Testimony for Parliamentary Select Committee on Rubber Downstream Issues and Goodyear's Departure

The impending closure of the Goodyear Tire and Rubber factory in Shah Alam has stirred up public concerns. Goodyear announced that this was part of its “Goodyear Forward corporate restructuring program, aimed at delivering $1 billion in cost reductions by 2025.” However, with over 500 workers impacted by this decision, the Parliamentary Special Select Committee on International Relations and Trade (chaired by Member of Parliament for Subang Jaya YB Wong Chen), met to discuss the company’s decision and the landscape of foreign direct investments in the country.

Alongside MITI, MIDA and other experts, our principal, Khor Yu Leng, was invited to shed some light on downstream problems in Malaysia that affect the automobile industry, such as Goodyear and factors behind their decision to close the Shah Alam factory.

Yu Leng started with an overview of rubber trade trends and domestic consumption over the past few years. She highlighted a significant drop in rubber glove latex use, which was down to 219,000 in 2023 from 402,000 in 2020, while tyres & tubes (from natural rubber) use were down to 26,000 from 33,000. From reports, it appears that China has taken the lead recently in global glove manufacturing.

Exports were 1.2 million tonnes (70:30 compound/mixed:natural rubber), almost entirely to China while imports were at 1 million tonnes, 70% from Thailand and Côte D’Ivoire. Yu Leng debunked narratives on shortages in rubber supply affecting downstream manufacturers in Malaysia, stating that imports are used to fill in the gaps.

She proceeded to display satellite imagery of tyre manufacturers’ plants in Malaysia, including Goodyear’s, for an understanding of their relative sizes and locations. Interestingly, Goodyear’s Shah Alam plant appeared to be layered with solar panels, which invited questions from members of the select committee.

Yu Leng proceeded to draw comparisons between the Thai and Malaysian rubber cities located in Hat Yai and Kedah, respectively. She cited the presence of major companies like Micheline, Schlumberger and Malaysian condom manufacturer Karex-Innolatex at the Thai rubber city, along with better connectivity to ports than the rubber city in Kedah. Malaysia’s motor vehicle production was also only a third of Thailand’s in 2022 due to a lack of competitiveness, an over-reliance on the domestic market and shortages of skilled workers, amongst other factors. Yu Leng also shared insights from rubber suppliers on vehicle sales, competition in the tyre sector from China producers, margins and costs, and shifts in natural rubber supplies.

At the end of her presentation, Yu Leng briefly shared on labour issues plaguing the rubber industry in Malaysia. From DOSM statistics, it seems that 14 percent of our workforce is made up of foreign workers (some say this should be doubled), with international NGOs alleging that there are 200,000 victims of modern slavery in Malaysia. Yu Leng underscored the millions in labour reparations paid out by companies such as TopGlove, Goodyear and ATA-Dyson, and also shared her preliminary calculations on other wage costs, such as transport and housing, that should be borne by glovemakers.

She also highlighted a few instances of new policy thinking on labour, including former Sabah chief minister Harris Salleh’s suggestion to extend the duration of foreign worker permits from one to 15 years. Yu Leng added that this extension should come with a family-based approach, ensuring that children of foreign workers have access to healthcare and education. Additionally, the Plantations and Commodities Minister recently suggested making oil palm harvesting a specialist job to enhance youth involvement in the industry and in hopes of solving labour shortages. She then referred to reports citing 192,655 “excess workers” from manufacturing & services, but plantations fear hiring on “forced labour” concerns.

Upon the adjournment of the hearing, members of the select committee held a press conference at Parliament to sum up their findings. Yu Leng was also invited to share her insights with members of the press. View the full press conference here.

Reported by Nithiyah Tamilwanan (research@segi-enam.com) | 25 March 2024

Intro/Update with Khor Reports-PalmTrack

Announcing an update to our PalmTrack reporting format!

As we’re clustering posts for quarterly release (in Mar, Jun, Sep and Dec) for the rest of 2024, we’re introducing 30 minute chats with our principal, Ms Khor Yu Leng, in Apr, May, Jul, Aug, Oct and Nov. If you’re new to Khor Reports-PalmTrack, do book in a chat via our Calendly link below for a brief introduction to the platform and an overview of our recent updates/focus!

BFM - Restructuring Palm Oil Smallholders

Recently, the Ministry of Plantation and Commodities proposed the consolidation of Malaysia’s smallholders to increase palm oil yield. This involves the grouping of 215,000 independent smallholders into clusters of 8,000-10,000 hectares of oil palm plantations, overseen by medium or large corporations. The initiative could result in an annual increase of CPO production by about 600,000 tonnes, worth USD 2.4 billion. Our principal, Khor Yu Leng, was invited back on BFM’s Morning Run to provide her insights on this proposed initiative.

Yu Leng reviewed the historical contexts of smallholder consolidation in Malaysia, including the development of schemes such as FELDA, FELCRA and RISDA, and recommended a few routes to rejuvenating independent smallholders, including engaging corporations and as part of this, adopting an outcome-driven, smallholder centric, hybrid approach. Yu Leng was also asked to share her thoughts on the recent ruling by the World Trade Organisation on Malaysia's complaint about the EU's ILUC that affects market access for palm oil feedstock into its biofuels mandate system.

