KUCHING: To combat the effects of climate change, firms are being urged to take proactive measures to reduce their carbon emissions.
One effective approach is through the use of cutting-edge technology and carbon pricing strategies, such as carbon credits.
Universiti Malaysia Sarawak (Unimas) economist Jerome Kueh said it was important to strike a balance between economic growth and environmental preservation, noting that carbon credits could provide a monetary incentive for firms to invest in technology that reduces their carbon emissions.
“With the carbon credits, it can encourage firms to actively take part in reducing their carbon emissions via monetary incentive. In other words, the firms will have to abide by a higher cost if they are unable to reduce the carbon emission in their operation,” Kueh said in an interview with New Sarawak Tribune on Saturday.
For instance, consider a hypothetical scenario where you operate a business that emits a significant amount of carbon dioxide (CO2) into the atmosphere.
Instead of investing in expensive equipment and machinery to reduce carbon emissions in their own operations, businesses have the option to purchase carbon credits that fund projects aimed at reducing emissions in other locations, such as a carbon capture, utilisation and storage (CCUS) project in the North Luconia province offshore from Bintulu.
This approach not only offsets the business’s emissions but also provides funding to projects and initiatives that may not have been feasible otherwise.
“Breakthroughs in climate technology are crucial to achieving our environmental goals, but they come at a high cost. Carbon credits provide an incentive for emission producers to redirect capital towards those actively reducing or eliminating emissions,” explained Kueh.
On carbon pricing methods in the market, Kueh said that firms could also reduce their carbon emissions through methods such as the Emission Trading Scheme (ETS), carbon tax and carbon credits.
However, globally, the World Bank’s State and Trends of Carbon Pricing 2022 report indicates that there are currently 68 carbon pricing instruments in operation, with the number anticipated to grow due to the recognition of carbon pricing as a critical policy tool in driving businesses towards decarbonisation and promoting the adoption of low-carbon technologies.
Under the ETS, the price of emission is determined through market demand and supply of carbon emissions.
“It involves trading of emission units to fulfill their emission target. The ETS comprises either cap-and-trade, which indicates the limit of carbon emission and allowances or permits to emit carbon to match the limit,” he added.
This method creates a market incentive for firms to reduce their carbon emissions and promote sustainability.
In contrast, the carbon tax refers to a tax on carbon emissions volume, such as a price per ton of carbon emission.
“This means that emitters will pay the tax equivalent to the tonnage of carbon emission,” Kueh elaborated.
He noted that the tax rate can be reduced if firms lower their carbon emissions, for instance by utilising energy-efficient technology.
“Given that businesses are already facing challenges such as rising inflation, geopolitical instability, and the post-Covid-19 recovery, introducing a tax at this point would be unpopular and burdensome,” he said.
“Carbon credit, meanwhile, is like a currency traded in the market, representing a unit of measurement for carbon allowances,” said Kueh.
“It’s often associated with the term ‘offsets,’ as they work hand in hand in mitigating the carbon footprint,” he added.
“The internal carbon pricing (ICP) for CIMB is currently set at RM70 per tonne of carbon dioxide equivalent (tCO2e) emitted in Malaysia,” a CIMB analyst said when contacted.
“Our projections show that the ICP may rise to RM335/tCO2e by 2028 to 2030.”
CIMB Bank Bhd is among the three Malaysian-listed firms that have ICP in place, alongside Sunway Group Bhd and Malayan Banking Bhd (Maybank).
“So we can estimate the amount of revenue that Sarawak will receive if we engage in carbon trading,” Kueh said.
Explaining further, he pointed out that carbon offsets, which generate carbon credits, involve the reduction of carbon dioxide emissions in various ways, such as through forest preservation.
“Businesses can trade in carbon credits for every metric ton of carbon dioxide reduced by preserving forests or investing in other carbon offset projects,” he said.
In fact, preserving trees to absorb carbon is a straightforward approach to emission reduction and carbon credit generation, attracting billions of funding from institutions seeking to benefit from carbon credits.
“It’s a simple idea that has attracted a lot of attention from institutions looking to capitalise on carbon credits,” added Kueh.
In line with this, a senior analyst specialising in carbon trading at J.P. Morgan Chase Bank Berhad revealed to New Sarawak Tribune that the bank’s Campbell Global unit recently purchased approximately 250,000 acres of forest in Mississippi, Oklahoma, and Arkansas for over $500 million in early February of this year, specifically for carbon capture with the goal of generating credits.
That being said, Kueh advised that the choice of carbon pricing methods in Sarawak should take into consideration the market’s readiness, efficiency and economic conditions.
“Optimising the benefits of carbon pricing requires determining the most suitable pricing methods for market conditions,” said Kueh.
“For example, the carbon tax method may be a feasible option at the initial stage, but a hybrid approach or integration of different pricing methods can be considered when the market becomes more mature and efficient.”
Kueh also pointed out the need for a comprehensive monitoring mechanism to ensure sustainability, transparency and prevent adverse impacts.
“The demand for carbon credits highlights the necessity of an open and transparent market,” he added.
“The credibility of issued credits must be based on actual emission reductions, which requires precise quantification and verification.”
“Without a clear understanding of how carbon credits operate and their significance in promoting sustainability, the success of the carbon credit market cannot be guaranteed,” Kueh cautioned.
He made this statement in light of Bursa Malaysia’s plans to use Verra-certified credits in the voluntary carbon market.
Market analysts have pointed out that at least 90 per cent of Verra’s projects demonstrated “no benefit to climate” and could contribute to global warming instead of reducing it.
Verra is one of the biggest certifiers of carbon credit projects globally, and corporations like Shell, Gucci, Disney and Netflix have bought their credits to offset emissions.
