CCUS Role in the Transition to Net-Zero

Part 3: Malaysia’s Big Ambitions

By Abigael Eminza and Claudia Nyon

Carbon Capture, Utilization, and Storage (CCUS) has advanced from pioneering offshore projects like Sleipner in Norway to massive new ventures such as Malaysia’s Kasawari development. Sleipner, which began injecting CO2 in 1996, proved that offshore saline aquifer storage was technically feasible, providing decades of operational experience and extensive monitoring data.

Building on this foundation, Malaysia is attempting to commercialize CCS at a scale never before attempted, with Kasawari’s offshore platform designed to process and inject 3.3 million tonnes of CO2 annually from gas with 40% CO2 content. The project is four to five times larger than Sleipner’s, signaling both ambition and unprecedented technical challenges. Together with other announced CCS hubs, Malaysia is positioning itself as a regional leader in carbon storage despite the absence of a dedicated regulatory framework.

The table below shows the differences between the Sleipner project in Norway and the Kasawari project in Malaysia.

IEEFA has compared Sleipner to Malaysia’s CCUS hubs, which are larger by factors of 10 or more. As IEEFA states, “Every proposed project needs to budget and equip itself for contingencies both during and long after operations have ceased” (IEEFA, 2023).

Against this backdrop, Petronas, Malaysia’s national oil and gas company, approved the Kasawari project in November 2022. The project aims to inject 3.3 mtpa of CO₂ underground to monetize a subsea gas deposit with an unusually high CO₂ content of 40%  (IEEFA, 2023).

Located in the South China Sea, 180 km north of Bintulu, Sarawak, the Kasawari CCS project draws gas from the SK316 block, which contains an exceptionally high 40% CO2 content. This concentration creates an unprecedented challenge: stripping out, transporting, and storing such a vast volume of CO₂.

To address this, Kasawari’s RM4.5 billion (US$1 billion) CCS component will include the world’s largest offshore CO2 processing platform. With a planned injection capacity of 3.3 mtpa, it will rank among the largest projects globally, second only to Chevron’s underperforming Gorgon project in Australia, at 3.5 to 4 mtpa.

The scale of Kasawari makes system integrity, injection well performance, and storage reliability absolutely critical if long-term CO2 reduction goals are to be achieved. Yet Malaysia has not established CCS regulations, leaving projects of this magnitude to advance without a dedicated regulatory framework.

This lack of precedent is not unique to Malaysia. Globally, governments and industry are proposing CCS storage sites with capacities far beyond those of Sleipner and Snøhvit. The reality is that projects of the scale envisioned for the Houston Ship Channel, the UK CCS clusters, Norway’s Northern Lights, or Malaysia’s Kasawari have never before been attempted.

In this context, Petronas has opted for a Sleipner-like model, performing all gas processing and CO2 recompression offshore on a dedicated platform. However, unlike Sleipner, Kasawari’s platform and equipment will be four to five times larger, making it the world’s biggest dedicated CO2 processing facility.

The unprecedented size and complexity of Kasawari also extend to its contracting strategy. To manage the project’s unique conditions, massive scale, and the risks, both known and unknown, associated with start-up and commissioning, Petronas has adopted an “alliance contracting” risk-sharing structure with Malaysia Marine and Heavy Engineering. While this conservative approach provides a safeguard against unforeseen challenges, it will likely add to the cost of what is already an RM4.5 billion (US$1 billion) component of the overall development.

Malaysia has recently been pivoting itself as being amenable to CCUS facilities being built in the country. 

By late 2024, four landmark CCUS projects have been announced:

• Petronas Carigali Kasawari-M1: Located offshore Sarawak, the project is scheduled to begin operations in 2026. It is proposed that 60% of the storage capacity will be allocated to Malaysia, for PETRONAS and its partners, with the remaining 40% made available to other users (NS Energy, 2023; Havercroft et al., 2024). 

• PTTEP’s Lang Lebah-Golok: Located offshore Sarawak, the project is scheduled for operation in 2028. Identified as Malaysia’s second CCS project, the Lang Lebah field holds an estimated 5 trillion cubic feet of gas in place. Development will require the removal of both CO2 and hydrogen sulphide (H2S) (Battersby, 2022).

• BIGST Cluster: Estimated to hold around 4 trillion cubic feet of recoverable gas. The cluster has remained undeveloped, however, due to its high CO2 content. Given its strategic role in Peninsular Malaysia’s energy security, development will hinge on carbon capture and storage (CCS), positioning it as the first CCS project in the region (Searancke, 2024; Petronas, 2022).

• M3 Project: Located offshore Sarawak, East Malaysia. The project is designed to store CO₂ emissions from multiple industries in Japan, including those in the Setouchi region, through injection into offshore Sarawak reservoirs (Battersby, 2024).

According to Malaysia’s National Energy Transition Roadmap (NETR), the following CCUS-related targets have been stated. 

By 2030: 

• Develop 3 CCUS hubs (2 in Peninsular Malaysia, 1 in Sarawak) with a total storage capacity up to 15 mTpa (15 million tonnes per annum, mTpa), about 300,000 barrels per day (bpd).

By 2050: 

• Develop 3 carbon capture hubs with a total storage capacity between 40 to 80 mTpa.

