Green transition as a new investment opportunity
Let me begin with a small but meaningful change instituted by the Minister of Natural Resources, Environment and Climate Change Nik Nazmi Nik Ahmad on batik and building temperature. Yes, wearing batik to work.
In the early weeks of Datuk Seri Anwar Ibrahim’s premiership, he surprised the nation with the “no tie” fashion statement. However, it was later found out that while ministers could attend parliament and official events without a tie, civil servants were bound by the Chief Secretary to the Government’s Circular to wear a suit with tie, with the exception of Thursdays being batik days.
Eventually, the Chief Secretary’s Circular was amended to accommodate batik as the daily wear for civil servants with Nik Nazmi announcing that the temperature at government buildings would be set at 24°C.
Wearing batik or a suit without a tie is no longer a mere fashion statement but a serious and meaningful “batik4climate” action. The saving on electricity from raising temperatures to 24°C is well-documented in other countries. If rigorously implemented in Malaysia, the financial savings and the environmental benefits will be apparent.
The batik industry will also thrive, which is another part of a virtuous cycle created by this single act. Of course, I hope the Chief Secretary’s Circular will be further amended to accommodate short-sleeved batik and also encourage the everyday wearing of short-sleeved corporate outfits, all with the aim of saving energy.
Apart from the batik-climate action, Minister Nik Nazmi, along with Minister of Economy Rafizi Ramli, should be commended for the work they put into the National Energy Transition Roadmap, which forms the basis of Malaysia’s new energy transition journey.
More often than not, the green transition is resisted by governments and businesses because it is seen as a financial burden and a cost centre. Inaction often becomes the default response.
Instead, climate change should be seen as a cross-cutting challenge that provides us with a new opportunity to take a fresh look at how we organise our societies while the green transition is an opportunity for new investments, which in turn will spur new growth and create a better nation.
Federal and state governments
According to the Malaysian constitutional framework that was conceived in 1957 and 1963, the federal government receives its revenue from income taxes while the state governments control and derive revenue from natural resources and land. It was a fairly equitable deal back then as the main economic drivers were mining, plantation and agriculture.
As the country industrialised and discovered oil, both since around the 1970s, the federal government’s revenue increased at a much faster pace.
The poorer and resource-based states rely on mining and logging rights to gain revenue while the more prosperous states depend on housing developments that sprawl the cities or allow for reclamation. Any of the above activities would have some negative impact on the environment and the climate. In the new context of geopolitics, mining of critical minerals is also a security matter that has international implications.
Hence, the element of climate change should be introduced to the federal-state relationship discourse to renegotiate and to provide adequate resources for the state governments. Giving the state governments a share in the income taxes collected from their states would be a good way out. The taxes collected are not zero-sum games. The more economic activities generated in a state would result in more taxes going to both the federal and the state governments.
The government-linked companies (GLCs) and government-linked investment companies (GLICs) play a substantial role in the economy, thanks to their significant size of capitalisation and breadth of activities in many sectors. Climate should be introduced to the remits of GLCs and GLICs in the fullest possible manner.
Over the years, GLCs and GLICs have partaken in the great transformation of Malaysian cities, sometimes to the detriment of the climate and the environment. They are heavily involved in the property development that turns plantation estates into housing estates, making huge profits while unsustainably sprawling the cities. Malaysians unwittingly adopted an American lifestyle of private car dependence and suburbia, sustaining such traits through the burden of household debt. To reverse this, GLCs and GLICs could lead in creating rental housing stocks in inner cities for the younger generation, helping to solve both a housing crisis and rejuvenating the inner cities.
At the heart of the “becoming American before we get rich” problem is private car ownership and fuel subsidy. In 2022, due to rising oil prices precipitated by the Ukraine war, Malaysia’s fuel subsidy ballooned to RM50.8 billion. Making up 17% of the government’s annual operating expenditure and 75% of the total subsidy bill, last year’s fuel subsidy even exceeded the government’s allocation of operating expenditure to the ministries of health and education respectively.
At some point, the government will have to address the question of subsidy. Diesel subsidy has another dimension: Due to the price gaps between Malaysia’s cheaper diesel price and that of our neighbouring countries, diesel smuggling is rampant and can only be seriously dealt with narrowing of the prices.
