INTERVIEW: Malaysia carbon trade body asks SBTi to include oil and gas sector

The newly established Malaysia Carbon Market Association has called on the global oversight body Science Based Targets initiative (SBTi) to set clear guidelines to enable oil and gas companies to participate in net-zero initiatives, Renard Siew, the president of MCMA, told S&P Global Commodity Insights in a recent interview.

SBTi sets standards for corporate net-zero emission targets based on scientific evidence for thousands of member companies worldwide. However, the topic of SBTi's inclusion of oil and gas companies has been controversial. It had excluded the sector from membership in 2022 due to challenging discussions around whether oil and gas can be decarbonized.

It has since said it would review the inclusion of oil and gas companies due to differing industry views, and is currently scheduled to release relevant standards by end-2024, according to its website.

Four out of the nine founding members of the MCMA are in the energy sector, including Malaysia's national oil and gas company Petronas, energy infrastructure and technology company Yinson Holdings, state-owned power utility Sarawak Energy and renewable project developer Cenergi-SEA. Petronas is one of the world's largest national oil and gas companies.

"We have been waiting for the longest time since 2017. A few major oil and gas players have always been asking SBTi -- 'We want to be part of this. How can we actually set targets aligned to SBTi?' But the working group within SBTi has never really come to a conclusion or a finalization," Siew said. He also serves as Yinson Group's head of corporate sustainability.

"In my opinion, I think leaving them (energy sector) out of the equation is probably not the right path to go, because a chunk of the emissions is from this sector," he said. "In fact, if you're talking about transition specifically, it is this group, this industry sector that needs to transition faster than any industry sector," Siew added.

He highlighted that, compared with other sectors, the energy sector in Malaysia is more informed about net-zero, with both Yinson and Petronas having committed to net-zero goals and pathways.

Use of carbon offsets

Siew also called for SBTi to allow the use of carbon credits to offset Scope 3 emissions that comprise indirect emissions in a company's supply chain.

In late July, SBTi said further investigation is needed to make a firm decision on whether carbon offsets can be used by companies to meet their Scope 3-related targets, and a draft standard was still being worked on for release in 2025.

Siew said SBTi's announcement created confusion in the market, and companies need carbon offsets for various reasons, including difficulties in managing indirect emissions, the need to finance carbon offset projects, and financially unviable technologies for hard-to-abate emissions.

"The purchase of offsets, at the end of the day, is not charity. You cannot just expect a corporate to say, at every year, when there's an auction by the BCX (Malaysia's Bursa Carbon Exchange), we go ahead and buy 1,000 [credits] to show support," he said.

"We can't afford to do that anymore. We need to address it from a strategic angle," Siew said, while explaining why companies need offsets to meet SBTi targets.

Upcoming domestic carbon tax

Siew said Malaysia's government plans to implement a carbon tax in 2025, driven partly by the EU's Carbon Border Adjustment Mechanism (CBAM), which imposes a cross border carbon tax on emission-intensive imports.

"The whole idea behind this is that they want to make sure that the taxes that they pay off don't get leaked out to the EU, but instead we reserve it for domestic purposes," he said.

Siew said Malaysia's steel and cement sectors will be impacted by CBAM. "So, they are the ones that have been quite vocal about trying to get a carbon tax," he added.

He said the government has yet to set the tax rate and the annual emission threshold that determines which companies should be enrolled in the carbon tax regime.

"From the government or minister, they need to get it right and not make the market panic with such information," he added.

Regional collaboration

MCMA is also pushing for the development of the Association of Southeast Asian Nations Common Carbon Frameworks, starting with dialogue with its counterparts in Thailand and Indonesia, Siew said.

He said Malaysia plans to leverage Thailand's existing T-VER [Thailand Voluntary Emission Reduction] methodologies to develop projects. The T-VER program has been operating since 2013 and already has dozens of methodologies that fit ASEAN's context.

"To develop one methodology, it could take years, like 1-2 years. So, with all our stakeholder engagements, I don't think we have time to waste," he said.

If Malaysia and other ASEAN partners recognize T-VER methodologies and develop projects following Thailand's paths, a lot of time could be saved, he said.

Another area for collaboration is nurturing Validation and Verification Bodies in ASEAN to reduce project development's time and costs, he added.