A CCUS bill was planned to be tabled by November 2024, and was pushed forward a few months later. Malaysia’s Carbon Capture, Utilisation and Storage (CCUS) Bill 2025 has cleared both houses of Parliament and now awaits Royal Assent, with supporting regulations slated to come into force by March 2025. Championed by Economy Minister Rafizi Ramli, who has positioned himself as the government’s lead architect on industrial decarbonisation, the bill is designed to unlock investment, regulate offshore CO₂ storage, and lay the groundwork for a carbon tax in 2026. Rafizi has argued that Malaysia cannot rely on reforestation alone and must instead leverage its vast depleted reservoirs and offshore capacity to host large-scale CO₂ storage. By providing a legal framework and clear incentives, the bill seeks to position Malaysia as a regional hub for CCUS, attract foreign investment, and generate new revenue streams through state taxes, port fees, and industrial partnerships.

Petronas is pressing ahead with its decarbonisation strategy following the passage of Malaysia’s CCUS Bill 2025, with the flagship Kasawari CCS project now in production and preparing to capture and inject up to 3.3 million tonnes of CO₂ annually into the M1 field offshore Sarawak. To deliver this, Petronas awarded a RM4.5 billion EPCIC contract to Malaysia Marine and Heavy Engineering (MMHE) in August 2025 for the construction of the world’s largest offshore CO₂ processing platform, located about 138 km from shore. The platform will be central to Malaysia’s ambition to become a regional CCUS hub, offering storage services beyond domestic demand.

Key findings: Sleipner demonstrated the technical viability of offshore storage but also highlighted the uncertainties of long-term containment, lessons that are highly relevant for Malaysia’s next-generation projects. Kasawari’s scale makes it a global test case for whether CCS can manage very high CO₂ concentrations and sustain multi-million-tonne annual injections. Yet, regulatory gaps, cost escalation risks, and system integrity concerns cast uncertainty over its long-term effectiveness. Malaysia’s broader CCUS roadmap shows strong ambition, but success will hinge on robust oversight and the ability to manage risks at scales far beyond what has been proven to date.

Editor’s Note: After losing the Parti Keadilan Rakyat (PKR) deputy presidency to Nurul Izzah Anwar in May 2025, Rafizi submitted his resignation as Economy Minister, effective 17 June 2025. Prior to his departure, he had already completed major tasks like the 13th Malaysia Plan. He is considered to be the key mover of the Bill, making CCUS a high priority.

In this series:

• Part 1: Climate Mitigation and the Price of CCUS

• Part 2: Case Studies

• Part 3: Malaysia’s Big Ambitions 

• Part 4: Issues for Successful Deployments

Reach us at khorreports[at]gmail.com

CCUS Role in the Transition to Net-Zero

Part 2: Case Studies

By Claudia Nyon and Abigael Eminza

Carbon Capture, Utilization, and Storage (CCUS) has long been promoted as a critical technology for reducing emissions from fossil fuels while supporting energy security. Over the past three decades, several high-profile projects have attempted to demonstrate the feasibility of capturing CO2 at scale and storing it underground. Some, like Petra Nova in Texas and Sleipner in the North Sea, have shown that capture and storage can work under the right conditions, offering valuable data and technical proof of concept. Others, however, such as Kemper County, Gorgon, and Boundary Dam, have struggled with spiraling costs, underperformance, and technical failures. Taken together, these projects reveal both the promise and the fragility of CCUS as a climate solution.

Source: Energy Transitions Commission

Success stories

The Petra Nova project in the US

Designed to capture approximately 90% of carbon dioxide from a power plant and inject it into an oil field to boost crude oil production, the Petra Nova project was completed on time and within budget (Dubin, 2017). The system diverts about 37% of the coal power plant’s emissions through a flue gas slipstream, capturing roughly 33% of total emissions, and requires a dedicated natural gas unit to meet the energy-intensive demands of the carbon-capture process. Captured CO2 is then injected into nearby oil fields for enhanced oil recovery, a process that increases crude oil flow by injecting CO2, water, or chemicals into reservoirs.

Although the project shut down during COVID-19 due to low oil prices (Dilon & Anchondo, 2020), it has been operating since 2023 (Power Engineering, 2023) after being bought by JX Nippon in 2022. 

Sleipner, the world’s first commercial CCUS project.

The Sleipner project began CO2 injection in 1996 in response to Norway’s early-1990s carbon tax, which made carbon capture more profitable than just separating the carbon and releasing it into the atmosphere. This was particularly important because the gas contained about 9% CO2, above market specifications (Dickson, 2024). By 2016, Sleipner had reached its 20-year milestone, with 16 million tons of CO2 stored in the Utsira sandstone formation, located 800 meters beneath the seabed (Skalmeras, 2017).

Storing carbon underground is not an exact science, making Sleipner one of the most studied geological fields worldwide, with over 150 academic papers published (IEEFA, 2023). Their seismic datasets have been downloaded more than a thousand times. 

Despite the studies, long-term stability remains uncertain. In 1999, three years after Sleipner began storage, CO2 had already migrated from its injection point to the top of the formation and into a previously unidentified shallow layer. Large amounts accumulated there, and if the layer had not been sealed, the CO2 might have escaped (IEEFA, 2023). 

Rather than serving as models for CCS expansion, Sleipner and Snøhvit, another Norwegian project, raise doubts about whether sufficient capability, oversight, and sustained investment exist to keep CO2 securely stored beneath the sea permanently.

Failures 

The Kemper project

The Kemper project was initially designed to capture approximately 65% of the plant’s CO2 using pre-combustion technology. However, costs quickly spiraled out of control. Originally estimated at US$2.4 billion, the project had an excess of $7.5 billion (Dubin, 2017).

Repeated delays and cost overruns eventually forced the suspension of work (Swartz, 2021). While the project was intended to gasify lignite coal and capture the resulting CO2, its original purpose was undermined when the plant shifted to natural gas, leaving much of the carbon capture equipment idle and unused.

