Environmental Laws
In promoting sound and sustainable development for environment preservation in Malaysia, the Malaysian Government has established legal and institutional frameworks to ensure that environmental factors are considered at the early stages of project planning. Legal and institution arrangements for environmental protection fall under the purview of the Malaysian Department of Environment (“DOE“) which is under the jurisdiction of the Ministry of Natural Resources and Environmental Sustainability (“MNRES”).
In Malaysia, the legal framework for environmental protection, preservation and conservation is established by the Environmental Quality Act 1974 (“EQA”) and the environmental orders, rules and regulations issued by MNRES in accordance with the powers conferred on the Minister under the EQA.
Activities falling within the scope of the EQA will require various approvals, permissions and/or licences from the Director General of Environmental Quality prior to the implementation of the activities which includes, but are not limited to, the following:
- approval of environmental impact assessment (“EIA“) reports – under Section 34A of the EQA (for prescribed activities);
- site suitability evaluation (for non-prescribed activities);
- written permission to construct – under Section 19 of the EQA (for prescribed premises and prescribed conveyances); and
- licence to use and occupy prescribed premises and prescribed conveyances – under Section 18 of the EQA.
Environmental Impact Assessment for Prescribed Activities
Section 34A of the EQA provides that an EIA is required for activities prescribed under the Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 2015 (“Prescribed Activities Order 2015”). Activities which are not subject to mandatory EIA requirements are nevertheless subject to other various regulations under the EQA.
The EIA is conducted with the aim of achieving the following objectives:
- to examine and select the best project options available;
- to identify and incorporate into the project plan appropriate abatement and mitigating measures;
- to predict significant residual environmental impacts;
- to determine/predict the amount of residual environmental impacts; and
- to identify the environmental costs and benefits of a particular project to the community.
Prescribed Activities
Investors intending to carry out any prescribed activities must necessarily conduct an EIA study and submit an EIA report to the Director General of Environmental Quality for approval prior to attaining the approval of the relevant Federal or State Government authority for the implementation of the prescribed activity.
The list of prescribed activities can be found under the First and Second Schedules of the Prescribed Activities Order 2015.
Depending on the type of prescribed activity, the EIA report will also be required for public display and public comment at a place and within the time determined by the Director General of Environmental Quality for the purpose of obtaining public comment in relation to such EIA report.
EIA Study and Report
An EIA study has to be conducted by competent individuals who are registered with the DOE under the EIA Consultant Registration Scheme. The DOE will reject EIA reports which are conducted by individuals who are not registered with the DOE.
The DOE also requires that a detailed environmental impact assessment (“DEIA“) be conducted for certain activities, which include the following:
- iron and steel industry;
- pulp and paper mills;
- cement plant;
- construction of coal-fired power plant;
- construction of dams for water supply and hydroelectric power schemes;
- land reclamation;
- incineration plant for schedule wastes and solid wastes; and
- construction of municipal solid wastes landfill facility.
Notwithstanding the list of activities prescribed by the DOE which requires a DEIA, the Director General of Environmental Quality has the prerogative to request a detailed assessment of a project which has significant impacts to the environment or projects which are located in or adjacent to environmentally sensitive areas.
The DOE may from time to time issue EIA guidelines for specific activities and/or pollution management, including guidelines on :
- air management (eg. control of air pollution and noise, emission control from vehicles, open burning);
- water & marine management (eg. river water / marine water / groundwater monitoring, oil spill contingencies);
- hazardous substances management (eg. management of scheduled waste, import / export of waste, contaminated land management and control); and
- conducting EIA.
Site Suitability Evaluation for Non-Prescribed Activities
Where potential sites for the establishment of new activities are not subject to the Prescribed Activities Order 2015, investors are advised to refer to the DOE for consideration and advice on site suitability for the proposed project.
In considering the site suitability, the DOE will take into account the gazetted structure/local plans, surrounding land use, provision of setbacks or buffer zones, the capacity of the area to receive additional pollution load, and waste disposal requirements.
For potentially hazardous type of activities, the project proponent may be required to submit a risk assessment study to the DOE as part of the site consideration, in accordance with the EIA Guidelines for Risk Assessment 2004, as published by the DOE.
Written Permission
Any person intending to carry out any of the activities listed below is required to obtain prior written permission from the Director General of Environmental Quality:
- construction on any land or any building; or carrying out works that would cause the land or building to become prescribed premises; or
- carrying out any work on any vehicle or ship, or premises that would cause the vehicle or ship or premises to become a prescribed conveyance or prescribed premises,
as stipulated under Section 19 of the EQA.
Licence to Occupy Prescribed Premises and Prescribed Conveyances
A licence is required to occupy and operate prescribed premises as below:
- crude palm oil mills;
- raw natural rubber processing mills; and
- treatment and disposal facilities of scheduled wastes.
An application for a licence shall only be made after obtaining written permission under Section 19 of the EQA. Licensing fees are charged for every licence issued for palm oil, raw natural rubber processing mills and facilities for treatment and disposal of schedule waste, and prescribed conveyances.
Similarly, a licence is also required to use prescribed conveyances. Prescribed conveyances are prescribed by the Environmental Quality (Prescribed Conveyance) (Scheduled Wastes) Order 2005 as any vehicle or ship of any description which are:
- propelled by a mechanism contained within itself;
- constructed or adapted to be used on land or water; and
- used for the movement, transfer, placement or deposit of scheduled wastes.
Environmental Requirements on Scheduled Wastes
Section 34B of the EQA states that the DOE’s prior written approval is required for a person to place, deposit or dispose of scheduled wastes, except at prescribed premises approved by the DOE. Any person who contravenes this section shall be punishable with imprisonment for a term not exceeding 5 years and shall also be liable to a fine not exceeding RM500,000.
