Green Hydrogen: Part 1 - A Pathway to Decarbonization

1.5 Degrees Celsius. The World Meteorological Organisation (WMO) reported that we are on a path to breaching this key climate threshold set out in the 2015 Paris Agreement (CNN, 2023).

But why should we care? If global temperatures do, in fact increase by 1.5℃ to 2℃ from pre-industrial levels before 2050, we will witness catastrophic and potentially irreversible climate disasters. To prevent this reality, there is a pressing need to galvanize the transition to renewable energy sources. This will have the resounding result of decarbonization, thus minimizing GHG emissions.

Green hydrogen could be one of the world’s renewable energy hopes, keeping climate risks at bay. This three-part series seeks to demystify green hydrogen and answer all your questions on this up and coming energy carrier.

What is the significance of hydrogen?

Hydrogen, discovered by British scientist Robert Boyle in 1671, is the most abundant chemical structure in the universe (S. Griffiths et. al., 2021). It literally means ‘creator of water’ as the element only releases water upon combustion (IRENA, 2020). This factor has made it highly attractive as an alternative source of energy as it does not emit carbon dioxide during its production.

Similar to electricity, pure hydrogen can act as an energy carrier of high density, containing nearly three times as much energy by weight as natural gas, gasoline and diesel (US DOE, 2019). 

Throughout history, hydrogen has played a key role in several areas including its use in fuelling the first internal combustion engine, acting as storable fuel for travel to the moon, feeding populations through ammonia fertilizer, and supplying energy to the oil refining industry (IEA, 2019). 

However, hydrogen has only really started to contribute to the global energy mix in recent years as production and utilization technologies have improved, and countries all around the world have committed to net-zero carbon emissions by 2050 (Data-Driven EnviroLab & NewClimate Institute, 2020).

As observed in the chart below, the International Energy Agency (IEA) has recorded a stark increase in demand for hydrogen, which has tripled from 1975 to 2018 and continues to rise. In 2021, demand for hydrogen was approximately 94 million tonnes (Mt) (IEA, 2021).

Rise in demand for hydrogen since 1975 (IEA, 2019).

This increase in demand is attributed to a number of factors associated with the production and utilization of hydrogen that makes it a more viable energy source than its competitors.

What is green hydrogen? Is it truly a viable renewable energy option?

To answer this question, we have to demystify the types of hydrogen and their various methods of production.

Most people assume that hydrogen-based fuels and energy sources are non-carbon emitting as they only produce water from combustion. However, as depicted in the graph below, approximately 96% of global hydrogen production is sourced from fossil fuels. This results in nearly 830 million tonnes of CO2 emissions per year, equivalent to the emissions of Indonesia and the United Kingdom combined (IEA, 2019).

Sources of hydrogen generation (Khor Reports adapted from X. Li et. al., 2023).

World renowned energy organizations, such as the International Renewable Energy Agency (IRENA), utilize a color code nomenclature to describe the various methods of producing hydrogen based on its feedstock:

Shades of hydrogen (IRENA, 2020).

Of the four shades, it is evident that green hydrogen is the only realistic pathway to low-carbon emissions throughout the production process. Blue hydrogen does provide for the added fixture of carbon capture and storage at estimated levels of approximately 80-90%. However, in reality, these high levels of capture have yet to be achieved. Turquoise hydrogen results in the solidification of CO2 (carbon black), thus negating emissions, but production is still very much at its pilot stages (Philibert, 2020). 

With such potential, industry players and academicians have deemed green hydrogen as a ‘critical part of a sustainable energy future’ and ‘key to decarbonizing hard-to-abate sectors like steel manufacturing, shipping and aviation’ (RMI, 2021).

However, up until 2019, IRENA reported that there has been no significant production of hydrogen from renewable sources, and that it had been limited to demonstration projects. But the status quo is quickly changing.

If this article has piqued your interest in green hydrogen and its potential in facilitating net-zero emissions, stay tuned for our second article where we discuss the driving factors of the recent green hydrogen wave.

