*4.2. Financial Conditions*

Carbon trading projects in Malaysia have shown a downturn since 2015 [14]. Project developers have shown less interest and confidence in this project's implementation. According to the MNRE Consultancy Report [14], the issues hampering the continuity is that there has been a lack of demand but an increase in the CER supply. The findings identified that the "low confidence level and uncertainty of the carbon market" has contributed to the growth of financial flows and resources. There is also a low commitment to further investment to continue the current depressed market situation. Nevertheless, the challenge must be met in order to persist with Malaysia's pledge to voluntarily reduce its emissions by up to 45% by 2030.

For the palm oil companies, one of the barriers to investing in carbon trading projects is the high costs of CER consultation and verification. The weakening of the local currency (consultancy and verification fees are generally quoted in €), paired with the drop in CER value, has made CDM projects a costly endeavor (Company B, 2018).

Furthermore, as highlighted by representatives of Companies E and F, the challenge in the current carbon trading implementation, specifically in the Malaysian palm oil industry, concerns the registration and certification costs. For palm oil producers, GHG reduction projects are implemented to reduce the overall carbon footprint of the palm oil production itself. Hence, the trading of any carbon credits defeats this purpose (from a carbon accounting position) unless it has exceeded sustainability targets (Company F, 2018).

As mentioned, Malaysia has benefited from the investment in GHG emissions reduction projects through the ratification in the UNFCCC. As the representative from Company B (2018) pointed out, " ... investment in renewable energy is costly and political support for the adoption of renewable energy has been inconsistent and unfair." When the regulators removed the subsidies, the carbon market's inconsistencies caused the carbon prices to fluctuate [14] and affected the demand for carbon. Therefore, CDM projects can only earn the return on investment (ROI) by continuance to invest in the longer term despite focusing on the uncertainties on the mechanism and other new mechanisms.

The representative from Company C (2017) argued that there was a "lack of financial investment primarily influenced by demand and supply ... and low-prices due to low-demand." As mentioned by [31], there was a drop in CDM prices because, after Kyoto, the markets were demanding fewer credits and the financial crisis caused problems. The issues of concern are that "difficulty of CER sales are higher in consultancy" generate an additional cost for the project developers. As pointed out by [36], the cost is related to the environmental projects' formalization and validation, the monitoring process and the implementation verification process. However, costing and CER sales are dependent on the size of the project and requires a huge investment of the project development. Companies A, C, E, and G disagree on the "difficulty of CER sales and higher consultancy costs" because the credits received met their expectations and satisfied the financial additionality criteria of CDM.

The financial benefits from the sale of carbon credits have been viewed as being potentially positive and economically profitable. Therefore, environmental practices create advantages for palm oil companies to benefit from emissions reduction and reduced energy intensity or by switching to relatively cheaper fuels as part of the operational costs.

### *4.3. Green Resources and Capabilities*

In Malaysia, many options under green technology projects could create significant co-benefits in this country. The strategies are able to address local and regional environmental problems and advance social goals [37]. For developing countries that might otherwise give priority to their immediate economic and environmental needs, the prospect of significant additional benefits should provide a strong inducement to participate in carbon trading projects.

In this study, the terms of green resources and capabilities have been identified as being able to minimize energy and resource dependence and to make economic trends more sustainable with resource-efficient manufacturing [38]. In order to meet the growing demand for palm oil in the future, the palm oil producers must co-exist with new skills development and green resources to move towards sustainability.

In theory, irrespective of the allocation of the rights to trade in the carbon market, Malaysia benefits from a transaction that is designed to contribute towards sustainable development. Similar to other foreign investments, the RE projects in Malaysia could promote technology transfer and the adoption of similar strategies and policies for emissions reduction planning. In contrast, green resources and capabilities do not support the "lack of green resources in green technology" and "need new technical skills."

From the findings, the representative from Company C (2017) stated that "The carbon trading project presents an opportunity for channelling of resources towards projects that are most likely to be accessed for further national sustainable development." In addition, new skills development is needed to move forward towards sustainability as one of the emerging knowledge and new skills (Company A, 2018). The analysis suggests that, if the managemen<sup>t</sup> systems and skills development are not well developed, the external pressures on sustainability issues will be relatively weak and unresponsive [33]. Thus, responding to sustainability-related projects, such as carbon trading, limits a company's ability to move forward.

Consistent with the findings in this study, carbon trading promotes green resources and capabilities, which were significant in the previous study by [39]. One of the CDM objectives was to promote green technology and increase local skills and equipment content [39]. Carbon trading can also

provide employment, new knowledge skills and business opportunities in less developed countries (Company B, 2018).

There are high expectations amongs<sup>t</sup> palm oil producers in Malaysia due to the potential of carbon trading to deliver sustainable benefits and its ability to attract foreign investments, technology transfer, and possible contributions to poverty alleviation [40]. With initiatives in energy sectors and bioenergy production, the palm oil carbon emission projects' activities have already produced the benefits of sound progress that can contribute to sustainable development. Carbon trading projects can lower the cost of compliance with the emissions reduction initiative projects for developed countries.

### *4.4. Sustainability in the Palm Oil Industry*

The primary purpose of carbon trading is to reduce overall global carbon emissions. The concept behind carbon trading is simple: if total global emissions are reduced, it does not matter from which country or organization the reduction comes. Thus, this concept will benefit developed nations and organizations by enabling them to purchase CER to meet their NDC targets (Company B, 2018).

