Bursa Malaysia launches first syariah-compliant carbon exchange platform

[KUALA LUMPUR] Bursa Malaysia launched the country’s first voluntary carbon market (VCM) on Friday (Dec 9) – the world’s first Shariah-compliant carbon exchange, with the first trade of carbon credits via auction set to take place in March next year.

At the launch of the Bursa Carbon Exchange (BCX), the bourse called for participation from project developers, investors and buyers in building local capabilities for the VCM ecosystem.

Bursa Malaysia chairman Abdul Wahid Omar said the online auction is currently at the testing stage, while the carbon projects for auction are now in the final stage of screening.

“The first trade will be conducted via an auction which will facilitate price discovery for the new standardised carbon credit products listed on BCX,” he said.

The VCM is an initiative under the purview of the Ministry of Finance and the Ministry of Environment and Water, with Bursa Malaysia given the mandate to operate the BCX.

With this, it allows carbon emitters to offset their emissions by purchasing carbon credits emitted by projects that remove or reduce greenhouse gases from the atmosphere. 

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At the same time, it also provides financial incentive to develop and implement nature-based solution projects, such as reforesting mangrove and wetlands or technology-based solutions that support emissions avoidance, reduction or removal. 

The BCX will provide three modes of carbon trading, namely auctions of carbon credits, spot-trading for standardised contracts of carbon credits, and spot-trading services for off-market transactions.

Minister of Natural Resources, Environment and Climate Change Nik Nazmi Nik Ahmad said on Friday that there has been a significant number of enquiries on Malaysia’s policy on carbon trading across national borders, such as any restrictions on the sale of carbon credits to international buyers.

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Bursa Malaysia to launch carbon exchange on Dec 9

“Under the VCM, there is no restriction imposed on the sales of carbon credits generated from projects located in Malaysia to international buyers,” he said.

In addition, he noted that the carbon credits traded under BCX will not be authorised for the purpose of meeting the nationally determined contributions of other countries or for other international mitigation purposes. It also does not require any approval from Malaysia’s government agencies.

“The carbon market is a fast-evolving space and we want our corporate entities to be sophisticated carbon market actors. We also want Malaysia to rise as a regional if not global leader in the VCM landscape,” said Nik Nazmi.

Bursa Malaysia chief executive officer Muhamad Umar Swift said that the BCX enables both buyers and suppliers to transact high-quality carbon credits and use them to offset their existing climate impact alongside their other internal carbon reduction initiatives.

“The exchange will make carbon trading a more inclusive ecosystem, allowing more market participants to engage with clients looking for environmental, social and corporate governance as well as Shariah-compliant related solutions,” he added.

Currently, BCX has adopted the Verified Carbon Standard (Verra) – a global standard for certifying carbon emissions reductions. Vintages accepted will be from 2016 and onwards, and projects will need to be registered with Verra.

Citing figures from Ecosystem Marketplace, Wahid said the value of the VCM has quadrupled since 2020, reaching nearly US$2 billion in 2021. Notwithstanding the positive development in the voluntary landscape, the compliance carbon market continues to dominate the global carbon market with a total value of US$270 billion in 2021, he said.

In terms of greenhouse gas emissions, the compliance carbon market accounts for around 16 per cent while VCM accounts for only 0.2 per cent. Hence, he noted that there is a tremendous opportunity to scale up the VCM.

“BCX will support Malaysia’s ambition to achieve its target of net-zero greenhouse gas emissions by 2050, while accelerating the country’s pivot towards a green economy and meeting global demands for a sustainable supply chain,” he said.