Development of Sustainable 

PE Research Sdn Bhd

Finance Plan for Central Forest 11 October 2022
Spine (CFS) Landscape in the 
State of Pahang, Malaysia PE Research
P lan ning & E cono mi c C onsult ants 1
 Purpose of the Meeting

Purpose of the meeting

(1) To present the key findings in the Sustainable Finance Plan (SFP) for the Central
Forest Spine (CFS) Landscape Management in Pahang; and

(2) To discuss specific recommendations for the way forward.

 Agenda of the Meeting

INTRODUCTION
I

SFP FOR CFS OF PAHANG:

II

• CFS LANDSCAPE

• ECONOMICS, FINANCE AND PIL ASPECTS OF THE PLAN

RECOMMENDATIONS AND THE WAY FORWARD

III
 Agenda of the Meeting

INTRODUCTION
I

SFP FOR CFS OF PAHANG:

II

• CFS LANDSCAPE

• ECONOMICS, FINANCE AND PIL ASPECTS OF THE PLAN

RECOMMENDATIONS AND THE WAY FORWARD

III
 Objective, Components, Outcomes and Output of the IC-CFS Project

• This project is funded

by UNDP Malaysia &
GEF.

• Implemented by the
Forestry Department
Peninsular Malaysia in
collaboration with a
number of federal
agencies & the State
Governments of Perak,
Pahang & Johor.

5
 Main Topics of the IC-CFS SFP

1 2
Develop a comprehensive list of financing
options & establish possible revenue
Identify financing sources, assess the
streams, identifying various financing
feasibility & magnitudes of potential
sources including current resource-based
contributions from state & non-state actors
economic activity & markets surrounding
the landscape

3 4

Develop strategies to encourage new or Develop various types of financial models

increased financial contribution for to raise capital towards conservation of
conservation of biodiversity and biodiversity & sustainable landscape
sustainable landscape in the CFS development in the CFS landscape in
landscape in Pahang Pahang

6
 Three Important Conclusions

Existing sources of
Biodiversity conservation financing Sources of
conservation in the are too few in numbers, conservation financing
CFS currently lack diversity & are not do exist and could
experiences a fully enabled within an generate more than the
large fiscal gap to appropriate policy & fiscal resources
achieve the legal framework. needed to achieve
intended purposes Simultaneously, existing conservation in the
expressed in the sources of funding CFS if properly
CFS Master Plan. (mostly trust funds) designed & effectively
appear to have similar implemented.
funding objectives.

01 02 03
7
 Deliverables
Deliverable/Output Deadline Submission
1 Inception Report 15 September 2021 15 September 2021
2 a. First draft of Scoping Study Report 30 October 2021 30 October 2021
b. Monthly progress reports of tasks 1.1 – 1.5 in Section c: Scope
3 a. Final draft of Scoping Study Report 15 December 2021 30 December 2021
b. First draft of Sustainable Finance Plan for CFS Landscape in Pahang
c. Monthly progress reports of tasks 1.1 – 1.9

4 a. Second draft of Sustainable Finance Plan for CFS Landscape in Pahang 15 February 2022 31 March 2022
b. First draft of Capacity and Technical Needs Assessment Report
c. Monthly Progress Reports

5 a. First draft of training modules and capacity building programme 31 March 2022 15 May 2022
b. Final draft of Capacity and Technical Needs Assessment Report
c. Monthly Progress Reports

6 a. Final draft of Sustainable Finance Plan for CFS Landscape in Pahang 31 May 2022 18 July 2022
b. Final draft of training modules and capacity building programme
c. Monthly Progress Reports

7 a. Documentation of all deliverables 31 July 2022 October 30 2022

8
 Content of the Final Report

Part 1: Part 2: Part 3:

Sustainable Finance Scoping Study Policy, Institutional &
Plan for Central Report Legal Review of the
Forest Spine Selected Sustainable
Landscape in the Financing Options
State of Pahang

Part 4: Part 5: Part 6:

Capacity and Training Training Modules & Recommendations and
Needs Assessment Capacity Building Way Forward
Programme

