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Carbon pricing is seen as a key driver for advancing Malaysia’s carbon capture and storage industry. (Image: iStock)
Malaysia, a major oil-producing country, has used carbon capture and storage (CCS) technology to enhance oil recovery and generate foreign exchange. As the world moves toward energy transition, CCS has emerged as a key decarbonization technology.
The Malaysian government has passed the legislation to support CCS development. RECCESSARY takes a closer look at Malaysia’s CCS ambitions, highlighting the country's advantages, emerging challenges, and what Taiwan can learn from global frontrunners.
According to consulting firm McKinsey, carbon capture, utilisation and storage (CCUS) market in Southeast Asia is projected to generate up to USD 5 billion to 10 billion in value over the decade starting in 2030. With bold ambitions, Malaysia is actively positioning itself as a regional leader. But turning that vision into reality won’t be easy. What hurdles lie ahead and how do industry experts think Malaysia should respond?
1. Policy misalignment between Peninsular Malaysia and East Malaysia
Despite the passage of the Carbon Capture, Utilisation, and Storage Bill, the legislative process has faced criticism for being rushed. As of the end of May 2025, the bill had yet to receive royal assent, delaying its implementation. Even once enacted, the law would apply only to Peninsular Malaysia, raising concerns over regulatory fragmentation between East and West Malaysia and posing challenges for future policy integration.
Sarawak has taken the lead in carbon storage development, with the Land Carbon Storage Rules established as early as 2022. The state government has launched a procurement process in 2024 to attract international investment for three potential storage sites, with a combined estimated capacity of 1 billion tons.
2. High costs hinder commercial visibility
A cost analysis by international consultancy IHS Markit shows that storing 1 ton of CO2 under Malaysia’s flagship Kasawari CCS project costs MYR 326 (USD 81), far higher than the carbon credit prices traded on the Bursa Carbon Exchange (BCX).
According to public information, the highest carbon price traded on the BCX in April was MYR 68 (USD 17). At this price point, CCUS technology remains largely uncompetitive in the market unless companies are willing to pay significantly higher costs for carbon reduction.
Sahabat Alam Malaysia, a non-profit national environmental justice organization, cited findings from the Intergovernmental Panel on Climate Change (IPCC) and Oxford University, arguing that CCS is more costly and less effective in reducing emissions compared to large-scale deployment of renewables like wind and solar. Moreover, the persistent technical barriers make it unlikely for CCS costs to drop significantly in the future.
The highest carbon credit price traded on BCX in April was MYR 68 (USD 17). CCUS technology remains largely uncompetitive unless companies are willing to pay significantly more for emissions reduction. (Photo: BCX)
3. Carbon storage technology still in its infancy
According to analysis by the Institute for Energy Economics and Financial Analysis (IEEFA), oil drilling carries uncertainties despite relying heavily on data and experience, and even in resource-rich areas, dry wells can still occur. By comparison, permanently storing CO2 underground is a far newer practice, with relatively few long-term examples to draw from. As a result, the risks and uncertainties associated with CCS are currently considered higher than those of traditional oil and gas exploration.
Grant Hauber, Asia energy finance strategist at the IEEFA, cited Norway’s Sleipner and Snøhvit CCS projects as examples, stressing that even with extensive pre-assessment and research, not all risks can be fully mitigated. In some cases, storage potential might be overestimated, and concerns about CO2 leakage emerged. These issues underscore the current limitations in the safety and stability of CCS technology, while also highlighting the critical importance of long-term monitoring after storage.
The geological composition of each oil and gas field varies, along with a range of site-specific conditions that all impact the outcome of carbon storage, said Hauber. “The complexity of these variables,” he explained, “is precisely why carbon storage is so expensive.”
4. Carbon capture’s built-in contradictions
Oil and gas companies have long faced criticism from environmental groups for using carbon storage technologies to boost output. Now, as these same technologies are repurposed as tools for emissions reduction, critics argue they serve as a convenient way to sidestep real climate responsibilities and prolong fossil fuel dependence.
The Malaysian government, meanwhile, is attempting to reframe the narrative and positioning the country as a regional CCS hub for the Asia-Pacific and downplaying accusations of “carbon colonialism.” While nations like Japan and South Korea have shown interest, exporting carbon emissions abroad allows them to ease their own decarbonization burdens, potentially undermining efforts to phase out fossil fuels.
According to a report by Malaysian NGO Rimba Watch, nine out of ten CCUS projects in the country primarily serve to enhance oil and gas recovery, with carbon emissions treated as a secondary benefit. Pieter Stek, senior lecturer at the Asia School of Business, echoed this view, noting that Malaysia’s oil and gas industry appears to be the main beneficiary of the CCUS legislation.
A drilling platform off the coast of Malaysia. (Image: iStock)
Three pathways to unlock ASEAN’s CCS commercial market potential
According to McKinsey, establishing a benchmark for CCS development in Southeast Asian countries like Malaysia requires collaboration between the public and private sectors, with coordinated efforts across three pillars: technology, commercialization and regulatory frameworks.
- Technology leverage: To lower overall costs, experts recommend upgrading technologies, adopting innovative deployment models, and sharing infrastructure. CCS costs are estimated to drop by 10% to 20% after 2030 with these approaches.
- Commercial leverage: Key strategies include carbon pricing, cross-border storage, green premiums, green financing, and fiscal incentives. McKinsey projects that, independent of additional commercial, regulatory or technological support, carbon prices in Southeast Asia would need to rise to USD 75 to 100 per ton to make CCS commercially viable.
- Regulatory leverage: Clearer regulations are needed to create a suitable environment for industry growth, particularly around cross-border operations, emissions accountability frameworks, and accounting standards. Building a functioning carbon market will also play a crucial role in boosting investor confidence and accelerating CCS adoption.
While CCS markets in Europe and the U.S. are already well-established, ASEAN countries are still working to developing carbon pricing mechanisms, enhancing transparent regulatory, and expanding access to low-cost green financing. With the global momentum toward net-zero emissions continuing to grow, McKinsey experts believe that, with the right public-private collaboration, CCS could unlock significant value across Southeast Asia and potentially make Malaysia the region’s carbon storage hub.
Source: The Borneo Post, The Edge Malaysia, Climate Home News, McKinsey
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