Gorgon, Australia

Once hailed as a global showcase for CCS, Chevron’s Gorgon project has struggled to meet expectations. Located at the company’s massive LNG facility on Barrow Island, Gorgon was designed to strip CO2 from natural gas and store it underground. Yet, Chevron reports that it has so far buried just over 10 million tonnes of CO2, barely a third of its original target (Mercer, 2024).

Technical problems, particularly with reservoir pressure, have limited injection rates and delayed progress toward sequestering the promised 80% of the plant’s emissions. Since commencing operations in 2019, performance has steadily declined: CO2 capture dropped from 34% in 2022–23 to just 30% in 2023–24, representing only a small fraction of the facility’s total emissions (Denis-Ryan & Morrison, 2024). To compensate, Chevron has been forced to implement costly technical fixes and purchase carbon offsets.

The difficulties at Gorgon reflect a broader pattern. Wang et al. (2021) observe that most CCUS projects over the past three decades have either struggled or failed to achieve their objectives. Larger plant sizes, in particular, increase the risk of underperformance, and existing support mechanisms have not been sufficient to overcome these challenges. Achieving gigaton-scale deployment will therefore require reducing risk, improving returns, and better aligning technology, policy, investment, and deployment.

Boundary Dam, Canada

Canada’s Boundary Dam 3 (BD3) coal plant in Saskatchewan offers another example. In March 2021, BD3 marked the capture of its four millionth metric ton of CO2, two years later than forecast, underscoring its failure to achieve the 90% capture rate originally promised (Energi Media, 2024). 

The retrofit cost more than CAD 1 billion, yet performance has consistently fallen short. Through 2023, the long-term capture rate averaged only 57%  (IEEFA 2021). The system operates roughly 80% of the time, and when running, it processes just 73% of the plant’s flue gases, leaving a substantial portion of CO2 uncollected.

The plant has rarely achieved its design capacity of 3,200 metric tons per day and has never sustained that level for any extended period. SaskPower has since scaled back its capture target to 65% of emissions. Moreover, a significant portion of the CO2 collected is used for enhanced oil recovery (EOR), which in turn results in additional emissions, thereby reducing the net climate benefit considerably smaller than initially claimed (IEEFA, 2024).

Technical failures have compounded these shortcomings. In 2021, the CCS facility captured 43% less CO2 than the previous year after a breakdown in the main compressor motor forced the system offline for several months (Anchondo, 2022). Although repairs have since been completed, the outage illustrates how dependent carbon capture is on complex, custom-built equipment and how downtime can dramatically reduce emissions removal.

Key findings: The successes show that CCS can be technically feasible, completed on time and within budget, and deliver useful insights into subsurface CO₂ behavior. Yet, the failures highlight recurring challenges: escalating costs, reliance on volatile oil markets, technical underperformance, and uncertain long-term storage integrity. These case studies suggest that CCUS will require stronger policy frameworks, more consistent oversight, and sustained investment to scale effectively. Without these supports, large-scale deployment risks repeating the mixed track record seen so far.

In this series:

• Part 1: Climate Mitigation and the Price of CCUS. Can be found here.

• Part 2: Case Studies

• Part 3: Malaysia’s Big Ambitions

• Part 4: Issues for Successful Deployments

Reach us at khorreports[at]gmail.com

CCUS Role in the Transition to Net-Zero

Part 1: Climate Mitigation and the Price of CCUS

By Claudia Nyon | Edited by Abigael Eminza

This four-part series explores the opportunities, issues, and costs of Carbon Capture, Utilisation and Storage (CCUS), and examines CCUS, with a particular focus on Malaysia’s newly enacted CCUS Act 2025.

CCUS has emerged as one of the most debated tools in the global decarbonisation toolkit, straddling the line between necessity and controversy. Initially rooted in the 1920s with natural gas purification and expanded in the 1970s through enhanced oil recovery (EOR), CCUS has since evolved into a proposed solution for hard-to-abate sectors, such as cement and steel. Its relevance has grown in the wake of the Paris Agreement, with more than 30 major projects announced globally since 2020 and countries like Malaysia enacting dedicated legislation such as the CCUS Act 2025 to spur adoption. Yet, despite decades of technical deployment, CCUS costs have remained stubbornly high and resistant to the steep declines seen in renewables, raising questions about scalability and economic efficiency. This introduction sets the stage for examining CCUS’s history, economics, policy drivers, and its contested role in achieving net-zero.

What is CCUS?

Carbon Capture and Storage (CCS) involves capturing carbon dioxide from large point sources, such as power plants, and securely storing it underground to prevent its release into the atmosphere. Carbon Capture, Utilisation, and Storage (CCUS) extends this concept by repurposing captured CO2 for industrial applications. 

Source: Petronas 

History of Carbon Capture and Its Utilisation in Enhanced Oil Recovery

• 1920s: Early carbon capture emerged with natural gas purification, which required separating carbon dioxide from gas streams.

• 1970s: Captured CO2 began being injected into oil fields for Enhanced Oil Recovery (EOR), a practice that continues to this day.

• Today: CCUS remains widely used in EOR to unlock trapped oil reserves, demonstrating one of the earliest and most sustained applications of carbon capture technology.

The practice of capturing carbon dioxide from gas streams traces back to fossil fuel extraction. While oil and natural gas often occur together in the same reservoir, early fossil fuel development largely overlooked natural gas due to the lack of adequate pipeline infrastructure (Energy Information Administration Office of Oil and Gas, 2006). 

By the early 1920s, with improvements in pipeline technology, the demand for natural gas increased, prompting the development of techniques to remove carbon dioxide, known as ‘purification’.

