Understanding the Basics of ETS Emission Trading Systems Explained

Imagine ETS like a special "market" or "pasar" for pollution permits. The main goal is to reduce the bad smoke (greenhouse gases) that factories and companies release, which causes climate change.

Emission Trading System : As explained by MIDA

How Does It Work? Simple Breakdown:

Government Sets the Top Limit of Emission.

1. Government Sets a Limit (The "Cap"):
   

   • The government decides how much total pollution is allowed for a certain period. This is the maximum limit or "cap".

   • They then create permits (like licences or coupons) equal to this total limit. Each permit allows a company to release a certain amount of pollution (like 1 tonne of CO2).
     

     

     Companies get permits for free or they need to pay for them.

2. Companies Get Permits:
   

   • Companies that produce pollution (like power plants, factories, airlines) get these permits. Sometimes they get them free, sometimes they have to buy them in an auction.
     

     

     Like market place, it can be traded too.

3. The Trading ("Kau Nak Beli?" or "Jual Beli"):
   

   • If a company pollutes LESS than their permits allow, they have extra permits.

   • If another company pollutes MORE than their permits allow, they need more permits.

   • The company with extra permits can SELL them to the company that needs more. They trade permits like how people trade things in a market.

   • This creates a price for pollution. Polluting costs money!

Why is ETS Good? The Benefits:

• Saves Money for Companies (Cost-Effective): Companies can choose the cheapest way to reduce pollution. Some might find it cheaper to upgrade their machines, others might find it cheaper to just buy extra permits from a company that upgraded cheaply. Overall, it costs less for everyone to meet the pollution limit than if the government just gave strict orders to every single company.
  

• Encourages Green Tech (Innovation): Because pollution now has a price, companies are pushed to find smarter, cleaner ways to run their business to avoid buying expensive permits. This helps develop new green technologies!
  

• Can Make Money for Green Projects (Revenue): When the government sells permits in auctions, they get money. This money can be used to fund more environmental projects, like building solar farms or protecting forests. (Like the system in Europe does).
  

• Hits the Pollution Target: The government sets the total limit (cap), so they know exactly how much pollution will be reduced overall.

Real-World Example:

The biggest one is the EU ETS (European Union Emissions Trading System). Worth to know that China uses ETS system, they dont have carbon tax nor carbon credit. It covers power plants, big factories, and airlines flying within Europe. Many other countries (including Malaysia is looking into it) are also setting up or thinking about their own ETS.

In short: ETS is a market system to control pollution. The government sets a total pollution limit (cap) and gives out permits. Companies that pollute less can sell their extra permits to companies that pollute more. This puts a price on pollution, making it cheaper overall to reduce emissions and pushing companies to go green! It's like a "pasar" where the thing being traded is the right to pollute, encouraging everyone to pollute less. Malaysia Boleh also use this idea!

Malaysia Have a full national ETS ?

Malaysia does not yet have a full national ETS (like the EU ETS) in place today, but it is actively developing one and has taken important steps. Here's the current situation in simple terms:

1. No Mandatory National ETS Yet:

   • There isn't a big, nationwide system forcing all big polluters (like power plants or factories) to buy and sell pollution permits right now.
     

2. Voluntary Carbon Market is Live (Bursa Carbon Exchange - BCX):
   

   • Malaysia has launched the Bursa Carbon Exchange (BCX).

   • This is a voluntary market. Companies choose to buy carbon credits (not permits) to offset their emissions, often for ESG (Environmental, Social, Governance) reporting or net-zero goals.

   • Important: This is different from a mandatory ETS. BCX deals with carbon credits (often from projects like forests or renewables that remove or avoid emissions). An ETS deals with allowances or permits to emit a certain amount.
     

     
3. 
   

   

   Government Plans for a Mandatory ETS :
   

   • The Malaysian government, through the Ministry of Natural Resources and Environmental Sustainability (NRES), has announced plans to develop a mandatory domestic emissions trading scheme.

   • This is called Phase 4 of the National Carbon Market.

   • Goal: To help Malaysia achieve its target of Net Zero greenhouse gas emissions by 2050.

   • Timeline: Development and implementation are expected around 2025 onwards. It will likely start gradually, focusing on specific sectors first.
     

In short:

• Not yet: Malaysia doesn't have a mandatory ETS forcing companies to trade pollution permits today.

• But working on it: The government is seriously planning and developing one (Phase 4) to start soon (around 2025+).

• Voluntary market exists: The Bursa Carbon Exchange (BCX) is already operating for companies that want to buy carbon credits voluntarily.

So, while the full system isn't live yet, Malaysia is definitely on the path to implementing its own ETS in the near future as part of its climate change efforts. Keep an eye on announcements from the government (NRES) for updates! Further reading : See it through the lense of China, how ETS helped china in speerheading their ESG initiatives.