Malaysia passes legislation in support of carbon capture and storage

The Carbon Capture, Utilisation, and Storage (CCUS) Bill 2025 was passed by the upper house of the Malaysian parliament on 25 March. Although many details are yet to be clarified, the legislation will, on receipt of royal assent, have ramifications for Malaysia’s developing CCS industry.

Corporate law expert David Clinch of Pinsent Masons said: “Although further detail is needed in regulations, the CCUS legislation sets the scene for those and the next stage of the development of Malaysia’s CCS industry, including for Malaysia to act as a hub for the import and permanent storage of CO₂ as part of Asia’s decarbonisation pathway.”

Rafizi Ramli, Malaysia’s minister of economy, emphasised that the intention is that the CCUS legislation, together with any accompanying regulations that are passed into law, will be in full effect by no later than 31 March.  He previously indicated that the CCUS legislation could potentially add US$250 billion to the Malaysian economy within 30 years.

The CCUS legislation legislates a high-level regulatory framework for the implementation of CCUS in Peninsular Malaysia and Labuan, but does not cover the Sarawak and Sabah regions. Sarawak previously issued its own regulation for CCUS activities within its state boundaries.

The CCUS legislation is relatively light on detail at this stage, but it does provide for further regulations to be issued by the minister of energy and implemented by a newly-established Malaysia Carbon Capture, Utilisation and Storage Agency.

Licensing requirements

The CCUS legislation mandates that licenses must be obtained for the following activities:

• owning or operating a carbon capture installation;
• transporting carbon dioxide;
• importing carbon dioxide captured outside of Malaysia;
• utilisation of carbon dioxide;
• conducting an onshore / offshore assessment; and
• operating an onshore / offshore storage site.

Imported CO₂ must be authorised under an import permit to ensure it is designated solely for permanent storage. The CCUS legislation prohibits the use of CO₂ imported for permanent storage for other purposes.

The CCUS legislation does not include key commercial and legal details such as the duration or other terms of the license or the requirements that must be met before a licence can be awarded, all of which will presumably be contained in the future regulations.

Operating obligations

Operators must comply with the CCUS legislation’s CO₂ acceptance criteria, which seeks to ensure that adherence to internationally recognised best practices is achieved.

The acceptance criteria include that carbon dioxide, alongside any waste or other substances added for disposal, and any incidental and added substances for monitoring and verifying the migration of CO₂, must not pose any significant risk to human health or the environment.

Potential liability is placed on the person acting as operator, instead of the owners of the storage site. It is expected that operators will seek indemnification from owners, in a similar way to operators under a joint operating agreement in respect of upstream oil and gas interests, usually with a carve out for the gross negligence or wilful misconduct of the operator.

Operators of a carbon storage site will be required to provide information relevant for assessing compliance with the storage license conditions, have a monitoring plan for storage complexes and the surrounding environment, and report and carry out any corrective measures with regards to leakage.

Utilisation and importation of carbon dioxide

Importation of carbon dioxide will require registration and importation permits, although the terms and process to apply for those is not specified and details will also presumably be contained in the subsequent regulations. Existing environmental and other Malaysian laws will remain applicable.

The CCUS legislation makes clear that the CCUS law will not supersede any other relevant laws, effectively meaning that both existing and future laws which affect CCUS projects will also need to be complied with and potential exposure to liability may not be able to be fully determined before a project is undertaken. For example, CO₂ is not currently prescribed as hazardous waste, referred to in Malaysian as “scheduled waste”, which attracts stricter regulatory requirements, but there is no guarantee that it may be designated as such in the future.

As mentioned above, under the CCUS legislation, no-one can utilise CO₂ obtained through carbon capture outside of Malaysia which has been imported into the country for the purpose of permanent storage, meaning that imported carbon dioxide can only be permanently sequestered.

It is unclear how this will apply to the use of co-mingled CO_2, if the CO₂ being transported contains both domestically produced and imported CO₂.

Within the Malaysian parliament, questions were raised over how the provisions, if passed without amendments, will affect enhanced oil recovery (EOR) gas injection projects because of their utilisation of co-mingled CO₂, although the minister clarified that EOR projects would fall outside the scope of the CCUS legislation.

Transfer, closure and post-closure obligations

The CCUS legislation states that a storage site can only be closed when the “prescribed conditions” for closure have been complied with. Post-closure, the operator remains responsible for monitoring, corrective measures and remediation measures throughout a specified ‘transition’ period.

The CCUS legislation does not specify the duration of the post-closure transition period, and the operator remains responsible until the government of Malaysia, or an authorised ministry or representative of the government of Malaysia, issues a certificate to confirm the end of the transition period and the transfer of obligations from the operator to the government.  How this will work is likely to be another point of detail that is contained in subsequent regulations.

However, notwithstanding any subsequent transfer, the operator will remain perpetually responsible for any criminal, contractual or civil law liability connected to the storage site attributable to the fault, negligence or fraud of the operator or its failure to exercise any due diligence. Other applicable laws will continue to apply and liabilities under those laws will be unaffected by the issue of the certificate.

Insurance products will potentially become available in the future to cover some elements of this potential liability, however, it is likely that operators will want to keep the site owners proportionately liable to the operator in the event that such liability arises in the future.

It is not clear what happens if the operator is wound up or otherwise ceases to exist because, at present, the liability does not appear to directly extend up to the owners of the storage site if the operator does not satisfy its liability.

Injection levy

Under the CCUS legislation, an injection levy must be paid by the operator for the purpose of the long-term monitoring of each storage site by the government of Malaysia after the post-closure transfer.

The injection levies will be consolidated in a pooled ‘post-closure stewardship fund’ for the monitoring and post closure remedial work. The fund is intended to be a general fund and not site specific, with the effect that funds that are paid in respect of a specific site will be able to be utilised for any site, even if operated by a different operator.

Unlike CCUS regulations in other countries, the CCUS legislation does not include a provision holding operators or site owners automatically liable in cases where the post-closure stewardship fund is insufficient to cover the related costs.

Further clarity required

Despite the Ministry of Energy initially announcing that the CCUS legislation would be introduced in the November 2024 parliamentary session, a number of members of parliament have questioned why the second and third reading of the CCUS legislation was immediately scheduled after the first, resulting  in members of parliament having little time to review the terms in detail or assess negative implications.

Several members of parliament have expressed concerns about the potential environmental impact of underground carbon sequestration and, beyond parliamentary debates, the CCUS legislation has sparked criticism from environmental groups, including suggestions that it has been rushed through Malaysia’s legislative approval process without sufficient scrutiny and lacking proper safeguards. 

Fariz Abdul Aziz at Malaysian law firm Skrine said: ”Whilst I had hoped that a public consultation process had been implemented and that the Government had taken steps to educate the public in general on CCUS prior to commencing the parliamentary process, the introduction of the CCUS legislation is welcomed and essential for Malaysia to compete for international CCUS investment and achieve its aim to become a regional CCUS hub. I am looking forward to the accompanying regulations to fully see the workings of the CCUS framework as a whole”.

Co-written by Bryan Chapman of Pinsent Masons. Malaysian law input provided by Fariz Abdul Aziz and Tan Wei Xian of Skrine.