The first commercial CO2 capture and injection for EOR began in Texas in the 1970s (Cherepovitsyn, 2020). EOR remains the largest application of CCUS, as primary/secondary recovery leaves ~⅔ of oil untouched, thereby necessitating the injection of carbon into declining oil fields to unlock trapped reserves (National Energy Technology Laboratory).

Approximately 73% of the carbon successfully captured annually in the United States is utilized for EOR to unlock additional fossil fuel reserves (IEEFA, 2022).

Petronas has implemented EOR techniques to extract fossil fuels in Malaysia (New Straits Times, 2014). 

CCUS and EOR: Statistics of Use

CCUS in Global Climate Change Mitigation

CCUS currently occupies a complex but increasingly central role in carbon policy and carbon economics. 

The Paris Agreement of 2015 set ambitious emissions reduction targets, and the pathway to net-zero emissions by mid-century remains highly debated. This means the world must reduce today’s 50 Gt of total annual CO2-equivalent emissions to around net-zero by mid-century, with reductions of around 40% achieved by 2030 (Energy Transitions Commission, 2022). 

On the back of this, CCUS has positioned itself as a solution to decarbonise industries where alternatives are limited, such as the cement industry that produces 7% of global industrial greenhouse gas emissions (GHGs) (IEA, 2023), and to deliver carbon removals over the next few decades. 

• 30+ commercial CCUS projects announced globally since 2020 (~$27 billion in near-final investments) (IEA, 2020).

• Malaysia’s National Energy Transition Roadmap (NETR) projects CCUS mitigating 5% of energy-sector emissions by 2050 (NETR, 2023). (See Part 2 onwards for more)

Source: International Energy Agency

The Price of CCUS

The Elusive Cost of Carbon Avoidance 

One of the most persistent challenges in evaluating CCUS is the lack of a single, definitive cost estimate for preventing one metric ton of CO2 from entering the atmosphere, a metric known as the "avoidance cost."

The cost of capture ranges from:

• $55/tCO2 for coal-fired power generation (OECD, 2011).

• $64/tCO2 for dilute gas streams such as from cement plants (Jaffar et al., 2023). 

• $71/tCO2 for flue gas (Raksajati et al, 2013).

• $80/tCO2 for open cycle gas-fired power plants (Brandl et al, 2021; Energy Transitions Commission, 2022). 

Early-stage feasibility studies, which often form the basis of projections, tend to underestimate actual expenses by 15% to 30%, according to the OECD (2011), and as also shown in Table 1 at AACE (2005). These estimates can swing even wider when accounting for site-specific variables like infrastructure needs, regulatory hurdles, and regional labor costs. 

For example, a Norwegian study found that adapting CCUS to an existing gas plant required 30% additional spending due to factors like specialized cooling systems and safety upgrades (OECD, 2011). This variability makes it difficult to compare technologies or assume cost advantages for one capture method over another.

The Trade-Off between Capture Rates and Costs

To meet net-zero targets, the CO2 capture rate should be as high as economically viable and as close to 100% as technologically possible. However, modifications in the capture plant design and operations to achieve a 100% capture rate would lead to increased costs. 

To demonstrate, the flue gas from a gas-fired power plant contains approximately 4 mol% CO2. After capturing 99% of the CO2, the resulting CO2 composition is 400 ppm, which is lower than current atmospheric CO2 concentrations. The CO2 separation at the top of the absorber becomes as challenging as direct air capture (Brandl et al, 2021).

For gas-fired power plants, increasing the capture rate from 90% to 96% incurs an additional cost penalty of about 12%, taking the total cost from ~$80 to $90/tCO2. Increasing it to 99% could increase costs to $160/tCO2 (Brandl et al, 2021; Energy Transitions Commission, 2022). 

Most projects, therefore, target a 90 percent capture rate as a pragmatic balance between performance and affordability. Yet even this benchmark is often missed as real-world examples fall short of achieving a high capture rate (>90%) due to cost-minimising decisions, engineering setbacks, or the early-stage nature of technological deployment (to be explored later in this series). 

CCUS costs increase sharply as capture rates approach 100%. Below are the capture rates and costs in a gas-fired power plant

Source: Brandl et al, 2021

Stagnant Costs and Missed Learning Curves 

Unlike renewable energy technologies, which have seen dramatic cost reductions over decades, CCUS has defied expectations of similar progress.

A 2023 analysis noted that cost estimates for fossil power plants with CCUS have remained flat for over 40 years, suggesting a lack of systemic learning across the industry, from carbon capture to burial, despite decades of using all elements of the chain (Bacilieri et al., 2023).

Figure 1, below, shows estimates of the cost of fossil power with CCUS observed in the academic literature and industry reports over the last 40 years. Many of these reports stated that costs were expected to decline in the future due to technological learning. However, the plot makes clear that these expectations have so far not been realised. In fact, quite the opposite – as further information about the technology has been gained, cost estimates have generally risen (Bacilieri et al, 2023).

Source: Bacilieri et al., 2023

This stagnation is striking given that components like CO2 pipelines and injection wells have been used commercially since the 1970s. By contrast, technologies like solar panels and batteries typically reduce costs by 10 percent for every cumulative doubling of production capacity, a pattern CCUS has failed to replicate (Congressional Budget Office, 2023).

The High Price of Over-Reliance on CCUS

The high costs of CCUS have spurred debate about its optimal role in decarbonization. Recent modeling indicates that net-zero pathways relying heavily on CCUS could require $30 trillion more in spending than those prioritizing renewables and energy efficiency (Bacilieri et al., 2023). 