For more details, catch the full podcast here.

The Star - Planting New Ideas

“There is a possibility that the palm oil economy will not be adequate to support the densities of rural populations everywhere.”

Segi Enam Advisors’ principal, Khor Yu Leng’s op ed for The Star, Planting New Ideas, reviews the shifts in Malaysia’s palm oil economy, including the industry’s declining yield, over the decades and how rejuvenating Malaysian smallholders may involve engaging corporate players and adopting outcome-driven, smallholder-centric strategies. These could encompass financial support for replanting, new agencies and rural youth involvement, amongst others.

Check out the full article here for more insights!

BFM - Maintaining Malaysia’s Edge in Palm Oil

Malaysia is experiencing a downturn in its crude palm oil (CPO) yield, currently hovering at around 3.4 tonnes per hectare, on par with Indonesia but lower than Thailand, a less optimal planting zone. This has sparked concern within the industry, which recently led Plantations and Commodities Minister Datuk Seri Johari Abdul Ghani to urge the Federal Land Development Authority (FELDA) to focus on enhancing palm oil production yield from its 800,000 hectares of land, instead of venturing into other business areas

Our principal, Khor Yu Leng, was invited to BFM to share her insights on Malaysia’s recent yield performance, factors causing the current trend, pathways for improvement (including capitalising on genomic testing technology) and revitalising FELDA through its youths. 

Catch the full interview here.

BFM - Time To Review Palm Oil Windfall Levy?

Since 1998, Malaysia has imposed a windfall profit levy (WPL) of three percent on palm oil prices above RM3,000 for Peninsular Malaysia and RM3,500 for Sabah and Sarawak, with periodic revisions to the levy rate and price threshold value. Notwithstanding the WPL threshold is based on CPO prices, it is ultimately levied on all oil palm growers (excluding smallholders) on their FFB production.

While the Ministry of Finance has announced that the government will not abolish the WPL, 15 palm oil associations have asked the government to consider a review of the WPL levied on Palm Oil B, to raise the WPL’s effective price threshold for palm oil and to revert the WPL levy rate for growers in Sabah and Sarawak.

Segi Enam Advisors’ Principal, Khor Yu Leng, was invited to BFM to give her insights on the historical contexts of the WPL, why palm oil associations have been imploring the government to review this levy and the CPO yield performance of plantations across the country. She also discussed issues of forced labour on plantations and compliance with the upcoming European Union Regulation on Deforestation-free Products (EUDR).

Catch the full interview to learn more about this contentious levy - Time To Review Palm Oil Windfall Levy?

EUDR, Traceability & Data Transparency - A Webinar Wrap-Up

Earlier this year, we attended a series of online discussions on the EUDR, traceability and reconciling public and private data to enhance transparency. Here’s a quick wrap up on key points from each session:

Tackling Traceability: Exploring Opportunities and Challenges under the European Deforestation Regulation (EUDR)

On June 20th, Competere.eu, an EU policy institute for sustainable development, hosted a roundtable session to discuss the most complex requirement in the EUDR - ensuring traceability throughout the entire supply chain.

• Pietro Paganini, President of Competere, moderated the discussion between:

• Jose Angel Olivero, Sales Director of LIPSA (a leading supplier in the market and the largest vegetable oil refinery in southern Europe

• Luis Francisco Dangond-Lacouture, Director-General Manager of Oilsum Olequimica de Colombia

• Louis Roy, CEO & President of OPTEL Group

Key points:

Jose Angel highlighted that importers will have to trace the supply chain of their vegetable oil imports prior to the arrival of shipments, emphasizing that this is a big change for local players. He expressed his doubts on whether smallholders will be able to provide GPS coordinates, or polygons, stating that blockchain technology will be needed to trace the origins of raw materials. Jose stressed that compliance is still mainly on the onus of producers. He recommended that their costs should be transferred to the European export markets.

Luis Francisco emphasized that track and trace has to be accessible, comprehensible and manageable, but most importantly, meaningful to smallholders. He underlined the importance of reliable, secure and accessible technology that would allow the consensual transfer of information without contravening national and international data privacy laws. He stated the initial costs should be a shared responsibility along the value chain.

Louis Roy believes the technology is mature, but the timeframe to execute changes is challenging. He urged industry players to clean their supply chains from the very first transaction, which will be made easier through mobile phone verifications. This connectivity will accelerate the digitalization of smallholders, improving their financing while reducing their carbon footprints. He recommended that smallholders join corporations or federations to help with consolidation and enhance ease of traceability.

Politics, Plots, and Smallholders: The Palm Oil Industry and The EU Deforestation Regulation

On June 21st, MapHubs hosted a webinar to tackle the implementation of the EUDR, focusing on the mapping of smallholders, interpretations of the regulation and clarifying the meaning of the term, “plot”.

