Malaysia enacts Carbon Capture, Utilisation and Storage legislation – A Significant Step Towards Carbon Reduction and Meeting 2050 Net Zero Goals

On 25 March 2025, Malaysia passed the Carbon Capture, Utilization and Storage Bill 2025 (the “CCUS Act”) - a comprehensive legislative framework aimed at regulating the capture, transportation, utilization, and permanent storage of carbon dioxide (CO₂) in Malaysia.

CCUS is one of the six energy transition levers in Malaysia’s National Energy Transition Roadmap, Malaysia’s plan to steer the country to a high-value green economy. The enactment of the CCUS Act is meant to pave the way for increased investment and economic growth in the CCUS sector. Equally, recognising that natural carbon absorption methods like planting and preserving trees are insufficient to meet Malaysia’s climate commitments, CCUS is intended to play a crucial role in reducing carbon emissions.

The CCUS Act only applies to Peninsular Malaysia and the Federal Territory of Labuan and therefore excludes CCUS in the states of Sabah and Sarawak. CCUS projects within the state of Sarawak is governed by the Land (Carbon Storage) Rules 2022.

The CCUS Act – Key Features

The CCUS Act is a comprehensive legislative framework aimed at regulating the capture, transportation, utilisation, and permanent storage of carbon dioxide (“CO₂”) in Malaysia. It seeks to reduce CO₂ emissions, mitigate climate change effects, and promote the development of the CCUS industry as a new source of economic growth.

In addition to defining key terms such as "carbon capture," "carbon dioxide stream," "offshore storage," and "onshore storage”, the CCUS Act also establishes that CCUS practices in Malaysia must align with global industry standards and guidelines issued by competent technical entities.

The Malaysia Carbon Capture, Utilization and Storage Agency

The CCUS Act establishes the Malaysia Carbon Capture, Utilization and Storage Agency (the “Agency”) which functions include advising the government of Malaysia (the “Government”), overseeing CCUS activities, managing storage resources, administering the “Post-Closure Stewardship Fund”, and promoting CCUS policies and initiatives.

The Agency shall consist of the Secretary General of the Ministry charged with the responsibility for CCUS; the Director General of the Department of Environment; and not more than 6 other members to be appointed by the Minister charged with the responsibility for CCUS who have the relevant experience, knowledge and expertise on CCUS matters.

Regulated Activities

The CCUS Act mandates registration with the Agency for the following activities:

• The owning and operating of a carbon capture installation (an installation which carries out carbon capture including any associated technical facilities of such installation);
• The transportation of CO₂ obtained through carbon capture, whether by road, railway, water, pipeline or by any other means; and
• The utilisation of CO₂ obtained through carbon capture.

Additionally, the CCUS Act prohibits the following activities unless a permit has been granted by the Agency:

• the importation of CO₂ obtained through carbon capture outside Malaysia;
• any geological assessment of any potential storage complex or any geological formation in both onshore and offshore areas;
• the operation of offshore and/or onshore storage sites for the permanent storage of CO₂ captured within or outside of Malaysia.

Operational Obligations

Under the CCUS Act an operator must ensure that CO₂ streams into a storage site which comply with the specified CO₂ stream acceptance criteria - crucial for maintaining the integrity and safety of storage operations.

Injection Levy

The CCUS Act further introduces an injection levy to be paid by an operator to fund long-term monitoring and corrective measures of each storage site by the Government. This levy is pooled into the Post-Closure Stewardship Fund, ensuring financial support for ongoing stewardship activities.

Closure and Post Closure Obligations

A storage site may only be closed after the “prescribed conditions” for closure have been completed and a closure certificate issued by the Agency.

Nonetheless, the offshore and onshore operator continues to have post-closure obligations, by being responsible for: (i) site monitoring and reporting; (ii) corrective measures (iii) remediation measures and (iv) any other prescribed activities; until these obligations are transferred to the Government.

Post-Closure Stewardship Fund

The CCUS Act establishes the Post-Closure Stewardship Fund (the “Fund”) which is administered and controlled by the Agency, to cover the costs of long-term stewardship of storage sites to be borne by the Government, including monitoring and remediation costs, after the transfer of obligations to the Government. It is comprised of: (i) Government contributions; (ii) injective levies; and (iii) income earned from investments financed from the Fund.

Implementation

The CCUS Act will come into force after it receives Royal Assent, which is expected to be before 31 March 2025. The accompanying regulations to the CCUS Act will provide further guidance and clarity on the implementation of the CCUS Act. Investors and stakeholders must ensure compliance with the CCUS Act's registration, permit, and licence requirements for carbon capture, transportation, utilization, and storage activities. Adherence to prudent CCUS practices and acceptance criteria is crucial for maintaining operational integrity and avoiding penalties. Operators should also be aware of the financial implications, including registration fees, import permits, and injection levies. Continuous monitoring, corrective measures, and reporting obligations are essential for both offshore and onshore storage operators.

Understanding the legal protections and potential liabilities for directors and officers of corporate entities involved in CCUS activities is important. Operators must plan for post-closure obligations and the eventual transfer of responsibilities to the Government. Active engagement with the Agency and compliance with issued guidelines and standards will facilitate smoother operations and regulatory adherence.

Concluding Remarks

The CCUS Act 2025 marks a pivotal advancement in regulating and fostering the carbon capture, utilization, and storage industry in Malaysia. According to Malaysia’s Minister of Economy, Mr. Rafizi Ramli, the establishment of a CCUS hub will significantly boost the industrial potential of the east coast states of Peninsular Malaysia, acting as a crucial catalyst in the decarbonization of heavy industries.

The CCUS industry is poised to attract investments exceeding US$200 billion over the next three decades, potentially creating 200,000 new jobs. This economic opportunity underscores the transformative impact of the CCUS sector on Malaysia's industrial landscape and employment market.

However, the CCUS Act has faced criticism for potentially conflicting with Malaysia’s decarbonisation goals. Critics argue that storing imported CO₂ does not contribute to reducing Malaysia’s domestic carbon emissions. Additionally, the CCUS Act has been scrutinised for its lack of environmental safeguards, particularly concerning potential leakages, and for not mandating environmental impact assessments for proposed CCUS projects.

The implementation of the CCUS Act will have an impact on Malaysia’s environmental and economic objectives, underscoring the need for a balanced approach that aligns economic growth with environmental protection.