This divergence arises because large-scale CCUS deployment delays the cost declines typically seen in alternatives like wind, solar, and green hydrogen. However, abandoning CCUS entirely isn’t economically viable either: certain industries, such as cement and steel, lack ready substitutes for fossil fuels, making limited CCUS deployment a cost-effective compromise (IPCC, 2023).

Net CO2 emissions over time for our low- (blue dashed lines), medium- (yellow dash-dotted lines), and high-CCUS (red dotted lines) scenarios, and all the other C1 and C2 scenarios (grey solid lines). The black dotted line marks the year 2060, which is the latest year we require selected scenarios to reach net zero. The green band and the vertical black solid and dashed line highlight the corridor of ±10% of today’s CO2 emissions, which we require our scenarios to fall into in 2050. 

Source: Bacilieri et al., 2023

Foreseeable Economic and Policy Challenges

The divergence between high and low CCUS decarbonization pathways reveals a fundamental tension: economies prioritizing rapid scaling of renewables, electrolyzers, and energy storage achieve faster cost reductions through technological learning and economies of scale (Greig & Uden, 2021). 

This dynamic creates a self-reinforcing cycle; accelerated deployment of alternatives further lowers their costs, reducing reliance on CCUS. By contrast, high-CCUS pathways face compounding expenses, as delayed investment in renewables perpetuates dependence on a technology with stubbornly stagnant costs.

Yet dismissing CCUS entirely ignores structural realities. Even critics acknowledge its inevitability for hard-to-abate sectors like cement (see Hughes, 2017), though its role remains hotly contested. Some fear that the technology now confronts a critical juncture, the so-called "valley of death" where technical viability clashes with insufficient private investment (Reiner, 2016). Market forces alone appear inadequate: CCUS ranks among the costliest near-term mitigation options (IPCC, 2022), with most projects requiring government backing to pencil out financially (Rempel et al., 2023). This dependency is exacerbated by the fossil fuel industry’s tepid commitment; oil and gas firms allocated less than 1% of 2020 capital expenditures to clean energy (World Energy Investment, 2021), raising questions about their willingness to drive meaningful CCUS scale-up without policy mandates.

Key findings: CCUS is neither a silver bullet nor universally accepted, but it’s unavoidable for net-zero, particularly in hard-to-abate industries. The debate now centers on how much CCUS is optimal, balancing cost, scalability, and emissions goals.

In this series:

• Part 1: Climate Mitigation and the Price of CCUS

• Part 2: Case Studies

• Part 3: Malaysia’s Big Ambitions

• Part 4: Issues for Successful Deployments

Reach us at khorreports[at]gmail.com

The Haze Report 2025 on Palm Oil: Market Trends, Policy Shifts, Biofuel Expansion, and EU Deforestation Regulation

Markets

Trump’s proposed differential tariffs are expected to have minimal disruption in Indonesia's palm oil sector. Analysts, however, are watching for potential indirect effects, such as reduced Chinese purchases of U.S. soybeans, which could shift demand toward palm oil.

Indonesia’s palm oil stands out, supported by:

• Global demand

• Robust downstream industries

• A strong domestic market buoyed by ambitious biofuel mandates (B35, targeting B50)

Despite rising global demand, especially for food and biofuel, Malaysia’s mature oil palm acreage has declined for four consecutive years, while Indonesia’s growth remains marginal. Meanwhile, Brazil’s expanding soybean cultivation has driven high palm oil prices for nine months leading into 2025. Domestic biofuel consumption in Indonesia (B35, aiming for B50) is also drawing down exports, prompting buyers to seek alternative oils and intensifying deforestation elsewhere, notably in Brazil, where forest loss reached 2.82 million hectares in 2024.

On the other hand, calls are growing to revisit Indonesia’s palm oil moratorium. Analysts urge sustainable expansion and urgent replanting with higher-yield seeds, citing aging trees, disease, and underperforming government-linked estates as bottlenecks. While environmental groups often disproportionately target palm oil, they frequently overlook the environmental impact of other commodities like soy and cattle.

Despite being the most efficient oil crop, palm oil continues to face reputational challenges, particularly in the EU, where sustainability concerns and competition from alternative fats and stricter biofuel standards are limiting market access.

Before 2015, commodity price spikes often triggered forest loss in Indonesia through plantation expansion and political cycles. The 2015 fires acted as a wake-up call, and since then, deforestation has moderated despite price fluctuations. In 2024:

• Oil palm expansion slowed slightly

• Peatland conversion dropped

• Overall, deforestation fell 9% compared with 2023.

Forest loss rose modestly in Kalimantan and Sumatra but shifted from illegal to legal clearing within approved concessions. Globally, Indonesia and Malaysia show reduced deforestation, with fire-related losses far below mid-2010s levels, even as major forest loss continues in Brazil, Bolivia, DR Congo, and Peru.

Policies

Under President Jokowi, Indonesia made significant strides in curbing emissions through forest protection and peatland fire prevention. This included a 2021 commitment to achieve a net carbon sink in the forestry and land-use (FOLU) sector by 2030, potentially delivering up to 60% of national emissions reductions. The effort was supported by new carbon pricing and trading regulations and a climate cooperation pact with Singapore. By 2024, Jokowi’s final year, fire rates remained low due to restoration efforts, favorable rainfall, and private-sector action.

Post-Jokowi, concerns have emerged over political support for plantation expansion, threatening climate and haze goals. A recent rise in forest loss in Sumatra and stalled peatland regrowth between 2017–2022 highlight ongoing challenges in sustaining land-based climate gains.

The Prabowo administration’s priorities differ markedly from Jokowi’s.