List of panelists:

• Perrine Fournier, Trade and Forest Campaigner at Fern

• Tobias Zobel, Director of Global Procurement Lauric Oils & Primary Oleochemicals at BASF Mansuetus Darto, National Secretariat General of SPKS

• Leo Bottril, Founder and CEO of MapHubs

Key points:

On the biggest challenges of the EUDR, Perrine emphasized that the regulation should not become a political tool while Darto highlighted the difficulties in obtaining data from smallholders and the importance of including farmers in talks with the EU. Tobias outlined a lack of clarity in the regulation’s implementation, stating that an open, unique and standardized approach is needed. Leo identified that a universal mill list is vital for effective tracking and tracing.

On specific actions that have been taken to prepare for the EUDR, Perrinne spoke about Fern’s efforts in reminding EU member states of their obligations and gathering inputs from various countries on how they intend to use the regulation. Darto described how SPKS is collecting smallholder data on a massive scale and engaging with companies to develop EUDR implementation plans. He urged more support from the EU in training farmers and enhancing monitoring efforts, along with fostering partnerships between companies, farmers, indigenous people & local communities. As a direct importer, Tobias explained that BASF will be focusing on due diligence obligations and ensuring transparency in output production. He believes a unified plot approach is the best way to go.

The panelists agreed that the EU would interpret the term ‘plot’ by reference to polygons around existing estates, and not according to concessions. They also hope the EU authorities will provide more clarity in the near future to help with compliance mechanisms.

Data Wars: Can We Unlock the Power of Private Data for Public Good?

On July 19th, the Forest Data Partnership organized a webinar to discuss the use of private and public data to address key challenges, while exploring how to reconcile the two in order to create greater transparency and trust.

List of panelists:

• Andrew Wilcox, Senior Manager, Sustainable Sourcing & Digital Programs, Unilever

• Leo Bottrill, Founder and CEO, MapHubs

• Rob McWilliam, Director of Technical Services, Earthworm Foundation

• Jackson Harris, Senior Geospatial Analyst, Mighty Earth

• Tara O’Shea, Senior Director, Forests & Land Use, Planet

• Fred Stolle, Deputy Director, Forests, WRI

• Crystal Davis, Global Director, Food, Land & Water Program, WRI (Moderator)

Key points:

Jackson highlighted that while data transparency has been enhanced in the past decade, more must be done, citing the need for information on concession boundaries of palm oil plantations. However, he emphasized that certain datasets must be kept private for security reasons, especially in relation to smallholder land rights and the risk of eviction. Leo echoed his sentiments, also stating the importance of establishing a universal plot list. He added that the Malaysian and Indonesian governments need to make industrial plot information public; Malaysia specifically is seeing increased deforestation due to this lack of open data. Andrew hopes that we learn from experiences with tree maps and deforestation alerts, and apply these to the question of data transparency.

The discussion then moved to the respective roles of public and private data, their conflation and funding. Tara spoke about the importance of sustainable business models in creating commercial datasets and how companies must be innovative with licensing models for different user groups and sectors. These models would democratize access and sustain operations of commercial data providers like Planet. Agreeing with this point, Andrew added that a natural economy for this data must be seen. It was also highlighted that public data is not ‘free’, largely funded by taxpayers and donors.

The panelists commented that these market imperfections should never be the reason behind inaction, with Jackson emphasizing that the common goal is to end deforestation.

BFM - Missed Opportunity to Act on Transboundary Haze

On November 17th, Natural Resources, Environment, and Climate Change Minister Nik Nazmi Nik Ahmad replied in Parliament that the government had decided not to proceed with the Transboundary Haze Act, aimed at punishing Malaysian companies or individuals whose conduct had contributed to haze in the country, regardless of where the burning occurred. This decision earned the ire of environmental watchdogs and activists.

However, a day later, the ministry announced that it was "not closing the door" on the legislation, and working to gather feedback on measures to address the issue.

Segi Enam Advisors’ Principal, Khor Yu Leng, was invited to BFM to give her thoughts on the feasibility of the law and any other available options for recourse. She was also asked to share her views on the issue of undocumented migrant workers in Malaysia, the contributing loopholes and potential solutions.

Catch the full interview: Missed Opportunity to Act on Transboundary Haze.

Green Hydrogen: Part 3 - Barriers in Green Hydrogen Production & the Malaysian Perspective

In case you missed the previous article, we looked into the driving factors of green hydrogen and why various stakeholders are enthusiastic about its role in expediting a climate neutral economy. However, green hydrogen is not without its shortcomings.

Let’s dive into the drawbacks associated with the production and utilization of green hydrogen (as with the previous article, this is a non-exhaustive list).

What is standing in our way of a green hydrogen future?

1. High production costs and sustainability concerns. Previously, we discussed the decreasing costs of green hydrogen production. However, are they truly competitive and wholly sustainable? 

