7.2 Malaysia

7.2.1 Introduction

The Malaysian Government's environmental policies are established through the Environmental Quality Act 1974 and associated regulations and guidelines. The objective of the Act is to promote environmentally sound and sustainable development. Investors are encouraged to consider the environmental factors during the early stages of their project planning. Aspects of pollution control include possible modifications in the process line to minimise waste generation, seeing pollution prevention as part of the production process, and focusing on recycling options.

A key feature of the policy is the need to prepare an Environmental Impact Assessment (EIA), which is required under section 34A of the Environmental Quality Act 1974 for a list of activities set out in the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 1987. According to the Malaysian Government, an:

EIA is a study to identify, predict, evaluate and communicate information about the impacts on the environment of a proposed project and to detail out the mitigating measures prior to project approval and implementation (Malaysian Government, Environmental Impact Assessment (EIA) Procedure and Requirements in Malaysia)

The list of prescribed activities do not directly include CO2 transport and storage activities (although CO2 pipeline transport may be captured by (b) below). Prescribed petroleum related activities include:

(a) Oil and gas discovery development.

(b) Construction of off-shore and on-shore pipelines in excess of 50 kilometres in length.

(c) Construction of oil and gas separation, processing, handling, and storage facilities.

(d) Construction of oil refineries.

(e) Construction of product depots for the storage of petrol, gas or diesel (excluding service stations) which are located within 3 kilometre of any commercial, industrial or residential areas which have a combined storage capacity of 60,000 barrels or more.

Even if the project is a non-prescribed activity, a Site Suitability Evaluation is required.

It is likely that any CO2 transport and storage activities would need to be prescribed under the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 1987 before even being considered for approval for development in Malaysia. The rest of these sections proceed on the assumption that this is the case.

7.2.2 Regulations that might assist

The clearest assistance that can be provided by Malaysia's environmental policies, legislation and regulation that might positively assist in facilitating CO2 transport and storage in Malaysia would be the inclusion of CO2 transport and storage as a prescribed activity under the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 1987.

This would allow CO2 transport and storage activities to proceed through consideration under the EIA process and potentially be approved for development. It should be noted that such a process, while vital to facilitating CO2 transport and storage in Malaysia, would be secondary to establishing a legislative and regulatory framework for CO2 transport and storage activities, including titling and permitting arrangements.

Malaysia also has in place a range of incentives for environmental management, some of which may be relevant to CO2 storage and transport activities.

Specifically, the following activities may qualify for incentives:

  • setting up proper facilities to store, treat and dispose of toxic and hazardous wastes. Companies that are directly involved in these three activities in an integrated manner qualify for:
  • - Pioneer Status, with income tax exemption of 70 per cent (100 per cent for promoted areas) of the statutory income for a period of five years. Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company; or

    - Investment Tax Allowance of 60 per cent (100 per cent for promoted areas) on the qualifying capital expenditure incurred within a period of five years. The allowance can be offset against 70 per cent (100 per cent for promoted areas) of the statutory income in each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

  • companies providing energy conservation services are eligible for the following incentives:
  • - Pioneer Status with income tax exemption of 100 per cent of the statutory income for a period of ten years. Unabsorbed capital allowances as well as accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company; or

    - Investment Tax Allowance (ITA) of 100 per cent on the qualifying capital expenditure incurred within five years. The allowance can be offset against 100 per cent of the statutory income for each year of assessment. Any unutilised allowances can be carried forward to subsequent years until fully utilised.

  • Companies using environmental protection equipment are eligible for an initial allowance of 40 per cent and an annual allowance of 20 per cent on the qualifying capital expenditure. Thus, the full amount can be written off within three years. These companies are:
  • - Waste generators and wish to establish facilities to store, treat and dispose off their wastes, either on-site or off-site; and

    - Undertake waste recycling activities.

  • In the case of companies that incur capital expenditure for conserving their own energy for consumption, the write-off period is accelerated by another one year.

It is important to note that CO2 storage and transport activities are not currently eligible for these incentives, but it may be possible to mount a case for their inclusion.

7.2.3 Obstacles

Directly related to the section above, the major hindrance is the fact that CO2 transport and storage is not listed as a prescribed activity under the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 1987 and therefore unable to proceed through the EIA process. This is likely to represent a significant impediment to moving forward with CO2 transport and storage activities in Malaysia.

As with the section above, it should be noted that such a process, while vital to facilitating CO2 transport and storage in Malaysia, would be secondary to establishing a legislative and regulatory framework for CO2 transport and storage activities, including titling and permitting arrangements.

7.2.4 Omissions

The main omission relates to the omission of CO2 transport and storage as a prescribed activity under the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 1987.

The treatment of CO2 transport and storage under the Environmental Quality Act 1974 should be seen as an element of the legislative and regulatory framework that would need to be developed and implemented in Malaysia before such activities could proceed.

In addition, consideration could be given to including CO2 storage and transport activities as eligible for one or more environmental incentives in Malaysia.