Introduction
As businesses and corporates strive to reduce their carbon footprint in their effort towards a net-zero emissions outcome, establishing a carbon trading marketplace has become increasingly crucial. A carbon credit market provides a framework to incentivize and acknowledge climate action by facilitating the exchange of carbon credits obtained from the reduction of greenhouse gases (GHGs). While the carbon credit market in
Carbon Exchange vis-a-vis Carbon Credit Market in
The emergence of the concept of carbon exchange is a response to the need for a marketplace to trade carbon credits. The carbon exchange functions as a centralized platform that enables the trading of high-quality carbon credits using standardized carbon contracts with a primary objective to promote transparency, standardization, and liquidity in the carbon credit market. Carbon exchanges can operate either as a regulated or voluntary market. In a regulated market, companies are legally required to reduce their greenhouse gas emissions and purchase carbon credits to offset any remaining emissions. Meanwhile, in a voluntary market, companies purchase carbon credits to offset their emissions on a voluntary basis, often as part of their corporate social responsibility efforts. Thus, demand and supply differ in these two markets.
Bursa Carbon Exchange holds
BCX recently held
Despite much anticipation surrounding the BCX's inaugural carbon auction, it appears that the event fell a bit short of expectations. One notable issue is the apparent lack of interest from the Malaysian market, with only a handful of companies participating. Even more concerning is the fact that one of the few participants was
This shrinking pool of domestic participation could be attributed to a variety of factors, one of which is the inadequate regulatory framework. Unlike other countries that have implemented a carbon tax,
Another reason attributable to the lack of interest in the BCX's inaugural carbon auction could also stems from the limited range of eligible carbon credits that can be traded on the exchange. Currently, only Verified Carbon Standard (VCS) credits are eligible for trading, which may limit the opportunities for market players to engage in the carbon market. Other types of carbon credits, such as Gold Standard or Climate, Community and Biodiversity (CCB) credits, which are increasingly popular in the global carbon market, are not yet eligible for trading on the BCX.
The other factor that could further perpetuate the lack of interest and participation in the exchange is the limited project pipeline available. The carbon credits that were eventually auctioned off originated from projects abroad specifically from
Nonetheless, it is important to acknowledge that BCX is still in its infancy, and as such, there is great potential for growth and expansion. As market players become increasingly acquainted with the exchange and its offerings, there may be a gradual shift towards conducting more transactions through it, potentially leading to a more dynamic and thriving carbon market in
While the
Firstly, is the demand for carbon credits. Encouraging companies to adopt emission-reduction targets and supporting them in assessing the role carbon offsets could play in their decarbonization journey. There is already a growing demand for carbon credits from companies committed to net-zero targets, with a projected 15-fold increase by 2030.8 The country's highest-emitting sectors, such as energy and heavy industry, may benefit from carbon offsets despite in-sector abatement. It is important to note that a voluntary market-based mechanism like the BCX relies heavily on market forces and the willingness of companies to voluntarily participate in emissions reduction measures. While this can still incentivize companies to invest in emissions reduction measures, the lack of a legal obligation may result in slower progress towards national emissions reduction goals.
Secondly, is a robust ecosystem to supply carbon credits.
Thirdly, is also a need for an alignment between a voluntary based and compliance carbon market. As
Conclusion
To conclude,
Footnotes
- "Domestic Carbon Trading to Be Implemented in Phases from End of 2022," The Star,
December 1, 2021 . - 27Group, "Understanding How the Carbon Market Can Be an
Effective Way to Improve Greenhouse Gas Emissions,"November 25, 2021 , https://27.group/understanding-how-the-carbon-market-can-be-an-effective-way-to-improve-greenhouse-gas-emissions/. - Kareem, Marlena. "Bursa Carbon Exchange Holds Inaugural Carbon Auction."
Islamic Sustainable Finance& Investment ,March 20, 2023 . https://islamicsustainable.com/bursa-carbon-exchange-holds-inaugural-carbon-auction/. Bursa Malaysia , "Bursa Carbon Exchange Successfully Completes Malaysia's Inaugural Carbon Auction,"Bursa Malaysia : Media Release,March 17, 2023 .- Dr
Pieter E. Stek , "Malaysia's New Voluntary Carbon Market Disappoints," Eco-Business,March 23, 2023 , https://www.eco-business.com/opinion/malaysias-new-voluntary-carbon-market-disappoints/. - "
RM10m Seed Fund for Malaysian-Generated Carbon Credit to Kickstart Market: PM," n.d., https://www.thesundaily.my/home/rm10m-seed-fund-for-malaysian-generated-carbon-credit-to-kickstart-market-pm-CE10723212. Vishal Agarwal et al., "How Carbon Markets Can Help Malaysia Achieve Its Climate Targets," Eco-Business,September 19, 2022 , https://www.mckinsey.com/capabilities/sustainability/our-insights/how-carbon-markets-can-help-malaysia-achieve-its-climate-targets.- ibid
- ibid
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