As of 2021, it was reported that green hydrogen cost approximately USD5 per kilogram, whereas grey hydrogen amounted to USD1.50/kg (S&P Global, 2021). This vast difference has deterred many companies and industry players from investing in green hydrogen technology. Many choose to adopt blue hydrogen instead. Before the Russia-Ukraine war, S&P Global reported that blue hydrogen cost between USD1.69/kg and USD2.55/kg.

When considering the production costs of green hydrogen, the capital expenditure (CAPEX) must be taken into account. Substantial investments and subsidies are required for electrolysers and the relevant technologies to improve and maintain their efficiency. 

At present, Proton Exchange Membrane (PEM) electrolysers are the most viable option as they are flexible, efficient and tend to have a smaller carbon footprint (IRENA, 2018). These electrolysers can be connected to a grid or an off-grid variable renewable energy (VRE) plant. If it is connected to a grid, the load factor is greater and as a result, the investment costs are spread across larger units of hydrogen. However, despite the lower costs, IRENA observed that hydrogen produced from grid-connected electrolysers (that utilize fossil fuels) will not be completely renewable. 

If electrolysers are connected to off-grid, VRE plants, the load factor decreases as it would depend upon the availability of renewable energy sources (ie: sunlight and wind). As a result, investment costs are spread across fewer units of hydrogen. The upside of this is that hydrogen produced will be completely renewable, green hydrogen (IRENA, 2018). 

Additionally, the cost of producing renewable energy is still relatively high in comparison to its alternatives, thus driving up the levelized cost of electricity (LCOE)* from VRE plants. As such, the ideal equation for green hydrogen production is a combination of low LCOE and a high capacity factor. 

*LCOE is an economic metric used to compare the lifetime costs of generating electricity across various generation technologies (S. Raikar & S. Adamson, 2020).

Spolight: The US Context

In the United States, the Inflation Reduction Act (IRA) introduced a 45V Hydrogen Production Tax Credit, which awards up to USD3 per kg of hydrogen produced to projects with a lifecycle greenhouse gas emissions intensity of less than 0.45kg per kilogram of hydrogen (kg CO2e/kg H2) (CSIS, 2023). The US Treasury Department is currently working out how emissions will be calculated. 

A critical factor under review is the extent to which grid power can be used to run electrolysers when renewable energy sources are unavailable (Hydrogen Insight, 2023). Developers argue that the use of grid power will allow around-the-clock operations, yielding lower hydrogen costs. The use of this electricity will be later compensated by sending renewable energy back to the network when there is excess supply. However, Hydrogen Insight has reported that a coalition of scientists, environmental campaigners and energy companies are against this suggestion as it could double net emissions when compared to grey hydrogen.

The coalition is calling for the Treasury Department to introduce hourly matching and additionality, requiring plants to prove that electrolysers have sourced their electricity from a qualified renewables facility. Analysts and developers argue that hourly-matching would significantly increase costs as operations of electrolysers are limited to the availability of renewable energy sources. 

They are instead encouraging the Treasury Department to adopt annual-matching as operations of electrolysers would not depend solely on renewable energy sources. In Arizona, electrolyser plants that operate in this manner require grid electricity 19-35% of the time. It was found that these plants do in fact lead to greater emissions from the Arizona grid (Hydrogen Insight, 2023). It appears that a middle ground has to be met between the economies of green hydrogen and a truly sustainable yield from production. 

*To learn more about the 45V Hydrogen Production Tax Credit, check out this podcast episode by The Hydrogen Podcast*

2. Water worries. Where’s the water coming from? This is a central, but lesser discussed, issue surrounding the production of green hydrogen. It has been estimated that green hydrogen production will reach 530 Mt/year by 2050 (COAG Energy Council, 2019). This would require approximately 7950 GL of water, taking into account demineralization and water cooling requirements for electrolysis (Woods et. al., 2022). This amount will gradually increase as the green hydrogen economy fully matures.

Although water needs for agricultural and industrial sectors are much greater, the amount of water required for the production of green hydrogen is nevertheless a cause for concern. Water scarcity is already a problem across regions, especially due to extended droughts, decreased rainfall and other related impacts of climate change.

As such, relevant stakeholders must develop new frameworks and strategies to ensure security and sustainability within the energy-water nexus.

At present, there are a few sources of water in the production of green hydrogen - freshwater, seawater, brackish water and wastewater. The utilization of freshwater has the lowest treatment costs but it is not the preferred option as it diverts water away from more important economic sectors (GHD, 2021). Desalination plants for seawater or brackish water are also not a viable solution to the water issue for green hydrogen production. A large-scale desalination plant would require increased investments, but it would still not yield a sufficient quantity of water to produce 530 Mt of green hydrogen by 2050 (it is estimated that only 0.4% of water required can be sourced from desalination plants) (COAG Energy Council, 2019).

Use of desalination plants for green hydrogen production could also interfere with initial objectives of improving overall water resilience in the region. For instance, in Western and Southern Australia, desalination plants are increasingly used as a source for drinking water (Woods et. al., 2022). Additionally, overall costs would increase as treatment measures would be required to mitigate the environmental impacts of desalination (e.g. brine management) (Panagopoulos et. al., 2019). The use of seawater would also increase water extraction up to 5 times, adversely affecting ocean diversity (E. Jones, 2019). Due to these many disadvantages, we can safely conclude that desalination plants are not the optimal solution to water worries surrounding green hydrogen production.

