Malaysia launches Bursa Carbon Exchange for voluntary credits

Malaysia launched the nation's first government-backed voluntary carbon exchange, Bursa Carbon Exchange on Dec. 9, with first auction slated for March 16, 2023, Datuk Muhamad Umar Swift, CEO with Bursa Malaysia, announced at the launch event.

The carbon exchange will be managed by Bursa Malaysia, and the first auction is expected to offer two types of credits: global nature-based credits and technology-based credits, each of which will be traded through standardized contracts, Muhamad Umar disclosed.

He said, at least 50,000 mtCO2e of nature-based carbon credits and 50,000 mtCO2e of tech-based carbon credits will be offered in the auction next March. He added the entities interested in participating in the auction should be onboarded and approved by BCX, and the onboarding process for the first auction will close at Jan. 31, 2023.

He said all credits offered in the first auction are issued by Verra no earlier than 2016.

According to a document published by Bursa Malaysia earlier this year to explain the exchange design, tech-based credits recognized by BCX cover a variety of technologies, such as renewable energy, waste disposal, household devices upgrade as well as carbon capture, storage, and utilization.

Cross-border trading rules

"Under a voluntary carbon market, there is no restriction imposed on the sales of carbon credits generated from projects located in Malaysia to buyers outside [the nation]," YB Tuan Nik Nazmi Nik Ahmad, Minister of Natural Resources, Environment and Climate Change of Malaysia, highlighted at the launch event.

Earlier this year, countries like Indonesia, Papua New Guinea, and Honduras imposed restrictions on the exports of carbon credits generated from their territories.

Nik Nazmi disclosed the government has received a significant volume of inquiries on whether Malaysia will also restrict carbon credit exports, especially from project developers and investors.

He said, despite no export restrictions, Malaysian carbon credits traded under the BCX shall not be authorized for the purpose of meeting the NDC (Nationally Determined Contributions) of other countries, or for other international mitigation purposes, adding that this requirement has been incorporated into the BCX rules.

Nationally Determined Contributions refer to national climate targets committed by individual governments under UN's Paris Agreement framework. BCX's arrangement is to avoid the supplier and buyer of the same carbon credit claimed twice for their respective countries' NDC fulfillments, which is a significant and complicated problem in the present-day carbon market.

Nik Nazmi said the government also requires all domestic carbon projects registered with the international carbon credit registries, such as Verra, the Gold Standard, to be reported to the national authority.

Enhance Malaysia's competitiveness

Bursa Malaysia's Muhamad Umar said a robust carbon market and vibrant ecosystem is an enabler for Malaysia's competitiveness.

He noted the upcoming cross-border adjustment mechanism (CBAM), which is a carbon tariff charged by EU on the EU importers who bought carbon-intensive commodities from foreign markets. Over 50% of Malaysia's exports will flow to countries that have made commitments to net zero, he added.

There have been suppliers of conventional commodities, like crude oil and LNG, purchase carbon credits to offset the carbon footprints during the entire life cycle of their cargoes and claim the cargoes to be "carbon neutral" when selling to the global markets.

Petronas, Malaysia's government-owned oil and gas company, delivered a carbon-neutral LNG cargo last year, claiming the carbon footprint of the cargo's entire life cycle had been offset with renewable energy credits issued by Verra.

Muhamad Umar said a group of companies and institutions in the energy, industrial, and financial sectors have supported Bursa Malaysia to build up the carbon exchange.

The involved companies include Petronas, Malaysia's electricity company Tenaga Nasional Berhad, Swiss-based energy company Vitol, UK-based energy company Shell, Malaysia's financial service provider Malaysian Industrial Development Finance Berhad, steel manufacturer Malaysia Steel Works (KL) Bhd, Malaysia-based bank Maybank, Malaysia's infrastructure conglomerate YTL Corporation Berhad, India-based carbon asset management company EKI Energy Services Limited, and Malaysia's aviation lubricant and grease distributor AU Synergy.

BCX is also the world's first Shariah-compliant carbon exchange, which means the carbon products offered by BCX is in line with Islamic Law, Muhamad Umar highlighted.

Malaysia has committed to cut its carbon intensity (emissions per unit of GDP) by 45% by 2030 from 2005 levels and realize carbon neutrality by 2050.

Platts assessed the price of nature-based carbon credits at $3.5/mtCO2e and household devices carbon credits at $8.15/mtCO2e as of Dec. 8, according to S&P Global Commodity Insights data.

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