Malaysia moves into CCUS
The Malaysian government’s new Carbon Capture, Utilization and Storage Act 2025 came into operation on October 1, providing with its accompanying regulations a robust framework for offshore CO₂ storage activities, with clear processes for important operations related to carbon storage sites. By David Clinch, partner, Pinsent Masons MPillay LLP Bryan Chapman, senior associate, Pinsent Masons MPillay LLP Fariz bin Abdul Aziz, partner, Skrine Samson Kong Kien Ngiap, senior associate, Skrine.
Malaysia's first legislation regarding carbon capture and storage, the CCUS Act contains the Carbon Capture, Utilization and Storage (Offshore Permit and Licensing) Regulations 2025, which also came into force on October 1 2025 and which specifically govern the offshore geological assessment and permanent storage of carbon dioxide in offshore areas.
The territorial scope of the CCUS Act and the CCUS Regulations are both limited to Peninsular Malaysia and the Federal Territory of Labuan, as separate state enactments on CCUS have been enacted for the states of Sabah and Sarawak.
The CCUS Regulations provide the framework to obtain offshore assessment permits and offshore storage licences. The regulations also mandate risk management and emergency response plans for offshore carbon capture storage, obligations of entities engaging in offshore carbon storage, such as financial stability requirements and compliance with investigation and inspection obligations, as well as modifications to the storage of carbon in offshore locations.
Currently, there are still commercial, technical, and operational details that future regulations and guidelines will need to develop.
Malaysian CCUS Agency
The Act sets out that a Malaysia CCUS Agency will be established as the one-stop centre and will be responsible for overseeing all CCUS activities.
Through the CCUS Act, the agency is authorised to control the permitting and licensing for offshore carbon storage with the Minister of Economy of Malaysia being empowered to appoint a competent technical entity to advise the agency on technical and operational matters, including those related to offshore assessment permits and offshore storage licences. In addition to the establishment of the agency, a technically competent entity is to be appointed for the assessment of offshore and onshore storage of CO₂.
The CCUS Regulations set out the lifecycle of a project as it progresses towards project delivery and closure and how entities may obtain necessary approvals, as summarised in Figure 1.
Offshore assessment permit
An offshore assessment permit is required prior to carrying out geological assessment of a potential carbon storage site which is offshore Malaysia.
Each offshore assessment permit application will cost M$80,000 (US$19,450). When applying for an offshore assessment permit, the area intended for offshore geological assessment and the intended methods and techniques for assessment must be included. This will require applicants to conduct advanced planning and provide justification for the intended geological assessment methods to successfully obtain the necessary authorisation and permit.
An offshore assessment permit grants the right to undertake offshore geological assessment during the permit period within three years of obtaining the permit. This may be extended, relinquished or partly relinquished by complying with certain procedures.
Failure to comply with the conditions of an offshore assessment permit, whether during the permit period or in relation to relinquishment or surrender of the offshore assessment permit, can result in a fine of up to M$500,000 being levied against the non-compliant permit holder.
An applicant is also required to comply with any guidelines issued by the minister under Section 53 of the CCUS Act.
If the permit holder does not apply for an offshore storage licence before the expiry of the permit, including if extended, or if the application for the licence is unsuccessful, the area specified in the offshore assessment permit is automatically relinquished.1 The permit holder remains responsible for certain post-assessment obligations such as removal of equipment, closing-off wells and certain make good obligations, notwithstanding the expiry of the offshore assessment permit and relinquishment of the specified area.
Offshore storage licence
After obtaining an offshore assessment permit, a permit holder qualifies to be able to apply for an offshore storage licence. Offshore storage licence applications cost M$120,000.
An offshore storage licence applicant must demonstrate sufficient financial security to cover the costs of all obligations, liabilities, and risks of a licence holder, as well as any fees and costs payable to the relevant governmental bodies. The CCUS Regulations stipulate the list of the required information and documents to be included with an offshore storage licence application under Regulation 15.
Offshore storage licence holders will be granted the sole right to operate the storage site in the manner specified in the licence and are also required to comply with applicable conditions under the CCUS Regulations and the CCUS Act.
Risk management
The regulations require the implementation of appropriate risk management, emergency response plans and measures in relation to safety during emergency situations.
Storage site operators must comply with applicable occupational safety and health laws as well as environmental laws in the operation of a storage site. Risks are to be identified through risk management reports and measures are to be prepared to prevent, reduce or control adverse effects and risks identified. Operators must also prepare emergency response plans to protect human health and safety and the environment, together with a compliant shutdown safety plan.
Failure to prepare an emergency response plan or consolidate a maintenance and shutdown safety plan with appropriate protocols can attract fines of up to M$500,000 as well.
Licence conditions
The offshore storage licence conditions require reports to be submitted if any changes are made, such as the mode of operation of the storage site or changes that would have an effect on human health, safety or the environment. This can result in modifications to the offshore storage licence and potentially revocation of the licence. Modifications would be motivated by human health, safety or environmental concerns and could require the operator to suspend carbon dioxide injection operations.
