The Bursa Carbon Exchange (BCX) announced that an auction of carbon credits will be hosted in the end of June. This is going to be the first Malaysian-based carbon credits trading, with credits measured from the Kuamut Rainforest Conservation Project (‘Kuamut Project’), a conservation project aims to conserve and rehabilitate 83,381 hectares of tropical forest, reduces an estimated annual emission of 800,000 tonnes of carbon dioxide equivalent (tCO2e).
The project is designed to mitigate the global climate crisis and prevent the potential environmental, social and economic issues caused by the climate change. This is also a signal to the world that Malaysia is taking action on its climate ambition, achieving the carbon-neutrality target by 2050.
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What Are Carbon Credits?
Carbon credits work as the measurable “tokens” under a carbon trading mechanism. These tokens permit the owner to emit the certain tonnage amount of carbon dioxide equivalent (tCO2e). Before trading, carbon credits have to be measured from greenhouse gases (GHGs) reduction projects and certified by third-party auditors using credible certification standards, for instance, the credits measured from the Kuamut Project is certified with the Verra Carbon Standards.
How Do They Work?
Carbon credits can be purchased to offset the purchasers’ carbon emissions. A promise will be received by the purchasers that their emitted carbon will be offset by elimination in the future. It can be considered as an investment to the specific climate action projects, the reduction of carbon represents the return on investment. The certain carbon credits can’t be reused after being bought and used.
Are The Carbon Taxes The Same Thing?
There are several sustainability tools to facilitate the reduction of carbon emissions, many of us heard carbon credits and carbon taxes the most, are they the same thing?
Carbon taxes are the predetermined price of emissions directly linked with the burning of fossil fuels, the users of fossil fuels directly pay for the potential damage caused by carbon emissions. For carbon credits, they predetermine the total reduction of emissions instead of the price. The former facilitates the emission reduction by creating a monetary disincentive of using fossil fuels meanwhile the latter achieves the same objectives by limiting the amount of carbon emissions.
The implementation of regulations is always the hardest part. The most effective way to facilitate the implementation of environmental regulations is to visualize the environmental resources with a certain monetary value. Both carbon taxes and carbon credits play the roles of linking the carbon emission with dollars, making business owners to raise their awareness on those environmental issues which can directly affect the business cost and indirectly affect the business opportunities and sustainability.
Why Should Local Companies Pay Attention To Carbon Credits?
- Compliance with government regulations: As Malaysia has committed to be net-zero emission by 2050, the limitation of carbon emissions might be issued to stimulate investment in a low carbon economy. Companies that emit more than the baseline need to purchase extra carbon credits from those with lower emissions in the Emission Trading Scheme (ETS).
- Competitiveness in the global market: Many countries have implemented the similar regulations to decrease their emissions in various way. For example, the European Union (EU) has implemented the Carbon Border Adjustment Mechanism (CBAM) to prevent the carbon leakage. Under this mechanism, those imported products will be examined for the carbon tariff strictly. This leads international suppliers to review their emissions accordingly, including Malaysia, many companies have already started taking actions to prepare their CBAM reports in order to be more competitive and sustainable in the future EU market.
How Can We Get Prepared For The Carbon Market?
- Explore carbon pricing and trading mechanism: More relevant mechanisms are being implemented not only in Malaysia but also internationally. Understanding on those mechanisms is vital and the preparation can be done to gain business opportunities.
- Measure before manage: The emissions inventory needs to be figured out before being managed. Through a systematic calculation of greenhouse gases emission (GHG emissions), companies get to understand how much they are emitting and how they can set the reduction target while optimizing the operations. With a better understanding of the current situation, companies can be more prepared for the further requirement in a carbon market, higher possibilities to reduce the business cost and increase the potential revenue.
- Participate in the carbon market: Practice is the best teacher. Identify the trustable broker and platform like BCX and participate in the carbon trading. Trading carbon is not only for offsetting purpose but also a potential profit to companies with lower emissions that can sell their credits to companies with higher emissions.
The term “climate change” has been mentioned increasingly since the last century, policies and regulations have been issued to raise our awareness such as the Kyoto Protocol, Paris Agreement and others. Human activities are always considered as one of the major causes of the climate change, a proper management of economic activities is needed to mitigate the climate crisis. The carbon credits play an important role to limit the carbon emissions from economic activities and also to emphasize the companies’ responsibilities on environmental issues.
By understanding the trading mechanisms and taking proactive actions on GHG emissions management, companies can prepare for the challenges and opportunities in advance effectively and create a more sustainable business.
BBC comprises a team of passionate practitioners implementing solutions for sustainability. Our consultants have extensive knowledge and experience in greenhouse gas emissions management, ESG, and sustainability, helping you solve your problems with innovative, sustainable solutions.
Contact us to help you to prepare for your GHG emissions management and CBAM reporting.
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