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This is the first 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, 26 June 2023 | LinkedIn

Panel Session at the 3rd German-Malaysia Business Forum on ESG

On 12 April 2023, Segi Enam’s Khor Yu Leng moderated a panel session on "Building sustainable supply chain management in Malaysia - headwinds vs tailwinds" at the 3rd German-Malaysian Business Forum on ESG - organised by the Malaysian-German Chamber of Commerce and Industry (MGCC). The main focus of this forum was on ESG Supply Chain Management.

The list of panelists:

• Klaus Burkart, COO & Co-Founder of Cargodian GmbH;

• Vimala Arumugam, Managing Director of BASF (Malaysia) Sdn Bhd;

• Dr Meenachi Muniandy, Senior Director and Head of Industry ESG Division of the Ministry of International Trade and Industry (MITI); and

• Bilal Parvaiz, Executive Director & Head Islamic Corporate, Commercial & Institutional Banking of Standard Chartered Saadiq Berhad.

Here are some key points from this panel discussion. The panelists spoke about how net zero commitments drive scope 3 and supply chain efforts on ESG. The financial sector is helping to drive changes while offering some incentives, with a push from central banks in each country. The actions of large corporations have led the way, and buyers can help supply chain partners understand requirements. MITI and other government agencies are working to help smaller players confused by ESG needs.

New Malaysia ESG policy frameworks for the industry is coming out in 3Q this year, and carbon pricing scenarios for Malaysia are being assessed. The increasing availability of cost-effective solutions is a positive. The opportunity is in leveraging OPEX and CAPEX spending into billions for company bottom-lines. Moreover, new jobs in green and support sectors will be on the rise.   

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research@segi-enam.com | 13 April 2023

ASEAN makes big push to use local currencies - China Daily

Recently, during a meeting between the finance ministers and central banks of ASEAN countries, a decision was made to reduce reliance on the US dollar and to reinforce the use of local currencies in intraregional trade.

Segi Enam's Khor Yu Leng said to China Daily:

…the plan to shift to local currency-based transactions shows that the ASEAN has acknowledged changing commercial and geopolitical realities.

"A bifurcated or multipolar approach would reduce trade and currency-related risks."

This also aligns with Southeast Asia's "balancing role" in global geopolitics.

Read more about it here.

POC2023 Panel Session - Palm Oil Sustainability: The Way Forward

Khor Yu Leng, from Segi Enam, was part of a panel during POC2023 titled "Palm Oil Sustainability: The Way Forward", which was cleverly moderated by Datuk Darrel Webber with football analogies. Other panellists included Joseph D'Cruz from RSPO, Perpetua George from Wilmar International Limited, Renaka Ramachandran from Sime Darby Plantation, and Tan Chee Yong from MPOCC.

During the Panel Discussion - Palm Oil Sustainability: The Way Forward. [From the left: Tan Chee Yong (MPOCC), Renaka Ramachandran (SDP), Perpetua George (Wilmar), Joseph D’Cruz (RSPO), Khor Yu Leng (Segi Enam) and Darrel Webber (IRGA)]

Panellists on stage receiving tokens of appreciation from Bursa Malaysia.

During the panel discussion, speakers discussed the challenge of meeting the constantly evolving sustainability standards and how companies always needed to catch up with the moving “goalpost”. The business sector representatives shared that certification bodies always add new standards, making it difficult for businesses to anticipate or prepare to ensure they meet the standards to remain certified.

Joseph, of the RSPO, explained that new sustainability standards are not added arbitrarily, but rather in response to environmental factors. The industry, must understand where it should move towards and consider drivers and trends to meet the demands for sustainability and greater transparency from the market.

Yu Leng highlighted the sustainability progress within the industry, citing a 20% growth in certified growers who have embraced the opportunities presented by certification. She also noted a decrease in certification costs and increasing demand for sustainable palm oil and good premia, which might be off-putting for buyers. Recent new planting data from RSPO showed that 43% of estates are now developed on grassland and other areas (non-deforestation), while 24% of such landbank are conservation areas.

