Energy Transition, Carbon

September 06, 2024

INTERVIEW: Malaysia's Sarawak state to receive carbon license for first nature-based project in 'very near term' - SaraCarbon

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By Ivy Yin


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HIGHLIGHTS

Marudi project to deliver 1.3 mil-1.4 mil credits per year

Development cost for each credit at $5-&8/tCO2e

To progressively engage over 50 indigenous communities

Malaysia's Marudi Forest Conservation and Restoration Project is expected to receive its carbon license from the Sarawak state government in the "very near term," allowing for carbon credit issuance and trading, Francois Blignaut, project lead at SaraCarbon, told S&P Global Commodity Insights in a recent interview.

The Marudi project is significant because it is resource-rich Sarawak state's first nature-based carbon project and is expected to be one of Malaysia's largest nature-based projects by carbon credit issuance volume, amid the country's efforts to boost its pipeline of projects in the voluntary carbon market.

Malaysia's island of Borneo is covered by about 40 million hectares of forests, according to the World Wildlife Fund, but this area has been declining over the past few decades due to human activity. Sabah and Sarawak, the two states in Borneo, have great potential to develop nature-based carbon projects and address deforestation.

SaraCarbon is a subsidiary of Malaysia's timber giant Samling and the proponent of the Marudi project, which is being developed in accordance with the VM0007 REDD+ (reducing emissions from deforestation and forest degradation) methodology under Verra, the world's largest voluntary carbon credit issuer, Blignaut said.

After receiving the carbon license, SaraCarbon can proceed with project validation, paving the way for carbon credit issuance. Blignaut shared that the Marudi project will deliver approximately 1.3 million to 1.4 million credits per year, although the issuance volume may be lower in the initial years.

"We have already appointed the VVB [verification and validation body]. We have been informed by the Forestry Department of Sarawak that they are finalizing the terms and conditions of the carbon license," he said.

Blignaut said the development cost, namely the breakeven price, for each Marudi credit is approximately $5/tCO2e to $8/tCO2e.

Platts, part of Commodity Insights, assessed the nature-based avoidance carbon credit price at $4.6/tCO2e on Sept. 4. This is the Platts assessment that reflects REDD+ credit prices globally.

Blignaut explained that the development cost also includes charges imposed by the Sarawak state government, such as a royalty of MR260 ($59) per hectare of the project area. Additionally, the Sarawak government will charge an ecosystem fee equivalent to 5% of the revenues from carbon credit sales, according to local regulations.

He mentioned that the Marudi project has not yet applied for a CCB (Climate, Community and Biodiversity) Standards label. The plan is to first complete VCS (Verified Carbon Standard) certification and secure the carbon credits. Subsequently, they will assess the possibility of obtaining additional labels based on market requirements and potential price premiums.

Indigenous communities

Mitigating negative impacts on indigenous communities is another tricky issue that hinders Malaysia's nature-based project implementation, especially in the east. Indigenous groups account for more than half of the populations in Sarawak and Sabah, with many of them living within or near the forest reserves.

Some non-government organizations have already criticized carbon projects for violating the rights of Malaysia's indigenous people. The Marudi project is no exception.

"While I am not directly in conversation with potential buyers, we recognize the potential impact of various NGO criticisms on their confidence in Malaysian carbon credits. International buyers, conducting due diligence, may come across negative news and misinformation," Blignaut said.

Before Sarawak, Sabah's first nature-based project, the Kuamut Rainforest Conservation Project, was registered with Verra and has already begun carbon crediting.

Blignaut said that over 50 indigenous communities have been engaged in the development of the Marudi project. "In comparison with Kuamut, we have engaged eight times more communities in our project area."

He added that the Marudi project is located on land classified as either state land or forest reserve, with only a small number of indigenous communities residing within the project boundary.

"Notwithstanding there are no formal legal rights to the project area, we recognize and respect the communities' connection to the area, and we are committed to working together with the local communities," Blignaut explained.

While local communities will not be prevented from entering the forest for hunting and foraging for their own consumption, indigenous people need to be restricted from cutting trees to safeguard the REDD+ project, he said.

They will conduct patrols and use satellite monitoring to identify any encroachment and unlawful activities in the project area, he added.

Meanwhile, Blignaut said they have appointed UNIMAS Holdings as their consultant to help assist with engaging the local communities. Specifically, they will work with UNIMAS to discuss with these communities and implement projects, such as livestock rearing and gardening, to provide alternative sources of income.

He emphasized that these projects will be tailored to the needs of each community and will not be implemented without their consent. Additionally, projects will be carefully selected to avoid conflicting with the goals of carbon sequestration.

He added that these community engagement projects will be implemented progressively.

"Attempting to undertake 50 projects simultaneously would be a huge logistical challenge and financial burden, especially considering that no VCUs [voluntary carbon units] have been sold yet," Blignaut said.

"We are prioritizing communities within the project boundaries to ensure they do not continue activities that might negatively impact the Marudi project."