• While Jokowi implemented palm oil expansion moratoria alongside infrastructure development and mineral downstreaming (with environmental and social costs), Prabowo emphasizes national self-sufficiency in food and energy, viewing carbon markets largely as commercial ventures rather than conservation tools.

• Rising public debt and costly social programs further strain fiscal space.

• State-linked Agrinas aims to control up to one million hectares of contested land, potentially capturing 6–7% of national output. With stagnant palm oil output and limited technological progress, Agrinas’ expansion may strain productivity further.

Nonetheless, Indonesia’s downstreaming strategy seeks to boost value-added processing in palm oil and coconut to support high-income ambitions. Key areas include oleochemicals, food products, and biodiesel expansion (B40 to B50 by 2029). However, rising land-use tensions create a “food vs. fuel vs. export” trilemma. The sector also faces competition from advanced hubs like Malaysia and the EU. Meanwhile, planned estate expansion in Papua faces high development costs and complex local dynamics, raising investor concerns. Amid policy uncertainty and political sensitivities, businesses may become increasingly cautious.

Palm Oil, Biofuels & Industry Transformation

Global demand for palm-based biofuels remains strong, driven by EU and U.S. policies favoring low-carbon fuels. While traditional palm oil faces restrictions, certified waste-derived products such as PFAD and used cooking oil are gaining traction, particularly for aviation and marine fuels. Strict sustainability standards and tight supply make policy clarity essential for future investment.

Indonesia and Malaysia face challenges in balancing domestic needs, subsidy costs, and exports. Indonesia's growing biodiesel demand, stagnant output, and unlicensed mills complicate regulation, while Malaysia focuses on higher-margin exports over domestic biodiesel use.

Indonesia’s palm sector is undergoing a shift, with state-backed Agrinas targeting 1 million hectares of reclaimed land, potentially reshaping industry dynamics. Export competitiveness is at risk amid court scrutiny of major traders and ongoing concerns over governance, land control, and regulatory transparency.

EU Deforestation Regulation (EUDR) and Implications

The EU’s deforestation regulation (EUDR), now delayed to late 2025 for large firms and mid-2026 for smaller ones, aims to eliminate imports linked to deforestation, including palm oil, cocoa, and rubber. Recent revisions ease compliance for large companies by allowing annual due diligence submissions and data reuse, resulting in up to a 30% reduction in administrative costs.

Smallholders, however, remain largely unsupported, and compliance depends heavily on origin-country systems. While Malaysia is advancing digital traceability for smallholders, Indonesia appears to have deprioritized EUDR implementation amid other economic pressures. The EUDR is expected to support haze prevention, but risks excluding smallholders from EU markets without additional support.

The Annual Haze Outlook Report 2025 can be found here.

Reach us at khorreports[at]gmail.com

Indonesia's policy, growth, and political-economic shifts

The robust nature of Forest management policies from Jokowi to the Prabowo Regime

According to the Haze Outlook 2025, the Prabowo administration is set to continue Indonesia’s forest governance by building on the policies established under President Jokowi. Key measures carried over include:

• The establishment of the Peatland Restoration Agency and the continuation of its restoration targets.

• High-profile rulings and prosecutions of companies responsible for fires, setting a precedent for the high cost of non-compliance.

• Jokowi’s commitment to achieving a net carbon sink in the forestry and other land use (FOLU) sector by 2030, along with the issuance of carbon pricing and trading regulations, has opened the door to carbon credit generation through ecosystem conservation and restoration projects.

Under Prabowo, it is hoped that this enforcement remains in fire monitoring and land-use compliance, even as the government shifts economic priorities toward domestic food and fuel production.

The Realities: Rapid Growth and Agricultural Expansion with Environmental Protection

The Prabowo administration has set a target of 8% GDP growth by the end of his first term, part of a broader vision to transition Indonesia into a high-income economy by 2045.

Yet, as the Haze Outlook 2025 notes, this goal presents a difficult balancing act. Indonesia enters this next phase of development with limited fiscal space and relatively high debt levels, even before factoring in the added strain of recent global economic uncertainty. While initiatives such as free school meals may help stimulate domestic consumption and economic growth, they also risk placing additional pressure on public spending.

Palm oil remains central to Indonesia’s economic strategy, contributing 2.5–5% of GDP and supporting 16 million jobs. However, the report warns that “this intensifies the need to manage competing demands: boosting food security, meeting energy needs, and sustaining export revenues, all while avoiding environmental degradation.” 

The Outlook further notes, the administration must ensure that agricultural development moves in step with meaningful environmental protection. Several policy initiatives now underway will serve as critical tests of whether this balance can be maintained.

The future of Indonesia through Agrinas, Papua, and Biofuel mandates, amidst constrained fiscal space, high debt levels

Central to the Prabowo administration's development strategy is Agrinas, a new state-owned enterprise formed through the merger of three companies and backed by the Danantara sovereign wealth fund. The Haze Outlook 2025 notes that Agrinas Palma Nusantara aims to manage up to one million hectares of plantations, potentially accounting for 6–7% of national palm oil output. This reflects a broader push to consolidate land control and accelerate downstream industrialization.

The report also highlights Indonesia’s plan to raise its biodiesel blend from B35 to B40 in early 2025, “consuming palm oil volumes comparable to major export markets like the US and EU.” A B50 target is set for Prabowo’s term, alongside the introduction of E5 bioethanol in gasoline by 2026, policies aimed at bolstering energy security and domestic palm oil demand.

Papua is identified as a strategic frontier for agricultural and energy expansion. However, the report cautions that “high land costs and the need to respect indigenous rights and sustainability” must be taken into account.

Despite these ambitions, fiscal constraints and high public debt limit the government’s capacity to fully fund sustainability efforts. At the same time, the expansion of agriculture, food security programs, and biofuel mandates continues to place pressure on land use and forest governance.