Based on the findings for the sustainable development's positive impact, it is shown that six of the seven palm oil companies have stated a positive sustainable impact. The representative from Company C argued (2017), "In certain countries, there has been criticism that carbon trading does not promote sustainable development because the activities act as an enabler for developed countries to maintain and increase their emission levels as long as they have the means to pay in order to meet their set targets."

Furthermore, despite the issues associated with carbon trading in the palm oil industry, sustainable palm oil's evolution [41] in Malaysia should be perceived as being more e ffect in contributing ideas to more sustainable reductions in carbon emissions. However, in relation to Malaysia's economic growth, it can be concluded that the growth of new palm oil estates in the tropical rainforest will soon no longer be achievable [9].

In the mitigation's development process, it is vital to consider the quality of the environment. In practice, there exists a significant strain between financial and environmental targets in fulfilling the carbon emissions projects. An ethical concern faced in this industry is that the production of palm oil affects the environment, wildlife, and native communities. Despite the arguments about sustainability issues concerning carbon trading, Malaysia has established policies related to sustainability that ensure economic development and ecological biodiversity. By considering an alternative approach and supplying the economic and technological undertakings, numerous issues could be removed [5]. Additionally, the resources that are already on-going are more advanced and are using technologies with good practices; however, the resources need to be scaled up and used in other appropriate ways [42].

The SDGs are influential, long-term prospects that can provide the direction and unlimited framework for businesses driven towards sustainability to release their powers of transforming and developing solutions for the world. In short, the SDGs are driving businesses to become an even stronger force for good. A recent report by [43] has compared the potential of implementing carbon trading projects and has asserted that most companies are defined by carbon reduction benefits, as well as the social benefits that are associated with the palm oil sector. As discussed, sustainable development benefits the reduction of air and water pollution through the minimized usage of fossil fuel, as well as extending to improving water availability, reducing soil erosion, and the protection of biodiversity. From the perspective of social benefits, many projects would result in employment opportunities in the di fferent regions or income groups that are targeted and would result in local energy self-reliance promotion. The goals of carbon reduction and sustainable development can, therefore, be pursued on a long-term basis.

Carbon trading projects also have an impact on funding channels in achieving economic, social, environmental, and sustainable development targets, including clean water and atmosphere, that sit alongside social development, such as growth in rural areas, creation of job opportunities, alleviation of poverty, and often reduce the reliance on the use of imported fossil fuels [44]. Alongside green investment opportunities in developing nations, the voluntary carbon trading projects in the palm oil industry also improve climate and future developments, as well as environmental issues within local areas. The prospect of such benefits ought to provide a strong inducement for developing countries that are anxious about immediate economic and social development to engage in palm oil carbon emissions and sustainable future projects.

### **5. Limitations and Future Research**

This paper acknowledges that there are limitations to this study as it focuses only on palm oil producers in Malaysia and the findings illustrate the challenges and sustainable development impact within the palm oil industry. However, these findings are important in determining how palm oil producers will enhance the strategies and future policies in this field. In another context, the alternatives in carbon trading project implementation should be implemented locally and lead to the improvement in future carbon emissions projects.

The second limitation pertains to palm oil producers in the country which have conventionally struggled to come to terms with the ban on biofuels produced using palm oil as well as the deforestation ban phenomena which began in the early part of 2018. For this reason, the number of participants was limited, and the majority of producers rejected the invitation of the interview. Moreover, earlier on in 2019, the trade war that broke out with palm oil producers curtailed the producers' ability for participation. Furthermore, the involvement in this study was both subjective and voluntary; for this reason, it is di fficult to reach the subject matter expert in carbon trading and CDM.

It is necessary to broaden the scope of this study to encompass other divergent viewpoints, including economic dimensions, stakeholders' perspectives, international relations, social responsibility, as well as competitiveness in future research. Finding novelty in other perspectives and industries could also help improve the level of understanding and be in alignment with aspirations relating to Malaysia's SDGs. This approach could also be used for a quantitative method or mixed methods in future order to gather detail for future studies. Furthermore, studies in the future must undertake research on the energy industry, which could turn out to be one of the most promising sectors to enforce carbon trading as well as contributing toward sustainable development.

Malaysia has been proactive in accelerating the adoption of the 2030 Agenda and SDGs nationally. The country began preparing for the SDGs since 2014 in order to incorporate the SDGs into the national planning framework with a view to reduce the emissions target by 2030. The CDM or carbon trading was the tool that was used previously. Currently, there is no encouragemen<sup>t</sup> to continue with the projects and it is just business-as-usual. Through the implementation of carbon trading, Malaysia can maintain its flexibility in adjusting and realigning strategies based on the achievements, challenges, and lessons learned during the previous phase, while also assessing emerging trends and circumstances that may a ffect the desired development outcomes [43]. It also provides an opportunity for feedback and greater participation from various stakeholders as they gradually align themselves with the 2030 Agenda as well as the SDGs.

However, the research work for future studies would yield better results with an evaluation and examination of the study model in other industries so that comparisons can be made with the existing research work. Hence, value would be added concerning the insight to find the appropriate enforcement regulations in carbon trading, as well as the completion level and market demand for the local market with carbon trading implementation.