Renaka described SDP’s activities at the forefront of sustainability as there is a lot of demand from customers and stakeholders. She acknowledged that the goalpost for sustainability standards is constantly changing and improving. Businesses should prioritize decarbonization and take action as soon as possible. (Editor’s Note: Let’s all say yes, to continual improvement! While keeping an eye on the cost effectiveness ways to achieve this.)

The discussion then shifted to regulatory standards, focusing more on the EU non-Deforestation Regulation (EUDR). Yu Leng noted that the 2020 cut-off includes millions of hectares of conversion, but a central/national registry is required to benefit from it. Indonesian smallholders are optimistic as this is a pathway for them to enter the EU market. This aligns with our read that the EU is making efforts to be more pro-smallholder (after criticisms from some countries). Attesting to this is an update that smallholders of up to 4 hectares can use geolocation points (rather than shape files of their farms).

Wilmar’s Perpetua believes that Malaysia is a low-risk country under the EUDR. She cited several reasons for her opinion, including the fact that Malaysia's certification for palm oil is now mandatory under the Malaysian Sustainable Palm Oil (MSPO) regulation, and oil palm dealers are also required to obtain MSPO certification. Additionally, Malaysia's major expansion in oil palm cultivation occurred before the 2020 cut-off date of the EUDR. Finally, Malaysia has readily available palm oil data that can be compiled and presented to meet regulatory requirements. (Editor’s Note: Not sure if Malaysia can be classified as a low-risk country as this is based on sector annualized growth rate of production areas and such; but by virtue of Malaysia’s administrator bureaucracy and its data, it can be easily demonstrated as low-risk to comply with the EUDR, if there is an effort to do this.)

On the labour issue, Perpetua noted it is “a big scapegoat issue,” but this is also a problem for other commodities. However, finding a solution to this problem is difficult as it requires action from the government. Other speakers agreed that it is a politically sensitive issue that government administrations may be hesitant to tackle as it could have negative consequences. (Editor’s note: This likely relates to the problem of granting rights to migrant workers. Doing so might anger voters).

On the future of certification and whether it is still relevant now with EUDR, MPOCC’s Chee Yong shares that as more and more criteria are being added and now regulations are being introduced, there needs to be a centre point to see how this is workable. Certification bodies can be the centre point, but government effort is needed as well. For RSPO, Joseph said that it is a space for the industry to allow companies to convene for discussions. That was how RSPO was formed.

The speakers discussed how MSPO and RSPO can be more proactive. Yu Leng suggested that Malaysia could establish a national or central registry and become more data-ready, especially for the SME sector. More financial institutions are willing to provide green funding to companies, indicating a growing market for sustainable products. Joseph noted that sustainability standards serve as a measuring tape to assess companies' compliance and that the industry is accountable to those who set the bar.

There was a question from the floor regarding certification fatigue. Renaka shared that there is value in aligning with sustainability measurements. It is now part of a company’s image. Yu Leng worried that the narrative is misguided by a minority of the stakeholders. She suggests companies use certification and sustainability for business opportunities e.g., how do you participate in supply for Sustainable Aviation Fuel (SAF) that Argus notes is now around USD3,000/tonne (versus below USD1,000 for palm oil)? Top buyers want reliable data from suppliers.

Links: PalmTrack 25 Jan 2023, PalmTrack 21 Feb 2023

Read our other post about POC2023:

• Stocks, prices and more at POC 2023 KL

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Reported by Wong Ivan (ivan.segienam@gmail.com) | 27 March 2023 (Edited on 4 April 2023, 9:00am. Updated data from RSPO on new planting data.

BFM - Will the Palm Oil Sector Adapt To New EU Sustainability Standards?

Segi Enam’s Khor Yu Leng was recently interviewed by BFM to comment on the new EU Non-Deforestation Regulation.

Listen to the full interview here.

FSC Stakeholder Consultation and Awareness Building Workshop

On 8 February 2023, the Forest Stewardship Council (FSC) organised a stakeholder consultation workshop for its newly launched Natural Rubber Project in Malaysia, which is projected to be completed by the end of 2023. This project is in collaboration with Control Union, CMO Group, Malaysian Rubber Council (MRC) and supported by WWF-Malaysia. The project aims to encourage more smallholders to adopt sustainable practices through FSC certification and make them self-resilient. The project will provide technical expertise and will be empowered through training, capacity building and market entry.

