By Dr Nora Yusma Mohamed Yusoff

Malaysia stands at a critical precipice. The nation remains structurally dependent on oil and gas, with the sector contributing 20.4 per cent of GDP and nearly one-fifth of government revenue in 2024.

The National Energy Policy (2022–2040) underscores this centrality, noting that the energy sector and energy-intensive industries together account for 28 per cent of GDP and employ a quarter of the national workforce.

For decades, petroleum wealth has underpinned Malaysia’s development model – in 2023, PETRONAS alone channelled RM40 billion in dividends to the federal treasury, representing more than 20 per cent of national revenue.

States like Sabah and Sarawak, responsible for over 40 per cent of crude output, remain heavily reliant on petroleum royalties to sustain public finances.

Yet this model is increasingly untenable: as global markets pivot towards rapid decarbonisation, the fiscal, economic, and social foundations of Malaysia’s reliance on fossil rents are beginning to fracture, exposing the country to both structural vulnerabilities and policy inertia risks.

The International Energy Agency (IEA) has warned that global oil demand will peak before 2030 and decline to 75 million barrels per day by 2050.

Gas, once considered a ‘transition fuel’, will also plateau and then fall.

The European Union slashed LNG imports by nearly 40 per cent in 2023, while China, Japan and South Korea – buyers of over 90 per cent of Malaysia’s LNG exports – are pouring billions into renewables, hydrogen, and nuclear.

Can Malaysia remain tied to fossil exports when the very markets we depend on are turning away?

A fragile reliance

The numbers expose a dangerous reality. Malaysia's imports of crude oil in 2024 (RM63.5 billion) significantly exceeded its exports (RM28.6 billion), indicating a net import position for crude petroleum in that year, leaving us with a widening energy trade deficit. More than 88 per cent of mining output is still fossil-based, locking us into carbon-heavy pathways.

A 25 per cent drop in fossil exports could slash RM10 billion from government revenue. What happens when the oil checks stop coming?

The risks are immense. For states like Sabah, where the 2023 poverty rates stood at 19.7 per cent, and Sarawak, at 10.8 per cent (compared to the 2022 national average of 6.2 per cent), the fiscal and social fallout would be severe.

Global headwinds

Malaysia’s challenge isn’t only about climate policy – it’s also about navigating geopolitical and trade upheaval.

The European Union has rolled out its Carbon Border Adjustment Mechanism (CBAM) to help cut emissions 55 per cent by 2030 compared to 1990 levels.

The scheme places a carbon price on emissions-intensive imports, starting with steel, iron and aluminium – commodities central to Europe’s industries and clean-energy transition.

In 2023, the EU imported over 37 million tonnes of steel from 137 countries, making the impact far-reaching. For now, importers must declare the carbon content of these goods quarterly.

From 2026, however, a levy will apply, with EU firms required to purchase CBAM certificates to cover the embedded emissions of their imports.

For Malaysia, this is more than a technical adjustment. Our exports of steel, aluminium and petrochemicals – still heavily carbon-intensive – risk becoming less competitive once the levy begins.

Without decarbonisation, Malaysian industries could face higher costs and shrinking market access in Europe. For Malaysia’s heavy industries, this is a major red flag.

Meanwhile, in the United States, President Trump’s sweeping ‘Liberation Day’ tariffs issued in April imposed a baseline 10 per cent tariff on most imports, with higher ‘reciprocal’ rates for key trading partners like Malaysia, originally reaching 24–25 per cent.

These tariffs were part of a broader reset – to be applied against nearly 70 countries, ranging from 10 per cent to 41 per cent – in what a Trump administration official hailed as the beginning of a “new system of trade”.

The move triggered alarm across trade sectors, but negotiations led to an adjusted rate: a revised tariff of 19 per cent took effect as of early August, providing partial relief for Malaysia’s exporters.

Additionally, while President Trump announced plans for 100 per cent tariffs on semiconductors, exemptions were granted for firms investing in U.S. manufacturing. Notably, semiconductors and pharmaceuticals remain exempt from the new 19 per cent rates, though the sector continues to face uncertainty.

When fossil revenues start fading and global trade splinters under protectionist pressure, where will Malaysia find stability?

13MP: Ambitions vs Reality

Malaysia will allocate RM430 billion for development expenditure under the 13th Malaysia Plan (13MP), with a total investment target of RM611 billion from 2026 to 2030.

Of this, RM120 billion is expected to be contributed by government-linked companies (GLCs) and government-linked investment companies (GLICs) – including major national energy players such as PETRONAS and Tenaga Nasional Berhad (TNB) – while RM61 billion will come from private sector participation through public-private partnerships (PPP).

Meanwhile, the National Energy Transition Roadmap (NETR) stipulates RM1.2-1.3 trillion in energy transition investments by 2050, focusing on hydrogen, renewables, and CCUS.

The 13MP also recognises nuclear energy, particularly small modular reactors (SMRs), as part of a low-carbon baseload strategy to enhance energy security.