It has been argued that utilizing tertiary effluents from wastewater may be the best alternative source. Producing hydrogen from these recycled effluents would prevent wastage and ensure climate independency. In Australia, 1720 GL of tertiary effluents are returned to the environment each year. Utilizing this water would yield a yearly production of 0.1 Gt of green hydrogen, with none of the additional costs that come with desalination plants (Woods et. al., 2022).

3. Infrastructure Deficiencies. Over the years, as green hydrogen production expands to meet growing demand, the limitations posed by infrastructural deficiencies have become evident. Storage and transportation facilities are the main barriers in the transmission of green hydrogen. Let’s first take a look at the issues surrounding transportation.

Hydrogen is mostly transported through pipelines, much the same as natural gas. Ships are used for longer distances. At present, about 2,600km of hydrogen pipelines are operating in the United States and approximately 2,000km in Europe (IEA, 2022). This is extremely limiting when compared to the 1.2 million km of natural gas pipelines installed worldwide. You’re probably wondering - why not just use the existing natural gas pipelines to transport hydrogen? It is unfortunately not that simple. 

Hydrogen’s chemical makeup is different to that of natural gas’. Its density and boiling points are much lower. For instance, hydrogen has a boiling point of -253 degrees Celsius (°C), compared with -162 °C for natural gas (IEA, 2022). Due to these difficulties, hydrogen is usually produced close to industrial areas, where it is most used. 

It is possible to reconfigure and repurpose natural gas pipelines to suit hydrogen transportation but this will require significant readaptation and more research into the technical challenges that may arise, especially for offshore pipelines. At present, there is very limited practical experience in repurposing natural gas pipelines for hydrogen transportation. Thus far, only the Netherlands has successfully reconfigured the 12-km Yara-Dow pipeline in the south (ReThink Research, 2022).

However, with more research and advancements, the adaptation of pipelines would be much more expedient and cost-effective than constructing new hydrogen networks (IEA, 2022).

Transportation by ship for longer distances requires hydrogen to be converted to ammonia or liquified hydrogen (X. Li et. al, 2023). While the technologies for liquefaction are readily available, it is an energy intensive process. These plants have an average electricity consumption of approximately 10 kilowatts per kg, which is approximately 30% of the hydrogen energy content (IEA, 2022). This is a significant loss and would result in increased costs. There is also the question of whether these plants will be powered by renewable energy. 

Ammonia storage and transportation is readily available, with meticulous safety measures in place. However, the conversion of ammonia back to hydrogen, also known as ammonia cracking, involves energy losses of up to 30% and rarely includes hydrogen purification (IEA, 2022).

Source: IEA, 2022

Difficulties with storage also act as hindrances to the commercialization of green hydrogen. Facilities for storage are needed to meet fluctuations in supply and to maintain energy security in the event of disruptions (IEA, 2022). 

Natural gas storage can also be repurposed for hydrogen use. Salt caverns, aquifers and depleted natural gas fields are among the types of storage facilities which can be used for green hydrogen. For instance, hydrogen is stored in salt caverns along the Gulf Coast in Texas (Journal of Petroleum Technology, 2023). However, the announcement of these storage projects have been slow and they would require considerable lead times to be ready for use due to limited technological advancements and practical experience (IEA, 2022).

The next issue to consider vis-à-vis transportation and storage is safety. 

When you mention hydrogen, the first thing that most people think of is the Hindenburg. The iconic airship, containing approximately 7 million cubic feet of hydrogen, burst into flames in May 1937. This disaster has been a precautionary tale against the use of hydrogen as a renewable energy carrier. 

While it was landing, the Hindenburg burst into flames in Lakehurst, New Jersey (Smithsonian via NASM Archives).

Due to its high diffusivity and low viscosity, hydrogen leakage is a real and probable issue. It also has low minimum ignition energy, wide flammable range, wide explosion range and embrittlement effects (Green, 2006). In the course of its storage and transport, spontaneous combustion as a result of leakages could cause jet fire or explosion accidents (H. Li, 2022). In 2019, the explosion of a hydrogen fuel storage tank in South Korea caused two deaths and six injuries (Yang et al., 2021). Experts argue that more research needs to be conducted to ensure safety mechanisms when transporting and storing hydrogen, especially in repurposed natural gas pipelines (IEA, 2022). 

The list of issues preventing the uptake of green hydrogen projects seem somewhat endless but with further research, investments and national policies in place to reach net-zero emissions, the commercialization of green hydrogen is most definitely an achievable feat. 

In fact, we’re seeing a growing interest in green hydrogen right here in Malaysia.

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The Malaysian Perspective

As a signatory of the Paris Agreement, Malaysia has committed to reducing GHG emissions by 45% by 2030 (MIDA, 2021). This is an ambitious goal, but one that is definitely achievable if we enhance efforts to transition away from a fossil fuel-intensive economy. 

