Green hydrogen from a Malaysian perspective


Kasturi Nathan, Governance, Regulatory and Sustainability Services Leader, Deloitte Malaysia

GREEN hydrogen – the process of producing hydrogen through electrolysis powered by renewable energy (RE) sources – is poised to help drive the bulk of growth in sustainable energy, according to Deloitte’s new report “Green hydrogen: Energising the path to net zero. Deloitte’s 2023 global green hydrogen outlook.”

Hydrogen supply currently relies almost entirely on natural gas reformation and coal gasification, which are highly carbon intensive. The real breakthrough lies in the potential of clean hydrogen to decarbonise the current supply and develop new end uses at scale.

Green hydrogen is the most promising and truly sustainable technology. Blue hydrogen, produced via natural gas coupled with carbon capture and storage, can also be labelled “clean”, provided it meets stringent methane emissions and carbon capture standards.

The report projects that nearly 70% of clean hydrogen’s benefits could go to developing and emerging economies like Malaysia.

This represents a major sustainable growth opportunity for the country in addition to supporting the government’s target of raising Malaysia’s RE generation capacity target from 40% to 70% by 2050.

The government’s HETR

Through the government’s proposed Hydrogen Economy Technology Roadmap (HETR), which is expected to be launched in the second half of the year, Malaysia is projected to enjoy between RM49bil and RM61bil in additional gross domestic product contribution and RM12.1bil in revenue gains from the hydrogen market by 2030.

The HETR is also set to provide 45,000 new job opportunities within the same timeframe. In terms of impact to carbon reduction, the government projects the HETR to reduce Malaysia’s greenhouse gas emissions by 0.4% to 1.3% by 2030.

It is encouraging to see the Science, Technology and Innovation Ministry (Mosti) drive Malaysia’s adoption of green hydrogen through the HETR.

Mosti joins 35 other countries who have launched their national hydrogen strategies and is aiming to position the country as a leading hydrogen economy by 2050.

The onward implementation of this roadmap will be key in the recalibration of Malaysia’s energy mix and to effectively capitalise on the associated economic and societal benefits of adoption.

The report also highlighted that growing green hydrogen capacity will be key in decarbonising hard-to-abate sectors.

The Malaysian Investment Development Authority (Mida) has echoed this sentiment by underscoring the ability of green hydrogen in decarbonising the country’s energy, materials and infrastructure sectors, which have been traditionally reliant on fossil fuels.

Additionally, other public policy shifts such as the lifting of the RE export ban is a positive move.

These shifts are set to provide competitively priced clean energy for consumers, address energy security concerns, create jobs, diversify export opportunities and accelerate the national energy transition.

Challenges in the energy transition

The stretch goals set by the government are indeed challenging. The overarching RE generation capacity target of 70% by 2050 would require an 11-fold increase from the current capacity of an economy with a historic reliance on the traditional fossil fuel industry.

The financial burden imposed is viewed as the biggest barrier to the RE shift. The challenge of phasing out coal, which is our cheapest source of energy, along with its associated costs, may not be a pill that many organisations and their investors are willing to swallow.

This is where market awareness programmes become important in ensuring the business case for the transition is front and centre to promote behavioural change and crucial industry buy-in.

Other major headwinds which require attention include the building of Malaysia’s RE capacity, the availability of a conducive environment for RE production, market maturity as well as political and policy uncertainty.

Ushering a new wave of green investment

Moreover, the report predicts that significant supply chain investments will be needed to optimise the global value of green hydrogen, with more than US$9 trillion of cumulative global investment needed to meet net-zero compliance by 2050.

In developing economies, the report predicts that US$3.1 trillion is required.

It is crucial for economies like Malaysia to attract green investments to establish the necessary RE infrastructure and fund the green shift.

The Investment, Trade and Industry Ministry and Mida are spearheading efforts in this regard to promote green foreign direct investment and domestic direct investment inflows through incentives such as tax breaks, capital allowance and financial assistance.

The case for the green hydrogen shift

Notwithstanding these challenges, the longer-term benefits of a successful HETR rollout are clear. It is set to drive Malaysia’s efforts to meet carbon reduction targets and become a sought-after destination for green investments within Asia-Pacific.

Experts have opined that clean hydrogen is the country’s ideal option for clean energy production.

In the long run, the country will enjoy the benefits of economies of scale, which will exert downward pressure on the overall cost of energy production for businesses. Ultimately, consumers will also benefit from cleaner and cheaper energy access.

This is particularly important with the increasing demand for energy due to population and economic growth. Despite the relative nascency of green hydrogen adoption in the economy, private sector players have made promising progress.

Notably, Petroliam Nasional Bhd and Sarawak Energy have collaborated in the commercial generation and exploration of green hydrogen.

The National Energy Transition Roadmap (NETR) launched in July 2023 by the Economy Ministry has positioned hydrogen as one of the six “energy transition levers” aimed at facilitating Malaysia’s energy transition.

Under the hydrogen lever, the government has outlined three catalytic projects for the production of green hydrogen – one in Kuching for domestic use, due for completion by 2025 and two in Bintulu for export use, due for completion by 2027.

The NETR also opens up the hydrogen gateway for Sarawak to become a major player with large-scale commercialisation and global market participation by 2027.

Policy imperatives to scale up a robust, fair and clean hydrogen economy

The government has made encouraging headway but the challenge remains in operationalising effective and market-moving energy transition incentives, regulation and implementation guidelines.

To this end, the report recommends policymakers to focus their attention on three key components:

> Lay the market foundation: Lay out national and regional strategies to lend credibility to the market, develop a robust and shared certification process for clean hydrogen to help ensure transparency, and coordinate internationally to help mitigate political friction and promote a level playing field.

> Spur action: Establish clear targets and/or markets for clean hydrogen-based products and offer pointed instruments such as fiscal incentives and subsidies to help reduce the cost difference between clean and fossil-based technologies and equip businesses to integrate clean hydrogen into their value chains.

> Ensure long-term resilience: Diversify value chains – from trade partners to raw material suppliers – to help prevent costly bottlenecks during the transition to clean hydrogen, with a focus on improving infrastructure design to more effectively transport (pipelines and marine roads) and store (strategic reserves) clean hydrogen commodities.

The potential of green hydrogen in accelerating decarbonisation and meeting national capacity targets as well as projected future RE demand cannot be understated.

With the right implementation by the government, backed by a robust incentive framework, growing market awareness, significant supply chain investment and strong private buy-in, the country can ride the “green hydrogen wave”, reap the benefits, and embrace a cleaner and more sustainable future for all.

Kasturi Nathan is the Governance, Regulatory and Sustainability Services Leader of Deloitte Malaysia. The views expressed here are the writer’s own.

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