The event was held at Menara PGRM, and there were around 50 attendees, mainly business owners in the rubber industry, consultants and civil society organizations. Presenters:

• Supun Nigamuni, Control Union

• Charmaine Chee, FSC Malaysia

• Michal Brink, CMO Group

• Norazwa Mohd Akhib, MRC

• Allen Lian, WWF

Some key stats about Malaysia’s rubber industry were highlighted during the presentations. Malaysia is the 7th natural rubber producer at 0.29 million tonnes, with Thailand leading at 3.79 million tonnes. Malaysia is also the 7th top consumer at 0.34 million tonnes, with China being the top consumer at 4.12 million tonnes.

Production of Natural Rubber, MRC (2022)

Consumption of Natural Rubber, MRC (2022)

In terms of trade, Malaysia is the 5th largest exporter at 0.73 million tonnes, and Thailand is the largest at 3.31 million tonnes. Malaysia is the 2nd top importer at 0.91 million tonnes, with China leading at 3.95 million tonnes. Malaysia, which was a “global supplier” of natural rubber back in the 1960s and 70s, is now a net importer of natural rubber.  

Natural Rubber Export, MRC (2022)

Natural Rubber Import, MRC (2022)

The presenters also shared problems faced by the industry. With the low rubber price, many rubber smallholders are shifting to oil palm, which offers higher incomes. Malaysia is also regarded as overly focused on manufacturing one natural rubber product - gloves. And yet, the higher-value rubber latex is widely regarded to be underdeveloped. There is also the issue of value being captured mostly downstream i.e, tyre manufacturers, while upstream - the farmers often face fluctuating and often low prices.

In order to attract more smallholders to be FSC certified, both the presenters and the audience agreed that a premium is needed to get smallholders on board. However, FSC-certified rubberwood has a higher value (the premium amount or percentage premium was not openly shared), and apparently, not enough of this value-add is shared with smallholders. 

CMO group, a forestry training and consulting firm, presented its app, PerForm. It is working together with FSC to help with group certification, which varies by country (note: certifications have national interpretations, to jive with local regulations and conditions).

Interest in FSC-certified natural rubber is increasing. Pirelli produced the world’s first FSC-certified tyre, the P-Zero tyre, which will be equipped on the BMW X5 plug-in model. Mentioned by FSC that other tyre manufacturers are also looking to produce tyres using FSC-certified rubber.

As for the much talked about EU Deforestation Regulation or EUDR, FSC highlighted its ready-traceability that fits in with the due diligence needed to export to the EU (May/June 2023 implementation). For more on this, WWF-Preferred by Nature is running a roadshow next week, 6 March in KL, 8 March in Kuching, and 9 March in Kota Kinabalu to offer more information on EUDR and FSC’s new cutoff date of 2020 in its new conversion rule and remedy framework.

Supun from Control Union giving opening remarks.

Source: FSC LinkedIn

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research@segi-enam.com | 3 March 2023

The positive of the EUDR - inclusive of millions of hectares of conversion

Amidst the apparent worry of palm oil origins, most vocally perhaps by Malaysia palm oil on the EU’s non-deforestation import rules, let’s look at the positive. This hardly seems to reach the headlines or wider discussions. However, it is quite acknowledged in specialist circles. The new cut-off dates are actually surprisingly inclusive. For instance, more recent production regions like Sarawak, which had issues meeting RSPO’s big 2007 cut-off date, now have a pathway under the EU’s 2020 cut-off. Work needs to be done, though, to prepare and share the data for due diligence, and smallholders need to be included. Recall that Indonesia oil palm smallholders are on this page, and have set out their ask for the EU to include 30% of material from smallholders.

 New cut-off dates inclusive of millions of hectares of conversion:

• Palm oil. (i) RSPO cut-off date 30 Nov 2007. (ii) ISCC cut-off date 2011. (iii) Wilmar recognises 31 December 2015 as the cut-off date for supplier compliance with all provisions of the NDPE policy.

