Kuala Lumpur, 7 November 2018 – Today, IDEAS has published a policy paper titled “Powering the Future: Malaysia’s Energy Policy Challenges” by Dr Renato Lima de Oliveira, Assistant Professor at the Asia School of Business (ASB), Senior Fellow at IDEAS and research affiliate at MIT. Dr Renato’s paper considers the changing global energy scenario and how well Malaysia is placed to meet the challenge of the future. In the paper, Dr Renato argues that the revolution in unconventional oil and gas and the rising competitiveness of renewables pose a deep challenge to the business models of firms that rely on the extraction of conventional O&G as well as the public finances of oil-rich countries like Malaysia. Moreover, Dr Renato argues that Malaysian policymakers will need to devise policies to transition away from coal towards natural gas and drastically incentivise low-carbon sources of energy, such as solar, to de-carbonise the economy and meet the government’s renewables targets. The study points to the need to invest in energy innovation in Malaysia to face the coming challenges.
The paper considers the global revolution in unconventional oil and gas (O&G), such as shale gas and tight oil which have transformed the energy mix in countries like the United States and brought a scenario of long-term oil abundance. In 2017 alone, the US produced 12.8 million barrels of oil equivalent per day from these sources. In comparison, the global production of solar and wind energy was only equivalent to 2.1 million barrels of oil per day. However, Dr Renato argues the dramatic fall in the costs of renewable energies mean that renewables are set to gain significantly, when combined with increasing electrification of energy demand, changing consumer preferences, and global policy activism. Dr Renato argues that these two developments – the revolution in unconventional O&G and the rising competitiveness of renewables – pose a deep challenge to the business models of firms that rely on pure extraction of O&G (with low investments in innovation) as well as the public finances of oil-rich countries like Malaysia.
Turning to Malaysia, Dr Renato explains that, unlike the rest of the world, Malaysia is becoming more carbon-heavy, not less: coal has increased from 5% of Malaysia’s primary energy share in 1996 to 20% in 2016. Coal is gradually replacing natural gas as the main source of energy, despite Malaysia’s abundance of natural gas, and now accounts for 46% of electrical energy generation. Meanwhile, modern renewable sources (solar and wind) make up less than 1%. Dr Renato argues that Malaysian policy makes will need to devise policies to address this, including a shift from coal to gas and measures to drastically incentivise renewables, to de-carbonise the economy and meet the government’s renewables targets.
Dr Renato argues that both objectives require a national innovation system that prioritises research and development. Despite the commercial success of Petronas, Malaysia’s performance in R&D is more mixed – this will need to be addressed if the challenges of the future are to be met and to facilitate a transition to green technologies.
Commenting on the paper, Ali Salman, CEO of IDEAS said “This paper paints a clear picture of the energy policy challenges facing Malaysia. The ongoing dependence of the Malaysian government on oil revenues, as seen in last week’s Budget, underline the importance of facing up to changing energy environment globally. At the same time, the paper highlights the challenge of meeting the government’s targets for renewables. Government’s goal to increase renewables from 1% to 20% in the energy mix by 2030 and continuation of subsidies for the use of carbon fuels are mutually contradictory. This might require a hard look at the government’s various policies which subsidies and incentivise the use of carbon fuels. Another manifesto promise binds the government to increase the royalties to states to 20%, which will have consequences for both fiscal management and federal-state relationships.
Download Policy Paper No.55: Powering the future: Malaysia’s energy policy challenges here