The Outlook underscores the central challenge ahead: balancing economic growth, energy and food security, and environmental protection without undermining fire prevention and emissions reduction targets.

The Annual Haze Outlook Report 2025 can be found here. Part 1 of the analysis of the Haze Outlook report 2025 can be found here.

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Outlook on forest fires, market indicators, farmers, and EU trade compliance

The Shift from Low to Medium Haze Risk in 2025 (Transboundary Haze in Sumatra)

The Haze Outlook 2025 has raised the regional risk level from green (low risk) to amber (medium risk), citing elevated agricultural prices, an uptick in deforestation, and economic and policy shifts driven by pressure to boost agricultural output for food security as attributes to this change.

Key points to note from the report:

• While deforestation declined between 2017 and 2022, it has increased again from 2023 into 2024, particularly in Sumatran provinces near Singapore and Peninsular Malaysia, where fire activity surged in July 2025.

• Despite forecasts of a shorter dry season, hotspots and smoke haze in parts of Sumatra in mid-July have already affected air quality in parts of Peninsular Malaysia, indicating that fire risk remains elevated even under average weather conditions.

With climate trends pointing to another unusually dry season between 2027 and 2030, and structural drivers like land clearing and commodity demand continuing to fuel haze episodes, the report recommends prioritizing sustainability measures “to avoid creating more fire-prone conditions.”

The surging of commodity prices with deforestation on the uptick (Most especially, palm oil prices surpassing soybean)

Linked to these structural pressures, the Outlook notes that agricultural commodity prices, especially for palm oil, have surged due to supply failing to keep pace with rising global demand.

According to the report, palm oil from Indonesia and Malaysia, typically the world’s cheapest vegetable oil, has traded above soybean oil prices at key destinations for nine consecutive months, an unprecedented trend. This price surge is significant because historical spikes in commodity prices have often preceded increased deforestation in subsequent years. 

Although the rate of primary forest loss between 2015 and 2019 remained largely flat or declined despite fluctuations in commodity prices, the report notes that the current cycle may differ: “estimates show some uptick in deforestation in Indonesia from 2023–2024.”

Will EUDR be further delayed to 2028? How will smallholders cope with these regulations

The report also highlights the approaching enforcement of the European Union’s Regulation on Deforestation-free Products (EUDR), scheduled to take effect for large companies on 30 December 2025. The regulation targets seven commodities, palm oil, soy, wood, cocoa, coffee, cattle, and natural rubber, and requires proof that imports are not linked to deforestation after 31 December 2020.

According to the report, key developments related to the EUDR include:

• The regulation imposes strict reporting requirements, which critics argue may exclude smallholder farmers unable to meet compliance standards.

• In response, the EU has simplified some administrative rules, allowing annual submissions and reuse of due diligence statements for reimported goods, cutting estimated compliance costs by 30%.

• Indonesia and Malaysia have developed national digital platforms to provide legality and traceability data, while respecting data protection laws. These systems aim to support smallholders and enable international buyers to file EUDR-compliant submissions through national dashboards.

• Indonesia has urged the EU to postpone full implementation until 2028 to allow more time for preparation and alignment across all stakeholders.

The report suggests that while the EUDR aims to curb deforestation linked to commodity trade, its real-world impact will depend on how effectively origin countries and the EU implement and enforce these measures, especially regarding smallholder inclusion.

The Annual Haze Outlook Report can be found here.

Reach us at khorreports[at]gmail.com

In the media: China Daily on Market Diversification in Southeast Asia

Is the Southeast Asian Market cushioned from harsh US tariffs through diversification?

Editor’s Note: On May 28, the U.S. Court of International Trade ruled that the global tariffs imposed by Trump are illegal. However, many of the sector-specific tariffs like those on Southeast Asian agricultural exports remain in effect even as trade negotiations continue in the on-off Trump Tariff saga.

Segi Enam Advisors principal Khor Yu Leng was cited by China Daily on 5 May 2025 for her views on market diversification among ASEAN countries, following the impact of high US tariffs on the Southeast Asian market.

On 2 April, the US imposed a baseline 10% tariff on all its trading partners, along with additional, country-specific tariffs. Among those hit hard were countries in Southeast Asia. For example, Indonesia, the world’s biggest coffee exporter, was hit with a 32% tariff, even though the US is one of its key markets. Thailand the second largest was hit with a 32% while Cambodia 49%. Meanwhile, Vietnam, which is considered more vulnerable due to its strong reliance on the US and the likelihood of future tariffs, was slapped with a 46% tariff.

In response, countries in the ASEAN region continue the negotiations with the US, but they’re also actively working to protect their respective economies by diversifying their export markets and improving export competitiveness.

Planters and traders in Indonesia, for instance, remain optimistic as they turn to other key markets like Singapore, South Korea, and the Middle East. Governments in the region are also stepping up support. In Malaysia, Prime Minister Anwar Ibrahim announced a 1 billion ringgit (about $235 million) relief fund to help small and medium-sized businesses affected by the tariffs. Meanwhile, Thailand is hosting a global rice summit from May 25 to 27, led by its Commerce Ministry. The goal is to promote Thai rice exports and secure purchase orders worth over 2 billion baht (around $61 million).

Yu Leng’s comments below touched on the diversification of markets among ASEAN countries following the impact of the US tariffs.

Khor Yu Leng, director of Singapore-based consultancy Segi Enam Advisors noted that the US tariffs are of great concern in ASEAN countries as exporters have a similar range of agricultural products, including rice, palm oil, and fruits. She said Vietnam and Thailand seem more vulnerable, with relatively higher US tariffs and heavier dependence on niche markets and products, including jasmine rice.