• Timber. FSC chose the year 1994 as its cut-off date. After that point, certification of plantations converted from the natural forest is excluded.

• The radically changed cut-off dates from (i) EU’s deforestation regulation (EUDR) mandatory due diligence affecting palm oil and timber products (as well as others) is 31 Dec 2020 and inclusive of 13 years of conversion (versus the de facto 30 Nov 2007 of the RSPO), and the (ii) FSC’s changed P&C rules for 31 Dec 2020 cut-off to be inclusive of 26 years of conversion (versus 1994) are big game changers.

• FSC. Under Motion 37, the FSC, on 13 Oct 2022, voted to move the crucial cutoff date from 31 Dec 1994 to 31 Dec 2020. Mongabay (Oct 2022), notes: “With FSC rule change, deforesters once blocked from certification get a new shot…. logging companies that have cleared forests since 1994, but before 2020, will be allowed to obtain certification from the body, something they weren’t allowed to do before… To qualify, companies will have to restore forests and provide a remedy for social harms done in the 1994-2020 period in their concessions…. The decision has sparked responses from both critics and supporters, with the former saying the new rule rewards known deforesters, and the latter saying it opens opportunities for forest restoration and remedies for Indigenous and local communities.” FSC (2022a) argues that “millions of hectares of forests can be restored and then become FSC certified and managed in a responsible manner.” FSC has been considering revising its 1994 cut-off date on forest destruction for at least 11 years (FSC-Watch, 2022). Read about the FSC Remedy Framework consultation (FSC, 2022b).

• EU due diligence. (i) 31 Dec 2020 deforestation cut-off date is volume expansive (versus the popular RSPO Nov 2007 cutoff) and could offer more origins and suppliers market access depending on whether stricter voluntary cutoffs are preferred. (ii) Traceable to farm. (iii) Due diligence. Failure to comply could result in fines of up to 4% of a company's turnover in the EU (and not 8% in an EU country, as previously suggested).

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research@segi-enam.com | 2 March 2023

Interview - CNA Explains: What might be the potential areas of focus in Malaysia’s updated budget for 2023?

Segi Enam’s Khor Yu Leng was asked to comment on Malaysia’s 2023 updated budget by Channel News Asia (CNA).

Economist Khor Yu Leng, Southeast Asia research director at Segi Enam Advisors, told CNA that a “leaner fiscal budget is needed to better manage Malaysia’s large national debt”.

“But if it is not politically possible (to do so), Anwar has to ensure that development spending is corruption-free and that it is effective in generating economic multipliers,” said Ms Khor.

Read the full article here.

Malaysia and Indonesia Palm Oil Export Ban to the European Union

Segi Enam’s Khor Yu Leng was interviewed by Free Malaysia Today (FMT) on Malaysia’s latest position on plans to ban on palm oil export to the European Union (EU) following the new deforestation regulation. She mentioned that the ban will cause an “unexpected effect” and that many of Malaysia’s palm oil suppliers are still keen to supply to the EU as it is a premium market. She also points out that “Indonesia’s multi-pronged approach shows that it also takes pro-buyer and pro-climate action while voicing concerns from government to government”. Read the full article by FMT here.

On PalmTrack, we also wrote about this. Read it here (subscribers only).

In other related news:

• Arbitrary decision to stop palm oil export to EU is futile attempt, The Edge.

• Explainer: Why Malaysia is considering a ban on palm oil exports to the European Union, Reuters

IDEAS-FedEx: Highlights on RCEP and how it can benefit your business

On 15 December 2023, Segi Enam attended the IDEAS-FedEx event on “Highlights on RCEP and how it can benefit your business”. The Regional Comprehensive Economic Partnership or RCEP came into force on 18 March 2022. It is one of the 16 free trade agreements (FTAs) that Malaysia is part of. 

Source: MATRADE, 2022

The signatory countries are Malaysia, Brunei, Cambodia, Indonesia, Laos, Myanmar, Singapore, Thailand, the Philippines, Vietnam, Australia, China, Japan, New Zealand and South Korea; and pending ratification by Myanmar and the Philippines.