The list of scheduled wastes can be found in the First Schedule of the Environmental Quality (Schedules Wastes) Regulations 2005.
Every waste generator shall, within 30 days from the date of generation of scheduled wastes, notify the Director General of Environmental Quality of the new categories and quantities of scheduled wastes which are generated.
Land farming, incineration, disposal and off-site facilities for recovery, storage and treatment can only be carried out at prescribed premises licensed by the DOE.
Non-Compliance with the EQA
Investors should be aware of possible two-fold consequences when they infringe provisions of the EQA. A wrongdoer who infringes provision(s) of the EQA may be held liable not only for his breach but also for the non-compliance of the notice to remedy such committed breach.
For example, where a person breaches Section 31(1) and (2) of the EQA (Order to require owner or occupier to install, operate, repair etc.) and fails to remedy the breach within a certain period, Section 31(3) EQA states that the offender shall be guilty of an offence and liable to a fine not exceeding RM25,000 and/or imprisonment for a period not exceeding 2 years. In addition, the offender shall pay a further fine of RM1,000 per day so long as the offence continues.
Section 41 of the EQA states that the general penalty for breaches of provisions within the EQA shall result in a fine not exceeding RM10,000 and/or imprisonment for a period not exceeding 2 years.
Section 43 of the EQA states that breaches of provisions of the EQA or any of its Regulations committed by a company, the director, officer or individual(s) acting in such capacity shall be deemed to be guilty of that offence unless he or she is able to prove that the offence was committed without his consent. If found guilty, the director will not only be subject to a penalty in the form of a fine but possibly to imprisonment for such contravention of the EQA.
Energy Efficiency and Conservation Act 2024
The Energy Efficiency and Conservation Act 2024 (“EECA“) was passed by the Malaysian Parliament and is in force from 1 January 2025. The EECA represents a significant milestone in Malaysia’s environmental and energy regulatory framework, replacing what had previously been a piecemeal approach to energy efficiency regulation with a comprehensive, standalone statute.
The EECA was enacted to provide a legislative framework for the promotion of efficient and rational use of energy, and the conservation of energy, across all key economic sectors in Malaysia. Its policy objectives include reducing national energy consumption and intensity, promoting the widespread adoption of energy-efficient practices, lowering electricity costs for consumers, and supporting Malaysia’s commitments under international climate change agreements, including its nationally determined contributions under the Paris Agreement.
The EECA applies throughout Malaysia, covering both Peninsular Malaysia and the States of Sabah and Sarawak. The EECA applies to large energy consumers, specific buildings, and energy-using products, and supports the country’s environmental goals, including carbon neutrality by 2050. The EECA regulates three (3) principal categories of persons and activities: (i) large energy consumers whose energy usage meets specified consumption thresholds; (ii) persons in charge of buildings subject to energy intensity performance standards; and (iii) manufacturers, importers, and distributors of energy-using products. The EECA covers both electricity and thermal energy usage, thereby extending the regulatory scope beyond the previous framework which was limited to electricity consumption alone.
The Suruhanjaya Tenaga (Energy Commission) is responsible for overseeing the implementation of the EECA. Its functions include advising the Minister on energy efficiency policies, recommending laws and measures to promote energy efficiency, promoting private sector investments in energy efficiency, setting energy efficiency targets, and enforcing the regulations made under the EECA. The Energy Commission is also empowered to conduct studies, audits, and research, and to publish information and statistics related to energy efficiency.
Incentives for Environmental Management
With a view to encouraging investments into the environmental sector in Malaysia, various tax incentives have been allocated pursuant to the Promotion of Investments Act 1986 and the Income Tax Act 1967 for companies actively engaging in environmental management and green technology activities. The Malaysian Government has progressively enhanced and extended its green incentive framework, with the current regime centred on the Green Investment Tax Allowance (“GITA“) and the Green Income Tax Exemption (“GITE“), administered by the Malaysian Investment Development Authority (“MIDA“) in conjunction with the Malaysian Green Technology and Climate Change Corporation (“MGTC“).
GITA is available in several categories, with the notable ones include:
- GITA Projects
Companies undertaking qualifying green technology projects are eligible for an investment tax allowance of 100% of qualifying capital expenditure incurred on a green technology project. The allowance may be offset against up to 70% of statutory income in the relevant year of assessment, and any unutilised allowances may be carried forward until fully absorbed. Qualifying projects include those relating to renewable energy, energy efficiency, green buildings, green data centres, and waste management. GITA (Projects) was originally introduced with effect from the year of assessment 2013 and has been progressively extended through successive national Budgets. Investors should confirm the current qualifying period and applicable conditions with MIDA, as the terms of the incentive are subject to periodic review and extension. - GITA Assets
Companies that purchase qualifying green technology assets listed under the MyHIJAU Directory are eligible for an investment tax allowance of 100% of qualifying capital expenditure incurred on such assets. The allowance may similarly be offset against up to 70% of statutory income and carried forward until fully absorbed. Applications for GITA (Assets) are submitted to MGTC for verification that the asset falls within the approved green technology categories.
GITE is available to companies providing qualifying green technology services. Eligible companies may enjoy an income tax exemption of 100% of statutory income derived from the provision of such services. GITE was originally introduced from the year of assessment 2013 and, like GITA, has been extended through successive Budget announcements. Qualifying green technology services are those verified by MGTC as falling within the approved categories, which may include solar leasing, energy management, and other green technology service activities. The current qualifying period and any applicable conditions should be verified with MIDA and MGTC.
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