Climate change might be the greatest challenge of our time. Its physical and socioeconomic impacts are already being felt strongly across the world, and globally coordinated actions will be required to overcome the challenges it presents.
This article is a collaborative effort by Vishal Agarwal, Vaibhav Dua, Enrico Furnari, Darshit Mehta, and Sunalini Sinha representing views from McKinsey''s Sustainability Practice and Global Energy & Materials Practice.
Already more than 60 countries, accounting for almost 90 percent of global emissions, have net-zero commitments in place by 2050 or later.
Asia is expected to play a major role in the transition, given its high share of global emissions and strongly growing economies—over 40 percent of those revenues will likely come from the region.
Malaysia is well positioned for its net-zero transition owing to its strong natural resources and growing economy, creating opportunities for the country.
Five key enablers could help unlock Malaysia''s CCS potential.
Clarity on CO2 capture and storage regulations, particularly in terms of governance for the issuance of CO2 storage licenses and permits, liability management framework for remediation and potential leakages, as well as monitoring, measurement, reporting, and verification (MMRV) of CO2 stored in various reservoirs.
Funding for CCS projects, from both local and international sources, including potential subsidies and blended finance options, along with a formal incentive structure that can improve cost of capital for CCS projects and encourage companies to utilize CCS.
Carbon compliance policies, either in the form of a carbon-tax or emissions-trading system, could be considered as a tool for creating further demand for carbon sequestration as industries look to meet their compliance requirements.
Industry associations to facilitate collaboration between governments, the private sector, and academia. As CCS is a relatively new technology, coordination across the value chain and various stakeholders will be key to developing domestic inbound and outbound supply, and continue progressing technology advances through R&D.
Bilateral agreements with other countries for cross-border CO2 storage, which could help to secure additional CCS demand in the near term, helping Malaysia achieve scale while supporting the greenhouse gas (GHG) reduction targets of other countries in the region.
However, some key unlocks are needed to free up Malaysia''s ecosystem as a major regional supplier of high-quality credits.
Malaysia is already today an established solar PV manufacturing hub, as the country has manufactured and exported more than 10 GW of solar modules with a 22 percent year-on-year growth. However, the local market is still fairly limited, with solar accounting for about 2 GW installed in total, outlining a strong potential to grow the local market.
Large scale solar (LSS) has also significant potential in Malaysia: the latest LSS3 bids were oversubscribed by a factor of 13, attracting bids for 6.7 GW versus a cap of 500 MW.
Solar installations will likely be scaled up by solar power suppliers; engineering, procurement, construction, and commissioning (EPCC) players; and solar-PV manufacturers. Various companies have already recognized Malaysia''s potential in this arena. For example, one of the world''s largest solar developers entered the country in 2018 and currently has over 240 MW of installed capacity.
Other opportunities presented include the need for grid upgrades and battery storage solutions to cope with the intermittency of renewables, and there are signs that Malaysia could benefit from the manufacture and export of wind towers or turbines—in 2017, for instance, CS WIND acquired Eco Tower to be Malaysia''s first wind tower exporter.
To enable these opportunities, however, sufficient financing and regulatory unlocks will be required, such as reconsidering the limited quotas on LSS and new auctions for storage.
Malaysia has recently announced its intention to implement a 20 percent biodiesel mandate (B20) nationwide, which would more than double the current market size in road transport alone (Exhibit 2).
Additionally, there is strong potential to grow sustainable aviation fuel (SAF) production in Malaysia due to feedstock availability, accounting for 5 to 8 percent of the global supply. Used cooking oil (UCO) and palm oil mill effluent (POME) are among the cheapest sources for SAF production.
While this precious feedstock has been exported in the past, recently there has been increasing momentum for SAF to be produced and used locally within Malaysia. Two players have announced plans for SAF production by 2024 to 2025, one being the PETRONAS and Eni plant with a 0.7 million tonnes per annum (Mtpa).
Globally, demand is still expected to outstrip supply by 2030, creating an opportunity for additional players looking to enter the field.
Locally, Malaysian Aviation Group has signed a memorandum of understanding to receive more than 230,000 tons of SAF starting in 2027, following the operation of its first flight using SAF in 2022, with additional airlines expected to announce voluntary targets, especially for international flights toward regions with net-zero commitments.
Given its privileged feedstock position, Malaysia could not only supply local and regional demand but also has the potential to become a global sustainable fuels powerhouse, exporting globally at cost-competitive prices. To unlock the opportunity, Malaysia could consider taking the following actions.
Continue improving feedstock collection rates: For both UCO and POME, collection rates could be increased to further generate even more feedstock. Increasing collection rates requires private and public sector collaboration and, by prohibiting the disposal of used cooking oil and running campaigns on its importance in the energy transition, more players could increase the collection rate.
Ensure that the highest sustainability standards are in place: Given that the use of sustainable fuels is primarily driven by decarbonization commitments, Malaysia needs to ensure the highest sustainability standards; in other words, prove sustainable agriculture measures. This could be done by end-to-end feedstock tracking.
Boost local demand: While Malaysia is already one of the biggest exporters of POME and UCO, and has started building an SAF refinery for exports, incentivizing the use of sustainable feedstock locally (for example, through mandates on blending rates) could further enhance the creation of a downstream industry and favor players along the value chain.
Start investing in next-generation feedstock: Despite being one of the leaders in UCO and POME feedstock, additional technology might be needed for Malaysia to reach net-zero targets. The country has great biomass potential and, while many technologies are currently not cost-attractive for biofuels production (for example, lignocellulosic biomass), R&D could help Malaysia become a leader in next-generation feedstocks, as well as in UCO and POME.
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