The central bank says the country’s climate policies remained fragmented and not sufficiently ambitious.
PETALING JAYA: The economy faces several key challenges in transitioning towards a decarbonised future, and measures such as regulation, price reform, leadership and governance, investment, awareness and capacity building need to be taken to make climate mitigation more effective, says Bank Negara.
In a boxed article accompanying its annual report for 2022, the central bank said the country has a high dependence on coal for power generation, with 43.6% of electricity generated in 2021.
Such high reliance on coal is identified as a major hurdle for an enduring low carbon transition.
“It also exposes the country to energy security risks from supply disruption and price volatility.
“The government has announced that it will phase out existing coal-fired power plants by 2040 and will no longer build new assets.
“However, without aggressive capacity ramp-up in cleaner alternatives such as natural gas and other renewables, coal will remain a large part of our energy mix,” stated the central bank.
Bank Negara noted sectors like oil and gas, palm oil, construction, steel, cement and chemicals industries, which take up about 20% of the local economy, are heavily reliant on fossil fuels as feedstock and energy in manufacturing processes.
“Given that these sectors possess long-lived capital assets that are tightly integrated, decarbonising would be difficult.
“Malaysia spends around 12% share of gross domestic product on fossil fuel subsidies.
“This is much higher than several advanced economies and regional peers.
“Initiating and sustaining energy price reforms that influence the behaviour of firms and consumers towards greater efficiency would, therefore, remove a key roadblock in transitioning to a green economy,” it said.
The central bank also stated the country’s climate policies remained fragmented and not sufficiently ambitious.
This is given that most mitigation strategies, particularly legislation, are still not in place.
“Climate legislation is a vital pillar of climate governance, as successful climate action requires a legal basis.
“Pledges are not credible unless the measures enacted to achieve them are rooted in law,” it said.
Chief among the actions that need to be taken for the country to be more effective in cutting emissions is the need for a regulatory framework, like the Climate Change Bill, to control emissions and polluting activities.
“Equally important is mandating Green Building Index compliance in the construction sector and stricter enforcement to protect Malaysia’s carbon sinks,” the central bank said.
In terms of subsidies, Bank Negara called for the rationalisation of fossil fuel subsidies which can influence household behaviour towards greater energy efficiency.
The savings from rationalisation can be redirected for renewable energy development, it added.
“Catalysing green investments is key. Lifting the tariffs on imports of green technologies could jumpstart the transition.
“Providing incentives to spur domestic development of such technologies not only reduces reliance on imports over time, but also raises Malaysia’s knowledge and productive capabilities and creates high-value green jobs.
“These are jobs that promote sustainability and decrease waste, energy use and pollution,” it said.
