INTERVIEW: Malaysia to launch national standard for carbon projects in early 2026 - MFF

Malaysia Forest Fund, supported by the Ministry of Natural Resources and Environmental Sustainability, will launch a national standard in the first quarter of 2026 to issue carbon credits and manage local forest projects, Suhaini Haron, senior director of corporate development and strategy at MFF, told Platts, part of S&P Global Commodity Insights.

Host countries of carbon projects have adopted different pathways to implement their projects and regulate their carbon markets. Some leverage independent international standards, such as Verra and Gold Standard, to issue nature-based carbon credits, while others, like Thailand, are developing tailored methodologies based on local conditions.

MFF is supporting Malaysia in implementing a system similar to Thailand's and may adopt some of the country's T-VER methodologies in the future, though differences remain, Suhaini told Platts in an interview.

"We don't have that two-tier system, standard T-VERs and international premium T-VERs. We will only have a single tier for the forest carbon offsets. For projects that are intended to be transacted internationally under Article 6, they will have specific labelling," she said.

In addition to the Article 6 labelling, Suhaini said Malaysia's FCOs are required to carry two mandatory labels.

"One of the mandatory labels for any FCO project is E-labelling, which ensures that there is no net harm to the environment. And another requirement is S-labelling, which means that there is no net harm to the social community," she said, adding that S-labelling helps protect Malaysia's indigenous communities.

"We commenced the development of FCO in October last year through a rigorous process, with technical working groups and stakeholder consultations. We are in the process of finalizing the first four methodologies," Suhaini said.

"We are going to commence piloting of these methodologies this month. And it is expected to be concluded by year-end to test the rigor and components of these methodologies," she added. "So, we are targeting to launch FCO in the first quarter of next year."

Suhaini said that the first four methodologies include afforestation, reforestation and restoration; improved forest management practices; wetland methodology; and REDD+ (reducing emissions from deforestation and forest degradation).

"The government has announced the implementation of the carbon tax next year. As part of the ministry's efforts, we are promoting for FCO to be included under the carbon tax regime, which enables FCO-issued credits to be used in the compliance market in Malaysia," she added.

Finance gap

The first four FCO methodologies appear to overlap with existing methodologies under international standards, but Suhaini emphasized the importance of establishing a national system.

"When we developed FCO, in the first phase, we actually assessed more than 20 standards in the world. We conducted focus group discussions to see whether these methodologies and activities within these standards are applicable to Malaysia, because we didn't want to start from zero," she said.

"And then we realized that some methodologies are not really suitable [for Malaysia] in the context of applicability conditions," she added. "For example, in Malaysia, mangroves are also being harvested, so we want to also see potentially if we can look into improved forest practices in mangrove production areas."

Suhaini said that while some forest areas are legally protected from logging under Malaysian law, these "assumed to be protected" areas may still face degradation and require additional financial support.

"So, we are looking into the possibility of setting specific applicability conditions that allow some activity to be recognized to address these financial gaps," she said.

"The financial need for Malaysia to support forest conservation and restoration is about MR2.1 billion ($497 million). Today, these funds are raised domestically from the government, as well as the GEF (Global Environment Facility), amounting to roughly MR700 million, leaving a gap of MR1.4 billion," she added.

Suhaini said that in developing the FCO, her organization has closely followed international best practices, including the requirements under the Integrity Council for the Voluntary Carbon Market and Carbon Offsetting and Reduction Scheme for International Aviation.

"Until it is fully operationalized in the first quarter, we will do this progressively to ensure that FCO is a credible system for Malaysia," she added.

Domestic assurance

"What FCO is trying to address is positioning our forests as an asset. And most importantly, I believe data sovereignty and guarantees by the government in the sense of data protection are imperative," Suhaini said.

"Having a domestic system enables us to have a consistent MRV (monitoring, reporting and verification), aligning this instrument to the legal structure and benefiting the country as a whole," she added.

Suhaini also said that Malaysia's state governments have played an active role in the development of the FCO.

"At this point, many of the project developers are not from Malaysia. They are international players. If you are talking about financing carbon projects or developing carbon projects, all that involves various internal long-term contracts, and that can be risky to states," she said.

"So, having a domestic system provides more confidence to the states. In that context, I believe the states are quite open to receiving the FCO," she added.