TUESDAY, 7 February 2023: The Center for Market Education (CME) has published its policy paper nr 5, Energy Transition in Malaysia: An Ecomodernist Perspective, authored by Praharsh Mehrotra and Dr. Bryan Cheang from the Adam Smith Center in Singapore.

The paper is fundamentally driven by the need for a transition in the country’s energy policy. Coal today contributes to about 24% of Malaysia’s energy production. In the long run however, the country faces major energy challenges that it must overcome. A strong energy policy will help Malaysia withstand these challenges effectively. A strong energy policy, in the view of the authors, is one that meets the following objectives:

1. Being able to fulfil Malaysia’s fast-growing energy demand;
2. Meeting the country’s environmental objectives;
3. Leading to an efficient allocation of energy resources with low wastage.

To achieve these objectives, the authors suggest relying on an economic philosophy called eco-modernism. In a world where radical environmental discourse often crowds out sensible discussion, ecomodernism offers a distinctive perspective. This is because it emphasizes practical, constructive policies that harness technological innovation and economic growth, rather than limiting them. It is by leveraging on growth, and the benefits it brings forth, that human development and its environmental footprints may be de-coupled. Ecomodernism also promotes a market-based approach to environmental policy, due to the efficiency and growth benefits it brings about. The challenge, therefore, is to craft policies and reform institutions in order to facilitate innovation, using market-based mechanisms in policy design and minimizing wastage.

The paper starts off by first evaluating Malaysia on its current standing on detailing the problem of expanding energy supply to meet the growing demand and environmental concerns due to high usage of non-renewable resources. The authors clearly identify the need for Malaysia to diversify its energy mix more and also to move away from heavy dependence on natural gas, oil, and coal. The paper next evaluates Malaysia’s energy policy history and some of the policies the country has adopted in recent times.

Specifically, FiT, NeM and electricity subsidies are identified as the key current pillars of the country’s energy policy. However, there are some issues with these existing policies.

One major problem with the FiT policy is that the policy is currently capped to limit the number of energy producers and the capping slows down renewable energy expansion, but has become necessary due to funding concerns of the policy.

The NEM 3.0 policy was designed to increase consumption of renewable energy and to increase adoption among consumers. This policy is focused on the demand side of energy policy. Through this policy, solar energy consumers in Malaysia can use excess RE energy remaining out of the total generation capacity to offset part of their electricity bill and reduce their bill (NEM 3.0). However, NEM too has a limitation. The main limitation for NEM is that consumers still have to install the solar panels themselves. This is extremely painful for domestic consumers because solar energy efficiency is still very low and so, despite the offset, it may take time before the solar energy investments start to yield good returns.

Additionally, the authors also find that the Malaysian government spends a lot of money on electricity subsidies. This is one of the biggest barriers to Malaysia’s Renewable Energy market growth. These subsidies discourage consumers from adopting RE energy. This problem however is well recognized by the Malaysian government who is currently working towards resolving this issue and adopting a more targeted approach to energy subsidies.

The paper also looks at the Malaysian government’s stance on nuclear energy especially after the 2011 incident at Fukushima. The research shows how nuclear energy adoption can greatly increase energy efficiency in the country and how the safety concerns are overblown.

The paper advances the following recommendations for a new energy policy:

1. Favouring the transition to nuclear energy;
2. Phasing out electricity and fuel subsidies;
3. Uncapping FiT Policy to ensure greater energy supply;
4. A regulatory sandbox for innovative energy suppliers;
5. Consumer Support to ensure higher access to NEM policy.

These recommendations will help the Malaysian government to shape a better future for the country and also to help the nation become more energy efficient and sustainable for the future.