Govt working on long term low emissions strategy – Bank Negara’s Annual Report

BNM Deputy Governor Marzunisham Omar, BNM Deputy Governor Datuk Abdul Rasheed Ghaffour, BNM Governor Tan Sri Nor Shamsiah Yunus and BNM Deputy Governor Jessica Chew at the launch of the central bank’s reports.

KUALA LUMPUR, March 29 – Bank Negara Malaysia, which published its Annual Report 2022, Economic and Monetary Review 2022 and Financial Stability Review for Second Half 2022 today, highlighted various initiatives taken by the central bank and the government towards a more resilient and sustainable economy.

In an article in its annual report, the central bank also provided a comprehensive picture of the plans for a greener financial system in Malaysia.

The following is a reproduction, and extracts of the article:

Measuring the Journey towards a Low Carbon Economy

With Malaysia aiming at becoming a net zero greenhouse gas (GHG) emissions nation as early as 2050, the government is looking at a Long-Term Low Emissions Development Strategy (LT-LEDS).

The LT-LEDS will set programs and policies to enable the delivery of measurable GHG emission
reductions aligned with the aims of the United Nations Framework Convention on Climate Change (UNFCCC). It will also support Malaysia’s orderly and just transition to a low carbon, climate-resilient economy.

As it will also identify areas of opportunities for the different sectors, the LT-LEDS will be a crucial policy tool to enable businesses and financial institutions to align their own strategies to reduce their
GHG emissions.

While the LT-LEDS is being finalised, the government has also laid out plans to put in place key enablers and infrastructure to facilitate the transition towards a low carbon economy. These include plans to introduce a legislative framework, and a carbon pricing framework. The launch of the Bursa Carbon Exchange (BCX), a voluntary carbon market, on 9 December 2022 was one step forward.

The BCX allows businesses to meet climate targets through trading of carbon credits from activities or projects that reduce or avoid GHG emissions.

A clear, consistent and credible carbon accounting framework to enable transition to low carbon economy

The BNM AR article highlighted the importance of having on a proper carbon accounting framework, GHG, that will set carbon pricing and trading systems that will enable progress on climate goals to be reliably measured.

Carbon accounting provides a framework for measuring climate impacts of GHG emissions. This will therefore enable the setting of targets to limit and reduce emissions and to identify new growth areas.

It reviewed the the key elements and approaches to carbon accounting, and its importance in the context of Malaysia’s net zero ambitions.

“Conceptually, one can think of carbon accounting like financial accounting. Both are
a form of measurement framework that promotes accountability. Both also allows one to compare performance across entities, industries and time in a consistent and reliable manner.”

Measuring the amount of carbon dioxide (and its equivalent) emitted by businesses from direct activities like company facilities, vehicles, purchased electricity, steam, heating and cooling for own use to indirect activities like purchased goods and services, transportation and distribution as well as capital goods, fuel, energy-related, travel and commute and waste from operations, leased assets and investments.

This will allow for credible monitoring, reporting and verification of GHG emissions.

Mandating Carbon Accounting

“This then enables carbon emissions to be priced accordingly based on emission targets. Mandating carbon accounting can result in greater impact on GHG emissions reduction. To achieve this, several
important preconditions must be present. The relevant regulatory and reporting systems and infrastructure need to be in place to support credible GHG reporting by companies.

“Having a legislation in place will facilitate effective enforcement. Further, a focus on building the knowledge and capabilities within businesses is also critical. Having the relevant data to facilitate monitoring and verifi cation will support future enhancements to the framework to ensure its continued relevance and effectiveness.”

The article said a just transition will aim for all segments of the business community and society to be able to benefit from the country’s transition to a low carbon economy and that no-one is left behind and this will involve providing the necessary support including tools, know-how and reskilling opportunities,
to enable the more vulnerable communities such as the SMEs and lower income households to adapt and make the adjustments needed and minimise short-term impacts.

Principles of a Good Carbon Accounting Framework

There are several carbon accounting frameworks in use globally. The choice of framework is purposedependent. At the national level, countries follow the guidelines formulated by the Intergovernmental Panel on Climate Change (IPCC).

Based on the IPCC guidelines, countries need to prepare and submit GHG inventories in line with the core principles. Countries that are signatories to the UNFCCC, including Malaysia, follow the IPCC guidelines when submitting the biennial reports on GHG inventories to the UNFCCC.

Malaysia’s 2020 biennial update report to the UNFCCC highlighted that the major sources of GHG emissions were from the energy sector (79.4% of total emissions). This provides important insights for policy formulation. It helps direct the focus of policymakers to develop transition strategy for the energy sector.

The full article, with graphics, explaining the possibilities and importance of adoption of various measures towards a greener financial system, the penalties that companies could potentially face for flouting existing regulations and future ones can be found at:

— WE