9
 Scope of Work (per ToR)
No. Scope of Work Report / Chapter

1 Scoping Study on Sustainable Finance Solutions for CFS Conservation

1.1 Conduct literature review related to sustainable finance for integrated Part 2 – Scoping Study, Sections 2.1; 2.3. & 2.4;
landscape management (local, regional & international) Part 1 – SFP, Section 3.1
1.2 Provide an overview of the goods & services (water, carbon, biodiversity Part 2 - Scoping Study, Section 2.2
& ecotourism) & analyse the market trends & competition
1.3 Map out relevant actors & initiatives in the relevant CFS landscape Part 2 - Scoping Study, Section 3, and the list of actors
was refined as the Study progressed.
1.4 Undertake an assessment of policy, legal, institution & political framework Part 3: full PIL.
Part 2: Scoping Study discussed Preliminary PIL brief
Part 1: SFP, Section 6.
1.5 Develop the scoping study for landscape financing concept Part 2: Scoping Study, Section 5;
Part I : SFP, Section 3.2
1.6 Undertake a financial analysis that look into the needs & gaps terms of Part 2: Scoping Study, Section 6
income/revenue, costs, needs & expenses involved in managing the CFS
landscape in Pahang
1.7 Identify budget needs for current & future management activities to Part 2: Scoping Study, Section 6
achieve the objectives as stated in the Pahang’s Forest Management
Plan aligned with National CFS Master Plan
1.8 Identify potential cost effectiveness / cost reduction opportunities Part 2: Scoping Study, Section 7
1.9 Develop a suitable mechanism for disbursement of funds for CFS Part 1: SFP, Section 6
landscape in Pahang
10
 Scope of Work (per ToR)
No. Scope of Work
2 Sustainable Finance Plan for CFS Landscape in Pahang
2.1 Identify financing sources, assess the feasibility & magnitudes of potential
contributions from state and non-state actors
2.2 Develop a comprehensive list of financing options & establish possible
revenue stream to meet financial needs for the landscape
2.3 Develop strategies to encourage new or increased financial contribution
for conservation of biodiversity & sustainable landscape in the CFS
2.4 Develop various types of financial models to raise capital towards
conservation of biodiversity & sustainable landscape development in the
CFS landscape in Pahang
2.5 Prepare materials & present findings for stakeholder consultations &
meetings/workshops/conference as required
Report / Chapter
Part 1: SFP, Section 6
Part 1: SFP, Sections 4 & 5
Part 1: SFP – Sections 6.2; 6.3; 6.4; & 6.5
Part 1: SFP – Sections 6.2; 6.3; 6.4’ & 6.5
• Findings & outcomes of the stakeholders’
consultations have been covered in the
respective sections of the final SFP.
• Minutes of the meetings & progress of the study
are covered in the monthly progress reports
submitted periodically.
• A complete list of documentation will be
submitted once all the reports are finalized.
11
 Scope of Work (per ToR)
No. Scope of Work Report / Chapter
3 Capacity and Technical Needs Assessment, and Capacity Building Programme

3.1 Conduct capacity & technical needs assessment for the implementation of SFP Two workshops were conducted & the
findings are covered in Part 4 of the final
report
3.2 Develop appropriate training modules & capacity building programme Recommended training programmes are
covered in Part 5 of the final report
3.3 Prepare training materials Suggested training modules are presented in
power point materials & attached as Annexes
in the Training Modules report.
3.4 Facilitate the implementation of training modules and capacity building Scheduled on Oct 12 – 13, 2022
programme

12
 List of Site Visits, Meetings & Workshops Conducted
Site Visits/Meetings/Workshops Date
1 Kick off meeting with UNDP 8 Sep 2021
2 Kick off meeting between UNDP, JPN Pahang & JPSM 10 Sep 2021
3 JPSM Technical Workshop - methodology for the financing study & discussion on concepts 24 Sep 2021
4 Management meeting with JPSM and UNDP 18 Nov 2021
5 Meeting with Habitat Foundation - Introduction of the IC-CFS project 30 Nov 2021
6 Meeting with Malaysia Forest Fund - Introduction of the IC-CFS project 2 Dec 2021
7 Meeting with Pahang state government and GOPA - Introduction of the IC-CFS project 14 Dec 2021
8 Presentation to CFS Technical Committee - Dec 23, 2021 23 Dec 2021
9 Management meeting with JPSM and UNDP 10 Jan 2022
10 Meeting with the Treasury 3 Feb 2022
11 Capacity Building and Technical Need Assessment Workshop 10 Feb 2022
12 Discussion with EPU and JPSM - Introduce the SFP study & understand EPU’s role in financing. 16 Feb 2022

13 Meeting with Pahang State Government and leadership team 18 Feb 2022
14 Meeting with KeTSA - learning about EFT, NCTF and REDD+ 23 Feb 2022
15 Discussion with EPU and JPSM - present the scoping study report and SFP to JPSM 24 Feb 2022