If a modification to the licence cannot sufficiently address and manage the impact on human health, safety and the environment, it can be revoked. The licence could also be revoked in situations where the operator is convicted of an offence under the CCUS Act or CCUS Regulations, goes into liquidation and an official receiver or liquidator is appointed over the operator’s assets, or the continued operation of the storage site poses a risk to public health and safety.
An interim operator may be appointed to manage the storage site until the storage site is closed after the licence is revoked. An application for a new offshore assessment permit and new offshore storage licence could be considered in respect of the storage site after revocation of the original licence. It is not clear at the present time whether the same licence holder is permitted to submit another application for its previous storage site, but there is no express prohibition in the CCUS Regulations against the same licence holder making another application.
Licence obligations
An offshore storage licence holder must comply with various obligations, including complying with inspections and investigations, regular monitoring of storage facilities as well as maintaining sufficient financial security. The financial security amount may be adjusted by the government, and the operator will be required to furnish any increase in the security amount within three months of being notified of the increase.
Monitoring of the storage facility must be compliant with prudent carbon capture, utilisation and storage practices and be able to detect any irregularity or leakage of carbon dioxide that would have adverse effects on the surrounding environment. The monitoring plan should also be updated as required or when deemed necessary on using a risk-based approach.
Inspections and investigations can be conducted if there is a material/irregular leakage, insufficient compliance with the storage licence conditions, if there are serious complaints in relation to human health or safety or the environment or in certain other situations. Appropriate corrective measures may be imposed by an appointed expert.
Obligations to government
An operator that commences closure of a storage site and obtains a storage site closure certificate upon completion of the site closure conditions can seek to transfer obligations to the government, provided that monitoring results indicate complete and permanent containment of the stored carbon dioxide and a minimum period of 10 years has passed since the issuance of the site closure certificate. An application for the initiation of a storage site closure will cost M$120,000. Prior to the issue of a site closure certificate, a final post-closure plan is to be submitted and approved, and the plan will govern the post-closure period.
Any damage to the seabed or subsoil of the surrounding area must be made good and the storage site sealed and associated facilities or structures decommissioned, before an application for the transfer of obligations is submitted, together with a report documenting the completion of conditions for transfer.
Post-closure stewardship
The CCUS Act establishes the creation of a post-closure stewardship fund, to be jointly managed by the CCUS Agency under the remit of the Ministry of Economy. CCS operators must contribute to the fund, which covers the long-term monitoring of storage sites and unforeseen environmental or safety issues following closure.
This financial mechanism has been established to seek to ensure that CSS sites remain safe following the end of their operational life and that financial liability is covered by operators following a transfer to the government.
The mandatory contributions will be calculated based on the volume of CO₂ stored, the risk profile of the storage site and the duration of the monitoring.
Future developments
There are some interesting comparisons to be made between the Malaysian legislation and carbon capture and storage legislation in other jurisdictions. Other jurisdictions often do not prescribe limits for fines relating to breaches of regulations in relation to carbon capture storage facilities. Against that backdrop, an expansion of limits on fines in Malaysian carbon capture legislation may be a possibility in the future.
Another aspect of foreign legislation in relation to carbon capture that is not currently present in Malaysia’s legislation relates to environmental impact assessments. The possibility of more robust requirements in relation to environmental impact assessments for projects in Malaysia should be kept in mind.
There will likely be more guidance and legislation or regulations in the future regarding storage fees, tariffs and probably crossborder carbon dioxide transport arrangements and that more prescriptive technical standards and protocols will be identified to function as regulatory standards for Malaysia’s carbon capture industry. We expect there to be significant developments of this nascent sector in South-East Asia, with more legislative, regulatory and technical development to come.
Several major developments have been announced in Malaysia, including that Petronas, through its subsidiary Petronas CCS Solutions, has been awarded the first licence in the Southern CSS offshore hub, planned to be located off the coast of Kuantan. It is expected to have its first injection by 2029. Other CSS hubs are also planned across the country, including off the coast of Bintulu, Sarawak.
As in other countries, the CSS sector in Malaysia is an opportunity to attract investment from a wide range of global stakeholders, create jobs and generate revenue with the benefit of emissions reductions.
As has been seen elsewhere, building the government body in charge of implementing and monitoring the legislation is likely to take some time before full implementation can be achieved.
The introduction of other legislation and the potential overlap between CCS legislation and legislation already in place, such as in relation to the oil and gas sector and the environment will require close attention to avoid uncertainty and delay.
Notwithstanding this, Malaysia is positioning itself as a major player in the global CCS industry and taking significant steps to achieve that. If successful, the industry offers environmental, economic and strategic benefits, ranging from climate change mitigation and a clearer path to achieving Malaysia’s goal to be net zero by 2050, in addition to revenue generation, jobs, economic growth and positioning the country as a regional leader in carbon capture and storage.
Footnote
1 - Regulation 11(1) of the CCUS Regulations.
