Legal Implications Of Energy Transition, Sustainability And Net Zero Goals In Malaysia.

As Malaysia accelerates its transition towards sustainability and net zero emissions, businesses face increasing legal obligations. The shift towards cleaner energy sources is driven by the need to reduce reliance on fossil fuels, comply with evolving environmental regulations and align with global climate commitments. This article examines the key legal considerations surrounding Malaysia’s energy transition, focusing on regulatory frameworks, corporate responsibilities and the potential legal challenges ahead. 

Malaysia’s Commitment to Energy Transition and Net Zero Goals 

1. Policy & Governance 

Malaysia has committed to achieving net zero greenhouse gas (GHG) emissions by 2050,¹ aligning with the Paris Agreement, which was ratified in 2016. To support this transition, the government has introduced several key policies and initiatives, including: 

• National Energy Transition Roadmap (NETR): The NETR aims to facilitate a just and orderly transition to renewable energy, improve energy efficiency and encourage private sector investment in green technologies. 

• National Climate Change Policy 2.0 (NCCP 2.0): This policy builds upon previous climate change initiatives to mitigate and adapt to climate change by incorporating a holistic approach that balances economic growth, environmental protection and social well-being.   

• New Industrial Master Plan (NIMP) 2019-2030: The NIMP focuses on leveraging technological advancements and sustainable investments to drive climate action in key industries. 

• Twelfth Malaysia Plan (2021-2025): The Twelfth Malaysia Plan positions sustainability as a fundamental pillar of national development, emphasizing green economic growth, environmental conservation and long-term resilience. 

These policies are designed to establish legal obligations for businesses, mandating the adoption of sustainable practices, compliance with stricter environmental regulations and the integration of ESG considerations into corporate strategies. 

2. Regulatory Framework 

Malaysia’s transition to sustainable energy is governed by several key environmental laws: 

• Environmental Quality Act 1974 (EQA 1974): The EQA 1974 and its accompanying regulations establish the legal framework for environmental protection, requiring industrial activities to undergo environmental impact assessments (“EIAs”), implement pollution control measures and engage in ongoing compliance monitoring. Companies undertaking prescribed activities must obtain approvals from the Director-General of Environmental Quality before project implementation.² 

Companies must comply with environmental laws such as the EQA 1974, which regulates pollution levels concerning water, oil, waste disposal, and scheduled waste management. Non-compliance may result in fines, operational shutdowns or legal action. 

• Renewable Energy Act 2011 (REA 2011): The REA 2011 establishes Malaysia’s Feed-in Tariff (“FiT”) system, designed to promote renewable energy adoption by guaranteeing long-term contracts and premium tariffs for electricity generated from solar, biomass, biogas and small hydropower. The Sustainable Energy Development Authority (SEDA) regulates the FiT system, as mandated under the REA 2011. Malaysia’s FiT system obliges Distribution Licensees to purchase electricity generated from renewable sources at a set FiT rate, ensuring grid access and a favourable price per unit, making renewable energy a viable long-term investment for companies, industries and individuals.³ 

• Electricity Supply Act 1990 (ESA 1990): The ESA 1990 regulates electricity generation, transmission and distribution in Malaysia, ensuring that all energy providers, including renewable energy producers, comply with licensing requirements and grid connection standards. 

The REA 2011 and the ESA 1990 further impose contractual and licensing requirements, particularly for participants in the FiT system involving renewable energy producers, where breaches may result in contract terminations or license revocations. 

• Energy Efficiency and Conservation Act 2024 (EECA 2024): Enforced on 1 January 2025, the EECA 2024 is Malaysia’s first dedicated legislation on energy efficiency and conservation.⁴ The Act aims to enhance energy efficiency across various sectors, reduce energy wastage and support Malaysia’s environmental goals, including achieving carbon neutrality by 2050. 

The EECA 2024 will introduce mandatory energy efficiency standards and failure to comply could result in enforcement actions, financial penalties or reputational damage. 

These laws collectively form the backbone of Malaysia’s environmental and energy regulatory framework, guiding the country’s shift towards sustainability while ensuring compliance with environmental and energy efficiency standards. Malaysia’s regulatory framework for sustainable energy transition carries significant legal implications on businesses and investors. 

3. Transition Finance & Investment Incentives 

Malaysia has introduced several financial incentives and regulatory frameworks to support green investments. Key initiatives include: 

• Green Technology Financing Scheme 4.0 (GTFS): The government has allocated up to MYR 1 billion under GTFS 4.0, available until 31 December 2025, to support businesses that implement green technologies to six (6) key sectors, including energy, manufacturing, transport, building, waste and water. This scheme is essential to ensure ongoing support for green technology initiatives, directly driving industry growth and serving as a catalyst for robust climate change policies. 

• Green Investment Tax Allowance (GITA) & Green Income Tax Exemption (GITE): Offers tax incentives to companies investing in renewable energy, energy efficiency, and other eligible green projects, reducing the financial burden of sustainability transitions.  

Malaysia’s financial incentives and regulatory frameworks aim to enhance green investment viability. These measures attract private investment, accelerate the low-carbon transition and align Malaysia with global ESG trends. 

4. Emerging Legislations 

At present, Malaysia is strengthening its legislative framework for sustainability by introducing new laws to address climate governance, carbon management and environmental accountability, as follows: 

• Climate Change Bill: In September 2024, the Ministry of Natural Resources and Environmental Sustainability (NRES) unveiled the updated NCCP 2.0 alongside a consultation paper for the proposed National Climate Change Bill.  This bill aims to establish a legal framework for climate governance, institutionalise emission reduction targets and ensure policy continuity.  

