Bursa Malaysia to launch carbon exchange on Dec 9

MONTHS after announcing its intentions to develop a voluntary carbon market (VCM), Bursa Malaysia has confirmed that it will be launching its planned carbon exchange on Friday (Dec 9).

Based on a publicly available slide presentation by the operator of Malaysia’s national stock exchange, the carbon credits would be traded via a central order book in the form of standardised contracts.

There may also be direct transactions between buyers and sellers matched outside the order book.

The carbon credits will be issued by carbon projects registered on Verra – a common standard used globally for certifying carbon emissions reductions.

Dr Chen Wei-nee, head of carbon markets at Bursa, told The Business Times that the new exchange would also only accept carbon credits with a vintage from 2016 onwards. This means that these credits were generated in 2016 and after, which is a standard aligned with Corsia’s eligibility requirements of emission units.

Corsia stands for Carbon Offsetting and Reduction Scheme for International Aviation and is a global offsetting scheme for international aviation.

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Bursa, which had announced its plans for a VCM in August this year, had said that it will carry out an auction by the end of this year to enable price discovery for these new products to be listed on the exchange.

The clearing price from the auction is intended to help establish a baseline demand for carbon credits in Malaysia, providing a reference point for secondary trading for market participants.

Potential products for the first auction, which will take place at a still-unknown date after Friday’s launch, would include technology-based carbon credits (biogas utilisation, methane capture and green mobility) and nature-based carbon credits (forest conservation, mangrove protection, reforestation).

These may be sourced from other countries, given the scarcity of locally-generated carbon credits certified by Verra.

The VCM is an initiative under the purview of Malaysia’s Ministry of Finance and Ministry of Environment and Water, with Bursa given the mandate to implement the soon-to-be-launched exchange.

With the establishment of a VCM, Malaysia’s intended aim is to facilitate companies having access to carbon credits to offset their own carbon footprint, as well as to support the development of domestic carbon projects that can help the country achieve its own net-zero targets.

Given that 80 per cent of Malaysia’s emissions comes from carbon-intensive sectors, Dr Chen said that developing a VCM would represent future opportunities for decarbonisation, as well as cost recovery from the sale of carbon credits. 

With at least 50 per cent of the country covered by forest, analysts had previously said that a carbon exchange in Malaysia will enjoy a natural scale advantage from its proximity to the country’s vast natural resources that could potentially generate carbon credits.

Malaysia and Indonesia are the only South-east Asian countries among the global top 10 countries with the most potential to generate low-cost nature-based carbon credits, according to a January 2021 analysis by the World Economic Forum and McKinsey & Co.

“We are perceived as having the potential to generate high-quality carbon credits. And we can do that by making sure that core benefits are actually part of the projects – that we’re not just generating credits, but there must be impact to the social lives and biodiversity,” said Dr Chen.

“This would, in turn, allow us to generate higher-value carbon credits.”