,” said Verra’s Tan, acknowledging that governments prefer not to publicise data on deforestation.
Verra recently announced a delay to the publication of deforestation risk maps required for registering projects under its Avoided Planned Deforestation (APD) methodology, VM0048. On 23 May, the certifier said that it would only release provisional open-access data for Peru in late June, and for Cambodia, Colombia and several states in Brazil and the Democratic Republic of Congo later this year.
The final maps had been expected to be published this year, but the provisional data will still have to clear third-party reviews before they can be released.
Unfortunately, even “having jurisdictional data completed earlier for Malaysia doesn’t help to advance projects here, because what is missing is the APD module,” said Tan.
A lack of funding has been one of Verra’s main challenges in completing the module, he added.
“Resources are tight and it is very expensive to develop the data because it’s not just (current) forest data – we’re talking about years of (historical) forest data, trends and the risk map, or what the drivers of deforestation are in each country. It’s costly,” said Tan.
Panellists at the Asia Carbon Conference in Kuching, Sarawak discussed the challenges facing the region’s carbon market proponent and project developers. Image: Samantha Ho/ Eco-Business
Katingan sees active trades
Offering some hope to project developers, Hinno Wurfbain, head carbon trader for Asia Pacific at carbon trading firm ACT Commodities pointed out that some nature-based carbon projects have seen their credits perform well in the voluntary market.
Wurfbain cited the example of Indonesia’s Katingan Mentaya project, which involves the conservation and restoration of a peatland forest in Central Kalimantan.
Carbon market data by market intelligence firm Argus Media showed that as of 23 May, Katingan credits were the most traded carbon credit in the voluntary carbon market this year. Its 2022 vintage has traded as high as US$7.70, while similar projects in the region are priced below US$6.
“Demand appeared to rise exponentially after ratings agency BeZero upgraded its assessment of Katingan to ‘AA’, one short of its highest rating,” said the report. The rating means that the project has a very high likelihood of achieving its stated climate impact, although a 2021 Nikkei investigation found that the project had overstated its potential emissions reduction.
Elsewhere, however, nature-based carbon projects in the region saw muted interest. Activity for projects such as the peat swamp forest-based Rimba Raya, also located in Indonesia, and Cambodia’s Southern Cardamom rainforest conservation project, was mostly driven by sellers of carbon credits, Argus data showed.
Potential carbon trading blocs
Carbon project proponents have also been left confused over the current progress in implementing Article 6, a clause under the Paris Agreement that encourages countries to collaborate to reduce emissions through carbon trading.
Lawrence Chia, chief executive officer of Malaysian timber giant Samling, said project developers are still uncertain over whether they should be developing carbon credits for international trade or if they should only be retired domestically, so that host countries can meet their Nationally Determined Contributions (NDCs) under the Paris Agreement.
Samling’s subsidiary Sara Carbon, which Chia also leads, has been developing the Marudi forest conservation and restoration project in Sarawak. The project, which is currently being validated by Verra, has faced pushback from Indigenous groups concerned that they would lose access to native lands.
Chia said that he has been in close communication with Malaysian and Singaporean stakeholders, but with every country trying to develop their own legislation around carbon trading, progress has been slow. “Without that, I think it’s very difficult for us to have a robust domestic market,” he said.
Although Singapore has signed implementation agreements with Peru, Chile, Ghana, Bhutan and Papua New Guinea, the only agreement currently enforced is the one with Ghana, according to the country’s official Article Six website.
“Unfortunately, we tend to do a lot of this (policymaking) on a national basis, and we’re therefore very siloed in the way we do things,” said Chia. “It’s a big challenge to get some consistency and uniformity in terms of (carbon as a) commodity.”
Several observers suggested that Southeast Asian countries should focus on carbon trading amongst themselves, in order to create a more liquid market.
However, out of 10 Asean countries, Verra’s Tan pointed out that Singapore is likely to be the only nation to prioritise buying carbon credits, while other countries have chased the development of their own projects to enhance supply.
However, Asean nations could consider taking the same approach to negotiating as a bloc in carbon markets as it has done for trade agreements, Tan suggested. He cited the outcome of the recent Asean Summit in Kuala Lumpur, where Asean formed a bloc with China and the Gulf states under the Gulf Cooperation Council.
“It would be quite ambitious (to achieve the same outcome for carbon markets), but we do need those buyers to come in and signal interest (in buying carbon credits),” he said. Otherwise, he said, allowing only inter-Asean trade of carbon credits is unlikely to work.