Although stakeholders are focussing mainly on renewable electricity as an alternative source of energy, green hydrogen will also play a part in achieving these climate goals. Hydrogen sourced from renewable energy is expected to comprise up to 5% of total final consumption by 2050. It will facilitate the decarbonisation of some industrial sub-sectors and meet growing export demands (IRENA, 2023).

IRENA estimates that demand for green hydrogen in Malaysia could reach 25 petajoules (PJ) by 2030, then further increase to 213 PJ by 2050. 55% of demand would be for ammonia and methanol production, while the remainder would be fed to domestic industries (such as transportation) and export to countries such as Japan and South Korea. 

As indicated in the National Energy Policy, the Malaysian government is currently working on a roadmap for the hydrogen economy (NEP, 2022). Deputy Minister of International Trade and Industry (Miti) Liew Chin Tong has stated that once the roadmap is implemented, his ministry will collaborate with relevant stakeholders to execute incentives and opportunities to boost investments in the green hydrogen economy (The Edge, 2023).

However, domestic energy companies and distributors such as Petroliam Nasional Berhad (PETRONAS), Sarawak Energy, SEDC Energy, amongst others, have already begun investments and developments. 

Sarawak, with its immense renewable energy resources (hydropower and mini hydro) is set to begin large-scale commercial production of hydrogen, with the aim of export by 2027. In September 2022, a Memorandum of Understanding (MOU) was signed between Sarawak Energy, SEDC Energy and South Korean companies Samsung Engineering, Lotte Chemical and Posco Holdings to research renewable hydropower supply for the state's green hydrogen and ammonia project (Project H2biscus) (The Star, 2022).

As part of this MOU, the companies will develop Malaysia’s first hydrogen plant at the Sarawak Petrochemical Hub in Bintulu. It will produce 630,000 tonnes of green ammonia, 600,000 tonnes of blue ammonia and 220,000 tonnes of green hydrogen each year (The Star, 2022). Premier Datuk Patinggi Abang Johari Tun Openg revealed that 7,000 tonnes will be channeled for domestic use and the remainder exported to South Korea.

The East Malaysian state is also in the midst of developing a state-of-the-art Automated Rapid Transit (ART) powered by hydrogen fuel cells. It is predicted to facilitate a 15% reduction of Sarawak’s carbon footprint (The Borneo Post, 2022). 

Through a collaboration with Universiti Kebangsaan Malaysia (UKM), PETRONAS has successfully increased the efficiency of their PEM electrolysers for green hydrogen production. These electrolysers are able to produce highly affordable green hydrogen at a cost of less than USD4/kg from market rate of USD5-6/kg - a game changer in the production of cost competitive green hydrogen (PETRONAS, 2022). In its recent Energy Transition Strategy, PETRONAS detailed its objective of pursuing up to 1.2 MTPA of hydrogen by 2030 - however, the methods of hydrogen production were not specified.

The goal of transforming Sarawak into a green energy hub does, however, raises concerns.The sourcing of electricity for green hydrogen from new hydropower dams would bring into question environmental issues, such as biodiversity loss, and the displacement of indigenous communities.

The Bakun Hydroelectric Plant (Sarawak Energy, 2021)

As such, Sarawak’s green hydrogen push should ideally only source hydropower from existing large scale infrastructure which would also secure a competitive advantage over production costs. infrastructure (e.g. the Bakun dam). But experts have expressed apprehension, citing Sarawak’s inability to cope with this influx of energy-hungry projects without enhanced hydropower generation.

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Khor Yu Leng (principal of Segi Enam Advisors) summed up her findings on green hydrogen from the recent ASEAN Green Hydrogen Conference. She concluded that specialists are advocating for grey hydrogen with carbon credits due to logistical costs, concerns over water sources and raw material considerations associated with green hydrogen production. This renewable energy carrier will only be able to replace grey hydrogen once costs become more tenable and policy support is enhanced via subsidies. 

To conclude, it is evident that a green hydrogen economy is most definitely a potential pathway to preventing irreversible climate disasters and achieving net-zero emissions by decarbonizing hard-to-abate sectors.

However, as observed, this pathway is heavily dependent upon the expansion of renewable energy sources, costs of technologies and policy implementations by governments. 

We hope this series has given you an insight into the green hydrogen economy and its potential as an alternative renewable energy carrier.

Till next time!

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This is the third and final article of a three-part series on the topic of green hydrogen as an alternative source of energy by Khor Reports.

By Nithiyah TAMILWANAN, Segi Enam Intern, 28 June 2023 | LinkedIn

Green Hydrogen: Part 2 - Key Reasons for the Surge in Green Hydrogen Demand

Following our first article on hydrogen and its potential as a renewable energy carrier, we’ll now venture into a common curiosity - what has pushed the recent launches of green hydrogen projects?

