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Sunday, December 10, 2023

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Financial risk and low literacy halting carbon project development, says Malaysia Forest Fund

The financial risks associated with carbon offset project development in Malaysia and the lack of literacy from stakeholders are holding back the growth of the space, Jeffri Abd Rasid, CEO of Malaysia Forest Fund (MFF), told ISFI.

Established as a Ministry of Natural Resources, Environment and Climate Change initiative in mid-2021, the MFF was tasked with the implementation of the National REDD Plus Strategy.

The strategy aims to provide the policy framework to meet Malaysia’s goal of maintaining 50% forest cover, thereby achieving the nationally determined contributions pledge under the Paris Agreement for the period 2020–30, among other forest policies.

The risk perception for carbon credits by the state governments, which are the final authority of land and forestry matters, will likely impact the intensity and volume of nature-based carbon credit supply, Jeffri shared.

This will influence the demand from the private sector and how the development of these projects is negotiated between the public and private sectors.

The MFF CEO suggests that incentives including grants and soft loans may potentially increase the willingness of both parties to venture into the space of carbon credits.

Jeffri also opined that the issuance of the recently announced RM1 billion (US$209.16 million) biodiversity Sukuk may positively impact carbon project development, resulting in higher interest from the private sector to participate.

“Although there is great interest, there is also a lack of access to early-stage funding … This presents a financial risk for both state governments in respect to assessing its feasibility against their timber-based income and the private sector in respect to their return on investment,” Jeffri shared.

Adding another level of complexity is the nature of carbon credits as a results-based mechanism, which requires significant financial input followed by considerable recovery time.

Both state governments and the private sector currently lack a clear understanding of the requirements that need to be met to develop a carbon offset project, potential carbon credits that can be generated from the project, the pricing of the carbon credits as well as the actual costs associated with project development.

According to Jeffri, a cooperative mechanism enabling the federal government to facilitate local entities and the state governments to explore carbon project development can be the catalyst that helps both parties to explore carbon credits and develop their capacity in a financially protected environment.

As part of its effort to spur the development of carbon projects, the MFF is looking to sign several MoUs with Malaysian corporates. The upcoming agreements will be similar in substance to its recently penned partnership with PETRONAS to develop high-quality nature-based solution projects, Jeffri shared.

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