by Nirinder Johl
Possible TNB’s Carbon Strategy Without Tariff Shock as consumers embrace higher AFA (Automatic Fuel Adjustment) with escalating West Asia war without derailing the Government’s commitment to introduce Carbon Tax.
RHB’s observation on the potential earnings impact to Tenaga Nasional Berhad under a future carbon pricing regime is directionally sound. Under the Incentive-Based Regulation (IBR) framework, particularly with fuel cost pass-through mechanisms, any imposed carbon tax could materially affect cost structures—albeit with partial recovery through tariff adjustments.
That said, this creates a strategic opportunity rather than merely a financial burden.
More importantly, carbon pricing should not be framed purely as a downside risk to earnings.
It presents a strategic inflection point for the utility sector.
Rather than treating carbon costs as a pass-through exercise, Tenaga Nasional Berhad has the opportunity to proactively manage its carbon exposure by accelerating grid decarbonisation and optimising the use of environmental attributes within its portfolio.
A more systemic approach would be for TNB to utilize the environmental attributes already pledged under LSS 1 to 5 + , to offset its own carbon obligations . This would deliver a broader national benefit by lowering the baseline emissions intensity of electricity supplied to all consumers, rather than treating carbon cost purely as a pass-through item. This would also add credence to the introduction of LSS 6 with BESS.
This exercise would ensure 3 other benefits :
a. LSS Developers would see it as their contribution to decarbonization.
b. It helps manage low RECs prices due to oversupply in the market
c. The Carbon Tax should be channeled to KWIE (Kumpulan Wang Industri Elektrik).
Such an approach aligns more closely with the principle of upstream decarbonization, where the utility—being the largest emitter within the electricity value chain—takes primary responsibility for reducing emissions at source.
In parallel, corporate consumers should rely on the purchase of unbundled RECs as a last option rather than a default pathway. Under frameworks such as the Greenhouse Gas Protocol, credible decarbonization requires a combination of:
💚 Direct reduction of Scope 1 emissions, and
💚 Active Scope 2 mitigation through structural measures such as SELCO RECs, on-site solar (NEM/ATAP), or participation in schemes like CGPP and CRESS.
This ensures that decarbonisation is anchored in real system changes—generation, dispatch, and consumption patterns—rather than over-reliance on secondary market based instruments.
In summary, carbon pricing should be viewed not just as a cost to be recovered, but as a catalyst to:
💚 Drive grid-level decarbonization,
💚 Improve Malaysia’s overall emissions intensity, and
💚 Encourage corporates to pursue deeper, structural decarbonisation pathways beyond the purchase of RECs alone.
Note about the author: Nirinder Johl is Founder and Chief Executive Officer Asian Carbon Exchange
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