The list below is not exhaustive and there are a plethora of reasons (which could possibly take up a series on their own!) why green hydrogen has been pegged as the ‘energy carrier of the future.’ But let’s take a look at the main factors driving this wave:

1. Declining costs of renewable electricity: The cost of green hydrogen is greatly influenced by the cost of electricity procured from solar photovoltaics (PV) and onshore wind plants. As observed in the diagram below, the global weighted levelized cost of electricity (LCOE) produced by solar PV and wind plants have significantly decreased in recent years. This has resulted in launches of green hydrogen projects around the world.

 Change in global weighted levelized cost of electricity by technology, 2020-2021 (IRENA, 2021).

Since the pandemic, costs of raw materials and freight have been on the rise, however, this has not negatively impacted the competitiveness of renewables (IEA, 2022). Governments and large energy consumers have been intent on reducing dependency on imported gas due to supply chain disruptions and soaring prices caused by lockdowns and the Russia-Ukraine War. 

Installation of renewables has been the focus, particularly in Europe and North America (S&P Global, 2023). S&P Global reported that between 2021 and 2030, Europe and North America will install 2,000 square miles of solar panel, which is approximately the area of Los Angeles. This will further decrease the cost of renewable electricity in these countries. 

Furthermore, with regards to the manufacturing of equipment for solar and batteries, various policies have been introduced in Europe and North America to circumvent China’s dominance over the industry. 

2. Technologies scaling up: Expansion, expansion, expansion - the key to achieving economies of scale in green hydrogen production. 

Electrolysers are central to hydrogen supply chains and their deployment will decide the potential capacity of renewable energy and thus, the future of green hydrogen (Odenweller, A et. al., 2022). It has been reported that the capital cost of electrolysis has declined by 60% since 2010, resulting in a decreased cost of green hydrogen from USD10-15/kg to USD4-6kg (Hydrogen Council, 2020). 

The average unit size of these electrolysers has increased from 0.1 MWe in 2000–09 to 1.0 MWe in 2015–19. This indicates a transition from small demonstration projects to commercialized applications (IEA, 2019). A move necessary to reach economies of scale and ensure cost-competitiveness of green hydrogen.

The IEA reported that electrolysis deployment reached a new high in 2021, with 200 megawatts of additional installed capacity, three-times more than the previous year (IEA, 2022). Due to the energy crisis, there has been an unprecedented surge of projects with the aim of enhancing electrolysis capacity. However, it is worth noting that a large majority of these pledges and announcements have yet to be backed by final investment decisions (Odenweller, A et. al., 2022).

3. Wide array of existing and potential application: At present, hydrogen is predominantly used for the production of ammonia and in oil refining. It is applied at a smaller scale in the production of iron and steel, glass, electronics, specialty chemicals and bulk chemicals (IRENA, 2018). IRENA has segmented the applications of hydrogen to four industry categories: 

IRENA based on FCH JU (2016)

As observed in recent years, hydrogen use has been making inroads into hard-to-abate sectors where it had been mostly absent. These include transportation, buildings and power generation (X. Li et. al., 2023). In fact, hydrogen buses are already at their infancy stages around the world. In Europe, a hydrogen bus consortium has been established, with a goal of deploying 1,000 commercially competitive buses powered by green hydrogen, with the first 200 scheduled for use by this year (World Energy, 2020). In Kuching, three hydrogen-powered buses have begun trial operations, with plans to utilize them for public transportation and as feeder buses for the upcoming autonomous rapid transport (ART) system (Malay Mail, 2022). 

Green hydrogen has the potential of channeling considerable amounts of renewable electricity to these hard-to-abate sectors. It is highly advantageous as it can be stored in large amounts, thus ensuring it can cope with swings in demand as well as allowing for inter-seasonal storage, where demand could peak (IRENA, 2018).

Manufacturers of heavy-duty vehicles are also increasingly considering replacing lithium ion batteries with hydrogen as the latter can store more energy in smaller spaces and at lower weight (McWilliams & Zachmann, 2021).

4. Prospects for net-zero emissions: More than 120 countries have announced net-zero emission goals, with some including this target in legislations and policy documents (ECIU, 2023). We’re already on the precipice of surpassing 1.5℃ - so it is pertinent that this goal is at the forefront of all economic and industrial agendas. Fortunately, countries across continents share this sentiment, and many of them are adopting a green hydrogen pathway. However, industry players and experts are still questioning the viability of these pathways, emphasizing the need for heavy investments and subsidies.

Selected countries and blocs with a green hydrogen plan  

The European Union’s hydrogen strategy, published in July 2020, sets out a vision for decarbonising various sectors through clean hydrogen (European Commission, 2020). In line with the REPowerEU Plan, the EU aims to produce 10 million tonnes of renewable hydrogen by 2030 and to import 10 million tonnes by 2030 (European Commission, 2022). The strategy is centered on scaling up electrolysis production with renewable electricity. 

The European Commission understands the behemoth task ahead of them - their plan to produce 10 Mt of green hydrogen would require 80 to 100 GW of electrolyser output capacity and roughly 150 to 210 GW of additional renewable electricity capacity (Reuters, 2023).