• Carbon Capture, Utilisation, and Storage (CCUS) Bill: The Carbon Capture, Utilisation and Storage Progressive Regulatory Framework Bill is in its final drafting stages and is expected to be submitted to Parliament in March 2025. This bill is aligned with Malaysia’s National Energy Transition Roadmap (NETR), which identifies carbon capture as a key decarbonisation initiative.  

These legislative initiatives highlight Malaysia’s proactive approach to climate action, reinforcing its commitment to building a robust legal framework for sustainable energy transition. While the country has yet to enact a comprehensive climate change law, these developments represent significant progress toward establishing structured regulatory frameworks. 

5. Legal Risks and Challenges 

Despite Malaysia’s progress in sustainable energy transition, businesses must navigate several legal challenges, including: 

• Regulatory Uncertainty:  Frequent amendments to laws, incentive structures and compliance requirements may affect project feasibility and financial planning. Companies must proactively monitor policy changes and engage with regulators to mitigate potential disruptions. 

• Contractual and Financial Risks:  Investing in renewable energy projects involves intricate contractual arrangements, such as Power Purchase Agreements (PPAs), financing agreements and Engineering, Procurement, and Construction (EPC) Agreements. Poorly structured agreements may expose businesses to risks, including cost overruns, payment disputes and unforeseen termination clauses. 

• Litigation, Liability, and Reputational Risks: Businesses may face legal action and regulatory penalties if they fail to meet sustainability commitments, misrepresent environmental initiatives (greenwashing) or violate environmental laws. 

• Land Use and Permitting Challenges: Renewable energy projects often require land acquisition, zoning approvals and environmental impact assessments, which can be time-consuming, costly and subject to legal disputes. 

• Lack of Transition Finance: Transition finance is essential for shifting high-carbon sectors, such as oil and gas, manufacturing, and transportation, toward low-carbon operations. However, Malaysia faces several challenges in this area. Many businesses, particularly SMEs, struggle to secure affordable green financing through instruments like green bonds and sustainability-linked loans because of stringent eligibility criteria and limited awareness. High upfront capital costs for renewable projects further delay or derail investments in low-carbon initiatives. In addition, the lack of a dedicated regulatory framework for transition finance creates uncertainty for investors, unlike in countries such as Japan,⁵ which offer clear criteria for funding emissions-reducing projects. Adopting similar frameworks could help Malaysia attract international investors and align with global best practices. 

Moving Forward: Navigating the Legal Landscape of Malaysia’s Energy Transition and Net Zero Ambitions 

To effectively navigate the evolving regulatory landscape and align with Malaysia’s net-zero ambitions, companies should consider the following strategies: 

• Advocate for Transition Finance Mechanisms: Businesses should engage with policymakers and financial institutions to develop tailored transition finance products, such as transition bonds or concessional loans, to support decarbonization efforts. 

• Leverage Existing Green Financing Schemes: Companies should explore available green financing options, such as the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE),⁶ to fund renewable energy and energy efficiency projects. 

• Collaborate with International Partners: Malaysian businesses can partner with international organizations and development banks, such as the Asian Development Bank (ADB) or the World Bank, to access transition finance and technical expertise. 

Policymakers, on the other hand, should: 

• Develop a Transition Finance Framework: The government should introduce a dedicated regulatory framework for transition finance, similar to Japan’s guidelines, to provide clarity and attract investment. 

• Incentivize Private Sector Participation: Tax incentives, grants and risk-sharing mechanisms can encourage private sector involvement in funding Malaysia’s energy transition. 

• Enhance Awareness and Capacity Building: Financial institutions and businesses need greater awareness of transition finance opportunities. Workshops, training programs, and public-private partnerships can bridge this gap. 

As Malaysia progresses toward its net-zero goals, legal professionals will be instrumental in ensuring adherence to regulatory standards, structuring agreements and integrating sustainability into corporate decision-making. Keeping pace with legal developments will be essential for businesses looking to succeed in the green economy while protecting their investments and corporate reputation. 

1. Mission 3: Push for Net Zero, Ministry of Investment, Trade and Industry, https://www.nimp2030.gov.my/index.php/pages/view/82?mid=472. 

2. Chapter 8, Environmental Management, Malaysian Investment Development Authority, https://www.mida.gov.my/wp-content/uploads/2020/07/Chapter-8-Environmental-Management-1.pdf, page 76. 

3. Feed-in Tariff (FiT), Sustainable Energy Development Authority (SEDA) Malaysia, https://www.seda.gov.my/reportal/fit/overviewofthefitsystem/. 

4. Energy efficiency laws take effect tomorrow, driving Malaysia’s sustainability goals, Malay Mail, 31 December 2024, https://www.malaymail.com/news/malaysia/2024/12/31/energy-efficiency-laws-take-effect-tomorrow-driving-malaysias-sustainability-goals/161657#google_vignette. 

5. Toward a Transition to Decarbonisation Transition Finance, Ministry of Economy, Trade and Industry Japan, https://www.meti.go.jp/english/policy/energy_environment/transition_finance/index.html. 

Green Investment Tax Allowance (GITA) & Green Income Tax Exemption, Malaysian Green Technology and Climate Change Corporation (MGTC), https://www.mgtc.gov.my/what-we-do/green-incentives/green-investment-tax-incentives-gita-gite/.