Malaysia is one of the non-Annex 1 Parties at the forefront of CDM activities, having submitted a total of 253 CDM projects and 9 Programmes of Activities (PoAs) with 14 Component Project Activities (CPAs) as at April 2015. Of these numbers, 143 CDM projects and 5 PoAs with 10 CPAs have been registered with the CDM Executive Board, while 18 CDM projects and 4 PoAs are still at the validation phase of the CDM cycle. Based on the number of registered projects, Malaysia ranks 8th in the global hierarchy of CDM project pipeline, accounting for 1.9% of the total.
Like all other non-Annex 1 Parties hosting CDM projects, Malaysia’s CDM activities have been much curtailed due to sharp decline of the carbon market attributed to uncertainty about the future global climate regime. Besides inactivity in validation, verification activities have largely been sporadic since 2012, essentially due to lack of demand for CERs and current carbon prices are untenable vis-à-vis the transaction costs. Without this revenue source, the cash flow of many projects has been severely affected, except for a handful of project activities with sufficient revenue-generating outputs other than solely dependent on CDM benefits still able to sustain their operations, albeit partially in some cases. As a result, most CDM activities have been terminated or very much limited due to the high monitoring and transaction costs. With the carbon market in the doldrums, substantial slowdown in CDM activities has led to the exit of CDM players and termination of emission reduction purchase agreements (ERPAs) by most CER buyers. Projects that were designed and managed by CDM consultants, and projects that were developed on BOOT basis, have been unable to sustain or have been abandoned with the withdrawal of the consultants and investors, as the project host companies lack such expertise and experience. The current scenario has resulted in a general loss of interest and confidence of the private sector in CDM.
A preliminary study supported by the Low Emission Capacity Building (LECB) Project in 2014-2015 revealed the bulk of the CDM project activities in Malaysia are associated with renewable energy (RE). These include RE generation and utilisation, involving biomass energy from agro-based residues, methane capture and destruction from landfill gas and palm oil mill effluent (POME), and hydropower. For POME, there is an ongoing initiative, known as the Palm Oil National Key Economic Area-Entry Point Project 5 (NKEA-EPP5) under Malaysia’s Economic Transformation Programme, which is aimed at all palm oil mills to capture methane gas from POME treatment to be utilised as a fuel source, with a set target to achieve 100% compliance by all the mills to have implemented biogas projects by 2020. During the stakeholder consultation process of designing the NAMA, a concern was expressed of possibly creating discrimination and complication among CDM and non-CDM projects on POME methane recovery projects in the context of implementation of the Palm Oil NKEA-EPP5. To address this concern, methane capture from POME treatment is excluded for the purpose of this NAMA. Collectively, the remaining RE-related project activities account for 35.4% of Malaysia’s CDM pipeline, or 38.5% of the registered projects. These projects possess immense potential to deliver significant mitigation impact, both sector-wide and nationwide, upon rejuvenation in line with the objectives of the National Renewable Energy Policy and Action Plan 2010 and other related policies. The mitigation impact is two-fold: direct GHG emission reduction via methane avoidance and destruction, and utilisation of RE generated to displace fossil-based energy sources. It is envisaged that this mitigation action will contribute positively to Malaysia’s voluntary pledge of reducing its emissions intensity of GDP by up to 40% by 2020 based on 2005 levels, conditional upon technology transfer and financial support of adequate and effective levels.
The LECB-supported study, undertaken via a consultative approach, outlined a preliminary NAMA framework that aims to provide support for reactivating CDM projects whose activities pertain to the generation, application and utilisation of RE. The NAMA framework identified three main inputs: (1) existing policies, strategies and initiatives already in place and relevant to the action to be implemented; (2) new domestic initiatives to be introduced specifically for creating market demand for CDM project outputs, namely RE generated by the project activities; and (3) international support to be solicited in terms of technological and financial solutions for new RE applications. The support required is considered in four perspectives:
- Policy support – Policy instruments and action plans that have been formulated by the government to propel the development and growth of renewable energy and to capitalise on biomass resources in downstream value creation. These are of direct relevance to the prioritised CDM project types to be covered in the NAMA.
- Finance support – This includes financing instruments and prospective revenue which are ready to be tapped by the various project activities pertaining to the target CDM projects, and new financing initiatives which may need to be introduced in order to provide effective support to the CDM activities being targeted.
- Technology support – Certain modifications of project design, operation and diversification of activity outputs and products may need to be executed in order to breathe life into the project activities through enhancing their financial viability. The need of technology transfer in this respect from international support is much anticipated.
- Capacity building support – Capacity building is needed in the face of introducing new measures, initiatives and technology into realising the NAMA’s objectives and targets.
This proposal aims to conduct a detailed study on the proposed NAMA framework above, including the inputs and support required for reactivating the RE-based CDM project activities. The output is a detailed NAMA proposal seeking support for implementation. Activities to be undertaken are as follows:
- A detailed assessment of the targeted CDM project types, namely biomass energy, hydropower and landfill gas, vis-à-vis the current scenario of the related business sectors in particular, and the development of renewable energy as a fuel source in general.
- Identification of activities for design of the NAMA framework and formulation of the implementation plan and approaches including MRV system.
- Prioritisation of project activities in accordance with a set of eligibility criteria for seeking support under the NAMA to be formulated under the study based on their status in the CDM project cycle and the type of funding support received. This includes registered projects in operation but without CER issuance, registered projects with CER issuances, registered projects yet to be operationalised, length of the remaining crediting period, projects with expired crediting period, and projects still in the validation stage.
- Estimation of the cost of implementation and specific support needs, potential GHG emission reductions achievable, and time frame for the action.