The EU intends on exporting hydrogen through pipelines in the UK and France, and by sea using tankers. It also plans on the increasing hydrogen storage capacity of salt caverns in the UK, Central Europe and Spain (V.A. Panchenko et al., 2023). 

The implications of Brexit on the application of the Commission’s policies in the UK are still unclear. However, it is expected that the UK will not deviate too much due to shared infrastructure (such as gas pipelines) and trade with EU counterparts (Machado et al., 2022).

Over in Asia, China has established the Hydrogen Industry Medium and Long-Term Development Plan (2021–2035), focusing on green hydrogen production. With demand of more than 33Mt/yr, China is the largest hydrogen producer and consumer in the world (RMI, 2022). However, at present, most of China’s hydrogen supply is produced from fossil fuels, resulting in coal-based hydrogen costing about half as much as green hydrogen (CSIS, 2022). This cost factor has curbed the production of the latter.

Nevertheless, this status quo is quickly shifting due to China’s renewable power capacity. Currently, the largest in the world, the East Asian nation plans on doubling its solar and wind generation capacity from approximately 600 GW to 1,200 GW by 2030 (CSIS, 2022). As such, the Hydrogen Council predicts that electrolysis will become the most affordable low-carbon production technology in China (Hydrogen Council, 2021). The country’s short-term goal is to reach a 100GW green hydrogen deployment target by 2030, by focusing utilization in the chemicals, steel and heavy-duty transportation sectors (RMI, 2022).

Chinese state-owned oil giant Sinopec is in the midst of constructing the world’s largest green hydrogen facility in Kuqa, Xinjiang, with commercial operations set to begin by June 30th (Hydrogen Insight, 2023). Green hydrogen produced at this facility will be channeled via pipelines to a nearby oil refinery where it will replace the existing use of grey hydrogen.

However, questions have been raised regarding the extent of renewable energy supplied to the facility. It has been said that only 58% of the electricity needed will be sourced from a solar farm, with the rest supplied from a coal-reliant grid (Hydrogen Insight, 2023). This may negate the effectiveness of the Kuqa facility in reducing carbon emissions. 

The start of construction at the Kuqa green hydrogen project in December 2021 (Sinopec via Hydrogen Insight).

In 2019, Australia published its National Hydrogen strategy, with the aim of creating a clean, innovative, safe and competitive hydrogen industry that will be a major global player by 2030 (COAG Energy Council, 2019). The strategy focuses on removing market barriers, building supply and demand, and accelerating global cost-competitiveness. A key feature of this strategy is the establishment of hydrogen hubs which will promote economies of scale, innovation and cost-effective developments. 

In addition to production for domestic use, the strategy also places emphasis on exporting hydrogen, with the aim of becoming among the top 3 exporters of hydrogen to Asian markets by 2030. The strategy is currently under review to take into account recent global developments, in light of the US’ Inflation Reduction Act (IRA) (S&P Global, 2023). 

Although a large share of Australian hydrogen production is sourced from natural gas, the country has shifted its focus to green hydrogen in recent years. This is largely due to Australia’s vast potential in harnessing solar and wind energy, especially along its southern and western coastlines (COAG Energy Council, 2019). The shift to green hydrogen is exemplified in Australia’s 2023-2024 Federal Budget, where it introduced Hydrogen Headstart, an AUD2 billion initiative to underwrite the biggest green hydrogen projects to be built in Australia (ARENA, 2018). This investment will reduce the cost of hydrogen production and scale up the industry.

The United States’ Department of Energy published their National Clean Hydrogen Strategy and Roadmap in 2022, setting out strategies, opportunities and goals for the country’s green hydrogen future (DOE, 2022). 

With a goal of 50 million metric tonnes of clean hydrogen produced annually by 2050, the roadmap predicts that US emissions will reduce by approximately 10% from 2005 levels. Among the three strategies put forth, the Hydrogen Shot (launched in June 2021) has gained the most traction - this ambitious initiative aims to reduce production cost to USD1 for 1kg of hydrogen in 1 decade (111). This goal will be supported by investments in clean hydrogen hubs and electrolysis programmes. 

Prior to the publication of this roadmap, the Biden-Harris administration had successfully passed laws to galvanize the production of clean hydrogen. The Inflation Reduction Act (IRA) provided for policies and incentives, including a Production Tax Credit to encourage the proliferation of green hydrogen across industries (This tax credit will be further discussed in our next article).

The IRA has prompted several green hydrogen projects, including a USD$4 billion green hydrogen production facility in North Texas (the largest to date in the US) (S&P Global, 2022). With 1.4 GW of dedicated renewable power, the facility is expected to begin operations in 2027, providing clean hydrogen to industries and the mobility market. 

Now that we’ve explored the basis of green hydrogen projects and their driving factors, stay tuned for the next and final part of this series, where we’ll dive into the shortcomings of this climate neutral energy carrier.

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This is the second article of a three-part series on the topic of green hydrogen as an alternative source of energy by Khor Reports.

By Nithiyah TAMILWANAN, Segi Enam Intern, 27 June 2023 | LinkedIn