Source: MATRADE, 2022

The conference focused on increasing awareness of RCEP to businesses and its benefits.

Below are the speakers for the panel discussion:

During the panel discussion, Fahrulrazy from MITI pointed to the huge market under RCEP, specifically China and its approximately 1.4 billion population; including advantages to producers and manufacturers for sourcing raw materials within the trade area, to help increase productivity and growth. But specifics of using the provisions of RCEP versus other Malaysia-China trade arrangements e.g. China-ASEAN FTA or CAFTA were not elaborated on. 

The speaker from Deloitte provided some comparison of tariffs from different trade agreements and used a few case study illustrations including on Malaysia petrochemicals exported to the Middle East via Indonesia. Interestingly, there was some disagreement between the speakers on which Rules of Origin or ROO to apply.

Concerns were raised by Dr Juita on the lack of labour and environmental chapters in the RCEP. There are 20 chapters in RCEP that covers ROO, Customs Procedures and Trade Facilitations, Sanitary, Trade in Services and Competition. You can find all the chapters here. The panel shared that it is difficult to get a consensus on human rights. All signatories must be ready to agree on it. 

There were about 80 participants and they included business owners, agencies and regulators. The worries from the floor were on small-medium enterprises (SMEs) and their cost worries. For SMEs to participate in RCEP, there are costs to administer and apply to enjoy the provisions of RCEP (or other trade deals). SMEs have to be on their toes to understand which trade deal provisions they can avail themselves of; with constant monitoring and assessments. To this end, government support is vital. For example, the Singaporean government provides grants to SMEs to assess their readiness to export their products.

Moreover, there can also be risks to SMEs, most of the speakers cautioned on increased competition for certain sectors due to more imports. A key speaker pointed out that the agreement has come at the wrong time when many businesses are still recovering from the pandemic; and many SMEs will not have the financial capability to upgrade their businesses. There is an ongoing problem of SMEs not exporting, as they do not have the capacity to do so.  

A participant pointed out that only major businesses in Malaysia are exporting. In fact, not many SMEs are using MATRADE programs. MATRADE was asked whether any studies were conducted to determine which Malaysian products would have a comparative advantage under RCEP (compared to trade competitors). As this study is ongoing, we should await the publication of its findings. The expected date of publication of this report was not disclosed. 

Note: MATRADE reported in 2019 that local SMEs only contributed about 18 per cent in export despite making up 98 per cent of Malaysian business establishments. 

Source: MSME Performance in 2021, accessed January 2023

Slides and recordings of the conference can be found here.

From Segi Enam, we can share that doing a review of opportunities under different trade agreements is not a walk in the park. First, you need to narrow down your product codes, and which countries you are hoping to export to and export from. And if you are supplying equipment or ingredients, you may want to consider how trade deals impact the retail or industrial consumer markets you supply to. For instance, if you are supplying agro-chemicals, how does RCEP impact the trade in corn in the region?

In June 2021, we did a review for a Europe-based multinational supplier for two supply items (involving several HS codes) and three industrial consumer segments for six countries: China, Indonesia, Malaysia, Philippines, Thailand and Vietnam. Our general findings on RCEP include:

• With existing ASEAN Plus Free Trade Area agreements which offers lower, zero rate preferential tariffs, RCEP could be more relevant to new trade partners. 

• Given the relative free trade ongoing under ATIGA and other ASEAN Plus trade deals, with rules of origin at 40%, and limited technical barriers; RCEP’s base rates tariff schedule (which vary by product and country) does not point to trade competitive changes. However, the base rate changes may be a useful reading or signal into the 

Bottom-line: The report from the Malaysian authorities to hone in on which products and trade flows will be beneficial to Malaysia will be important for helping more SMEs into export readiness. Exporting SMEs should already be familiar with the market research needed to stay on top of their business and ahead of competitors. And they will know which are the key forms they need e.g. Certificate of Origin, to avail themselves of the trade provisions.

research@segi-enam.com | 9 Jan 2023