Reach us at khorreports[at]gmail.com

Improving Malaysia’s Ecological Fiscal Transfers: Key Takeaways from Macaranga Media's Webinar

On 23 April 2024, Samantha Ho (Eco Business), Surin Suksuwan and Teckwyn Lim, moderated by Yao-Hua Law of Macaranga Media, gathered to discuss Malaysia’s Ecological Fiscal Transfer (EFT) policy, a federal initiative aimed at incentivizing state governments to conserve forests and protected areas. The webinar shed light on the program’s challenges, transparency gaps, and potential improvements. Here were the key takeaways:
1. Limited Funds Disbursed, Lack of Transparency

Since its introduction in 2019, the federal government has allocated RM800 million under the EFT scheme. However:

• Less than 5% of the funds have been disbursed.

• In some years, the amounts given to state governments were lower than publicly stated.

• The Ministry of Natural Resources and Environmental Sustainability (NRES) did not disburse funds in certain years, raising questions about oversight.

While some projects—such as Tasik Chini’s conservation and an artificial reef in Kelantan—were highlighted, most states provided little detail on how funds were used. Johor was the most transparent but only shared data from 2021, leaving earlier allocations unaccounted for.

2. Why Does the Federal Government Need States’ Cooperation?

• States control land, while the federal government has international commitments (e.g., protecting 20% of Malaysia’s land).

• Without state cooperation, federal conservation goals (such as maintaining 50% forest cover) may fail—especially as states like Sarawak continue converting forests for agriculture.

• Currently, there is no penalty for states that reduce forest cover, and little compensationfor states like Pahang and Sabah, which already maintain high forest coverage.

3. Ambiguity in Definitions and Monitoring

• The federal government retracted a list of protected areas from MyBIS, claiming it was a temporary delay—but five and a half years later, clarity is still lacking.

• Without clear definitions, it’s difficult to determine what qualifies as a protected forest or how much forest cover exists.

• No strict monitoring ensures funds are used for conservation. Some states reportedly spent EFT money on roads and other non-conservation projects. However, some panellists agreed that for EFTs to work, state governments should have freedom to choose as to what they define as constituting ‘conservation’.

4. Should EFTs Be Tied to Conservation Outcomes?

• Teckwyn argued that EFTs should increase protected areas and maintain forest cover, not just fund existing state activities.

• Surin suggested that states failing to protect forests should lose funding, turning EFTs into a performance-based incentive.

• Samantha emphasized transparency—even if funds aren’t spent on conservation, the public deserves to know how they’re used.

5. Rethinking EFTs: Opportunity Cost, Not Just Conservation Funds

• Since federal transfers to states are constitutionally mandated, EFTs could be structured as compensation for lost economic opportunities (e.g., logging or mining bans).

• Surin proposed: “If you have X amount of forests, you get X amount of money.”

• Others questioned whether framing EFTs as “conservation funds” is effective—perhaps they should be seen as payments for ecosystem services.

Conclusion
Malaysia’s EFT policy has the powerful potential to safeguard Malaysia’s natural heritage as well as being a legitimate tool to back up the Malaysian government’s pledge of maintaining 50% forest cover. Notwithstanding, the general consensus was concern over the lack of transparency at how public funds were being spent.

Part 1 of Macaranga Media’s coverage of EFTs can be found here. Part 2 may be found here.
MyBIS’ list of protected areas may be found here.

Reach us at khorreports[at]gmail.com

SCMP Interview: Malaysia pushes for premium palm oil in China as overall imports decline

Segi Enam Advisors principal Khor Yu Leng was cited by South China Morning Post (16 March), for her views on China’s declining demand in importing Malaysian palm oil. Once the top importer of Malaysian palm oil, China has now been ceded by India. According to the Malaysian Palm Oil Board, China imported 1.76 million tonnes of Malaysian palm oil in 2022, representing 11.2% of Malaysia’s exports of the commodity, but that fell to 1.47 million tonnes (9.7%) in 2023 and 1.39 million tonnes (8.2%) last year.

Yu Leng’s comments, as quoted by South China Morning Post, are as below. She opined that Chinese consumers are now after oils perceived to be healthier and referenced the demand for value-added products.

Chinese consumers now have enough money to demand foods made with oils that are considered to be healthier, said Khor Yu Leng, a political economist at Singapore-based Segi Enam Advisors. Much of it can be refined domestically, she added.

Rapeseed oil is common now and may be sourced from China, she said, while much of the vast amounts of soybean China imports each year goes to making oil.

“There is still a middle-income trap for palm oil because there’s a perception that it’s not as healthy,” she said. Specialty, health-focused palm oil is a “niche” industry now, she added, but it is morphing into a new norm.

“There’s been talk that there’s more demand for value-added products,” Khor said. “Everyone’s trying to produce some now.”

…

To help shore up the industry, Malaysia secured more than RM230 million (US$51.8 million) worth of palm oil trade deals in July when the country’s deputy plantation and commodities minister, Chan Foong Hin, visited China.

They included an e-commerce deal to help sell palm oil as health products in China, Bernama, Malaysia’s national news agency, reported, while another deal targeted the expansion of vitamin-rich red palm oil use in Chinese animal feed.

Another aimed to expand Malaysian refinery Able Perfect’s Chinese “presence” in refined palm oil and palm shortening to about RM200 million, Bernama quoted the deputy minister saying.

“This looks better than past MOUs, since [it’s] apparently specific on new and value-added products,” Khor said.

Reach us at khorreports[at]gmail.com