On the flip side, once diesel price gaps are narrowed, it could bring double bounty to the Treasury — more revenue from the reduction of diesel subsidy and from ending diesel smuggling. However, admittedly, pushing diesel prices up will have inflationary consequences that have to be cushioned.
If diesel affects businesses more, petrol affects almost everyone due to the heavy dependence on private cars and motorcycles. Studies have shown that in 2008, when the pump price was raised by 40% overnight, road deaths shot up as poorer car owners switched to motorcycles, and motorcyclists were far more vulnerable to accidents than those driving a car.
Therefore, the government must recalibrate its fuel subsidy programme with empathy, not just for the poorest of the society but also many others who are in the middle yet precariously so. Given that 80% of Malaysian wage earners earn a salary of less than RM5,500, most of whom we call “M40” are struggling families too. (I am very wary of the T20, M40, B40 labels).
Many have talked about targeted subsidies at the pump. First, such talk assumed that only “B40” would need help. Second, whoever thought of targeted subsidies has underestimated the ingenuity of Malaysians. Whatever system put in place will be gamed within months if not weeks. Some other economists are talking about cash transfers. Cash transfers are easy to start but very hard to taper off. Cash transfers without a timeframe to sunset will add strains on the fiscal condition.
Instead of subsidy cuts, the debate should shift from fuel subsidies to green subsidies. Imagine that Malaysia embarks on a massive green transition involving all ordinary folk through transforming mobility.
Say, a significant one-time subsidy is provided for the purchase of electric vehicle (EV) motorbikes, in exchange for scrapping internal combustion engine (ICE) motorbikes, it will mean a double transition: Transiting away form fuel subsidy and, more importantly, a transition away from fuel itself. If each purchase is given a RM2,500 grant, subsidising 200,000 units of EV bikes would cost the Treasury RM500 million, which is a small fraction of the RM50.8 billion fuel subsidy cost of 2022. Instantly, Malaysia also creates a domestic market for 200,000 EV bikes, which in turn would help industrial development.
The same logic applies to subsidising the transition from ICE cars to EV four-wheelers. A significant amount should also be channelled to improve public transport. Bus-based public transport can be rolled out across the nation very quickly if there is political will. Wherever possible, catamaran-based ferry services could also be launched.
Instead of subsidising fuel, “paying people to take the bus” is so much cheaper and climate-friendly. I do not literally mean the government has to pay people to take the bus. It is just that public transport is a public good that requires the public coffer to pay for it, there is no point expecting public transport service providers to make profits from fare boxes.
The government may also provide substantial subsidies for households and corporations to install solar panels and battery storage to reduce their energy costs.
Once the transition away from subsidies for fuel and energy can be articulated as a one-time subsidy for a massive national green transition in a period of three or four years, it becomes a positive agenda that would be embraced by rating agencies, the financial markets and, most importantly, the public.
On Sept 1, Anwar launched the New Industrial Master Plan 2030 (NIMP). This plan differs from its previous iterations in that it does not adopt a sectoral approach but a mission-based approach.
Four missions were outlined: (i) increasing the complexity of our economic activities and producing more sophisticated products; (ii) “Techup” to adopt more technology, more automation and more digitalisation; (iii) push for net zero; and (iv) ensuring economic security and inclusivity.
According to Oxford Economics and Arup’s Global Green Economy Report, the shift towards a net zero emissions environment by 2050 is projected to boost the global economy by US$10.3 trillion (RM48.2 trillion). This growth will be driven by five major green markets:
• EV manufacturing
• renewable electricity generation
• clean energy equipment
• renewable fuel production
• green finance
With a concerted national effort with the right set of policies, plus carrots and sticks, the country’s industries may embark on the green transition at a faster pace than previously thought possible.
The challenge of climate change should be introduced to many old debates, such as federal-state revenue, as a new angle so we can take a fresh look at new climate-friendly solutions, and the green transition should be articulated as new opportunities for investment.
(This article first appeared in Forum, The Edge Malaysia Weekly on September 11, 2023 – September 17, 2023)