The carbon we sell, the carbon we keep

CARBON is becoming an asset. Forests, mangroves, peatlands, renewable energy, methane capture and other activities that reduce or remove greenhouse-gas emissions can generate carbon credits with growing monetary value. For Malaysia, particularly forest-rich states such as Sarawak, this presents an attractive opportunity. Protecting nature may no longer be viewed solely as an environmental responsibility; done properly, it can also generate investment, income and employment.

However, as Malaysia develops its carbon market, an important question is emerging: if carbon reductions are valuable, how much should we sell to others, and how much should we retain for ourselves?

The issue has gained importance following Malaysia’s move towards a more structured national carbon market. In September, the Federal Government indicated that international transfers of Malaysian carbon assets would require safeguards, including eligibility criteria and dynamic limits, to ensure carbon exports do not undermine the country’s Nationally Determined Contribution (NDC).

The principle is straightforward. Malaysia has pledged to reduce its greenhouse-gas emissions. If reductions achieved domestically are transferred abroad and counted towards another country’s climate commitments, Malaysia must ensure it retains enough reductions to meet its own target.

Carbon differs from many commodities traditionally exported. When a tonne of palm oil, natural gas or manufactured goods is sold, the transaction is largely complete. A tonne of carbon dioxide reduced or removed can have a wider significance because it may contribute to national climate accounting. Under the Paris Agreement, countries report progress towards their climate commitments, while international transfers under Article 6 follow accounting rules designed to prevent the same emission reduction being claimed twice.

This makes the concept of a “corresponding adjustment” important. If a Malaysian project reduces one tonne of carbon dioxide and that reduction is authorised for transfer to another country, the purchasing country may use it towards its climate target. Malaysia generally cannot then count the same tonne towards its own target. In simple terms, the same environmental achievement cannot be sold while still being treated as entirely Malaysia’s.

This does not mean Malaysia should avoid international carbon markets. They can channel finance into forest conservation, peatland restoration, mangrove rehabilitation, renewable energy, methane reduction and improved land management. For communities and landowners, carbon finance can also strengthen the economic case for protecting ecosystems rather than converting them to more immediately profitable uses.

Sarawak has particular reason to pay attention. Its forests, peatlands and mangroves store vast amounts of carbon while supporting biodiversity, water regulation, coastal protection and livelihoods. Carbon finance can strengthen the economic case for conservation, particularly where alternative land uses have historically offered higher returns.

However, valuable carbon assets do not mean maximising sales today is necessarily strategic. As Malaysia’s climate targets become more demanding, carbon reductions may become increasingly valuable domestically. Malaysia aims to peak greenhouse-gas emissions around 2030 and achieve absolute reductions by 2035. Meeting these targets will require reductions across energy, industry, transport, waste, agriculture and land use, with some measures becoming increasingly costly or technologically challenging.

This creates something similar to a carbon budget. Malaysia may be able to reduce emissions cheaply today through forest protection, methane capture or other activities, while future reductions in heavy industry or transport could be far more expensive. If inexpensive reductions are transferred internationally, Malaysia may later face higher costs to meet its own targets. A carbon credit generating revenue today could therefore carry an opportunity cost tomorrow.

Decisions on carbon exports should not be based solely on the immediate market price. Malaysia must also consider the future cost of replacing the mitigation sold. For example, selling a tonne of reduction for US$10 may appear attractive if replacing it later costs US$50. Carbon policy therefore requires both environmental science and careful economic planning.

Malaysia’s National Carbon Market Policy recognises this challenge, emphasising high-integrity markets, international participation, avoiding double counting and alignment with national climate objectives. Carbon trading should therefore complement, not operate separately from, national decarbonisation planning.

For Sarawak and other states, carbon markets require close state-federal coordination. Land and forests largely fall under state jurisdiction, while Malaysia’s Paris Agreement commitments are national. States need incentives to develop quality projects, attract investment, protect natural assets and secure fair economic returns. Meanwhile, the Federal Government must ensure international carbon transfers comply with Malaysia’s climate obligations. Clear responsibilities can allow carbon markets to support both state development and national climate policy. Uncertainty, however, could deter investors and delay valuable projects. A successful carbon market therefore requires both levels of government to work together.

Generating a carbon credit is not the same as deciding how it should be used. Not every credit needs to be exported. Some may be sold internationally, while others could support domestic companies seeking to reduce or compensate for emissions. Some mitigation outcomes may be retained for Malaysia’s own climate targets. The challenge is therefore not simply to produce as many credits as possible, but to determine where each tonne creates the greatest long-term value.

This requires reliable data. Malaysia needs to know how much mitigation each sector can realistically deliver, what those reductions will cost, how much will be needed for national targets and what surplus can safely be transferred internationally.

Monitoring, reporting and verification are therefore not merely technical requirements; they are essential to national economic planning. Without reliable information, Malaysia risks either missing investment opportunities by being too cautious or selling reductions it may later need.

This should not discourage carbon-market development. Malaysia can remain ambitious, given its natural advantages and technical capabilities, while states such as Sarawak can become important participants in high-integrity nature-based carbon markets. However, a mature carbon market should not be measured solely by the number of credits produced or the revenue generated. Its success should also be considered in terms of genuine emissions reductions, sustainable development and the long-term national interest.

As carbon gains value, the key question is not simply how much can be sold, but how much can be sold without weakening what Malaysia may need itself. With carbon prices, technologies, emissions trajectories and climate commitments changing, flexible policies, periodic reviews and dynamic limits on international transfers will be essential.

Sarawak and Malaysia are entering a period when forests, mangroves, peatlands and emissions reductions could carry greater economic value than ever before. This opportunity should be welcomed. Carbon finance can help protect ecosystems, support communities, attract investment and accelerate the transition to a lower-carbon economy.

However, our carbon assets are not unlimited. The smartest carbon economy will not be one that sells everything it can, but one that understands the value of every tonne, identifies which can be traded, recognises which the country may need in future, and makes decisions with the long term in mind. In the carbon economy, knowing what to keep may prove as important as knowing what to sell.

The views expressed here are those of the writer and do not necessarily represent the views of Sarawak Tribune. The writer can be reached [email protected]