Nuclear power, particularly small modular reactors, can provide Malaysia with affordable baseload power while securing energy independence.

But ambition alone is not enough. Without fiscal buffers, a credible carbon-pricing mechanism, and deeper ASEAN energy integration, the 13MP risks becoming another policy blueprint overtaken by global shifts.

Can Malaysia execute the 13MP fast enough to match the speed of global change?

The answer depends on how quickly Malaysia builds fiscal resilience, enforces carbon pricing, and deepens ASEAN energy integration – without these, ambition will remain only words on paper.

The role of Malaysia’s energy giants in driving transition

Malaysia’s energy sector will be decisive in determining whether we succeed or stumble in this transition. The answer cannot lie with any single company. The transition is too big.

The two pillars of this sector – PETRONAS and Tenaga Nasional Berhad (TNB) – must play complementary roles, not competing but collaborating to safeguard the nation’s future.

PETRONAS is pivoting with hydrogen, green energies, and CCS – but the pace must quicken to offset declining fossil revenues.

PETRONAS has already taken notable steps. Through Gentari, it has announced plans to build 30–40 GW of green capacity and up to 1.2 MTPA of hydrogen exports by 2030 and capture 10 per cent market share (around 25,000 charging points) across key markets in Asia Pacific by 2030.

It is investing in carbon capture and storage (CCS) with the Kasawari CCS project, one of the largest offshore CCS ventures globally, aimed at capturing 3.3 million tonnes of CO₂ annually.

These moves, while promising, must accelerate to truly offset declining fossil revenues.

TNB’s grid modernisation and renewable push will be crucial for Malaysia’s clean energy future.

TNB, as Malaysia’s largest power utility, has committed to reaching net-zero emissions by 2050.

Its Energy Transition Plan includes boosting renewable generation capacity, expanding grid infrastructure, and scaling battery energy storage systems to ensure grid reliability as variable renewables grow.

TNB is also playing a role in advancing the ASEAN Power Grid, which could transform Malaysia into a regional hub for clean energy trade.

From competition to collaboration

The answer cannot lie with any single company. The transition is too big.

This is not about competition but collaboration – Malaysia’s energy giants must move together as one.

Together, PETRONAS and TNB can form the backbone of Malaysia’s low-carbon transition. PETRONAS can supply clean fuels such as hydrogen and ammonia, while TNB builds the transmission backbone and ensures a resilient grid.

By working in concert, these two giants can drive Malaysia’s transition from fossil dependence to a diversified, secure, and sustainable energy system.

These are not symbolic gestures. They show intent to pivot. But the scale gap remains vast: how quickly can new green revenues replace declining fossil rents?

The journey will be hard, and the risks immense. The future will require oil, gas, power, renewables, and utilities to work together as one ecosystem.

In an uncertain global future, collaboration is no longer a choice – it is a survival strategy.

Pathways to survival

Malaysia must act boldly – and fast. Four priorities stand out:

1. Build Fiscal Resilience – Establish a Malaysia Sustainable Energy Transition Fund, seeded with fossil revenues and green bonds, to mirror Norway’s sovereign wealth fund. Without buffers, oil price shocks will destabilise budgets.

2. Expand Regional Integration – According to the IRENA Malaysia Energy Transition Outlook Report, an estimated US$4.8 billion in investments will be required for Malaysia’s national transmission grid between now and 2030.

Strengthening grid infrastructure is critical not only for accommodating higher shares of renewables, but also for enabling deeper integration with the ASEAN Power Grid and unlocking cross-border electricity trade opportunities.

3. Invest in New Baselines – Our recent study shows that nuclear power, especially SMRs, can provide affordable, low-carbon baseload electricity.

When paired with renewables and storage, nuclear can enhance grid reliability, reduce import dependence, and form the cornerstone of a cost-effective pathway to net zero.

Also, according to the International Renewable Energy Agency (IRENA), Malaysia will need to double its investments in renewable power capacity, infrastructure and energy efficiency to at least US$375 billion in order to achieve its renewable energy capacity target of 70 per cent by 2050.

4. Accelerate PETRONAS’ Transformation – PETRONAS and Malaysia’s other energy champions must be empowered, and pressured, to scale hydrogen, green energies, and CCS.

Their survival is not just corporate; it is a matter of national security and fiscal stability.

The defining question

The global energy transition is not a distant horizon – it is here. Trade policies, shifting demand, and technological disruption are already reshaping markets. For Malaysia, the stakes could not be higher.

Readiness is everything. Malaysia cannot afford to wait until markets close before building buffers.

We can either cling to fossil dependence, watching revenues dwindle and competitiveness erode, or we can seize this moment to lead in hydrogen, renewables, nuclear, and cross-border energy trade.

The defining question is simple:

When 2050 arrives, will Malaysia look back with pride at having acted in time, or with regret for failing to lead?

-- BERNAMA

Dr Nora Yusma Mohamed Yusoff is the Director of the Institute of Energy Policy and Research (IEPRe), Universiti Tenaga Nasional.