13
 List of Site Visits, Meetings & Workshops Conducted

Site Visits/Meetings/Workshops Date

16 Meeting with Bursa Malaysia - Voluntary carbon market 8 Mar 2022
17 Meeting with Nature-Based Solution – NBS’s work in Terengganu 9 Mar 2022
18 Meeting with RSPO - Understand the RSPO biodiversity offset programme through RaCP 11 Mar 2022
19 SFP Workshop 22-23 Mar 2022
20 Meeting with Pahang stakeholders - short-listed options 23 Mar 2022
21 Discussion with JPSM - training modules for the Capacity Building Programme 13 Apr 2022
22 Discussion with JPSM - Capacity Building Training 21 Apr 2022
23 Management meeting with JPSM & UNDP 28 Apr 2022
24 Meeting with Pahang Forestry Department - SFP Presentation 24 May 2022
25 Site Visit to Bukit Bendera, Lubuk Yu & Sungai Yu 24 May 2022
26 Meeting with Lestari Capital - potential of establishing carbon/biodiversity projects in Pahang & 8 June 2022
recommendations
27 Business Opportunities for PES in Pahang Panel Discussion 14 June 2022
28 Management meeting with JPSM & UNDP 27 July 2022
29 Presentation of Final Report to JPSM 30 Aug 2022
30 Presentation of Final Report to NPD, Pahang state government, JPSM & JPN Pahang 11 Oct 2022
14
31 Training for JPSM, Jabatan Perhutanan Negeri 12-13 Oct 2022
 Agenda of the Meeting

INTRODUCTION
I

SFP FOR CFS OF PAHANG:

II

• CFS LANDSCAPE

• ECONOMICS, FINANCE AND PIL ASPECTS OF THE PLAN

RECOMMENDATIONS AND THE WAY FORWARD

III
 CFS Landscape (Peninsular Malaysia)

• The total CFS area is approximately 6.71 million hectares and

includes permanent reserved forests, state land forests, national
parks, wildlife reserves, agricultural land, and other land uses.
• Supplies 90% of the population’s water needs and harbors the
remaining population of Malayan tigers in its forests.
• CFS includes eight forest complexes spanning eight states and
58 districts:
1. Kedah Singgora (not located in Pahang);
2. Bintang Hijau (not located in Pahang);
3. Main Range (Banjaran Titiwangsa – partially located in Pahang);
4. Greater Taman Negara (partially located in Pahang);
5. Benom (fully located in Pahang);
6. Chini-Bera (fully located in Pahang);
7. Southeast Pahang (fully located in Pahang); and
8. Endau-Rompin-Sedili (partially located in Pahang)

• CFS also includes 37 primary ecological linkages (PL) and

secondary ecological linkages (SL) that connects the main
forest complexes with each other or forest blocks within a forest
complex.
Source: Regional Planning Division, Department of Town and Country Planning (JPBD) Pahang, n.d. 16
 Land Use in the State of Pahang (as of 2015)

Land Use Percentage • Main land use: built-up area, agriculture,

Area (ha)
Component (%) forests, uncultivated (open) land, water
bodies/rivers and roads.
Forests 2,056,677.40 57.18
• In 2015 forests were the primary land use
Agriculture 1,354,320.62 37.66
component covering approximately 2.06
Built-up area 110,640.54 3.08 million ha (57.18%) of the state of Pahang.
Water bodies /
46,770.37 1.30
rivers
Transportation
27,950.94 0.77
infrastructure
Beaches 225.13 0.01
Total area 3,596,585.00 100.00

17
Source: PLANMalaysia Department of Town and Country Planning (JPBD) Pahang, 2017.
 A Schematic of Land Use in Pahang

• CFS landscape with its

boundary shown in
dotted lines

• CFS area in Pahang amounts to 2.47 million ha and consists of the following types:
 174 PRF (1.43 million ha);
 State land forest (382,997 ha);
 Non-forest land use (e.g .agriculture, built-up areas, and
 CFS primary and secondary linkages (121,704 ha); and
 Other areas. 18
 CFS Areas in Pahang

• Pahang’s CFS (2.47 million ha) is 37% of

total CFS area Peninsular Malaysia (6.71
million ha)
• The CFS area in Pahang comprises 69% of
the total state area.
• 6 out of 8 forest complexes in the total CFS
area are fully or partially located in Pahang.
• 9 Ecological Linkages: 6 Primary Linkages
(PLs) and 3 Secondary Linkages (SLs).

Source: PLANMalaysia Department of Town and Country Planning (JPBD), 2021a. 19

 Forest Ecosystem Goods and Services and Human-well Being
Provisioning Services
• Food products
• Water
• Materials (wood, jute,
hemp, silk, etc.)
• Fuel (wood, dung, etc.)
• Ornamental resources
• Medicines
• Genetic resources
• Soil formation
 
Basic material for life
 Livelihoods
 Food
 Shelter
Source: Millennium Economic Assessment, 2005.
Regulating Services
• Climate regulation
• Disease regulation
• Water flow regulation
• Air quality regulation
• Water purification
• Pollination
• Erosion control
• Storm protection
Supporting Services
• Nutrient recycling
Security Health
• Personal safety • Strength
• Access to resources • Feeling well
• Disaster protection • Access to clean air
Cultural Services
• Cultural diversity
• Spiritual component
• Religious component
• Educational function
• Aesthetic and scenic
contribution
• Recreational opportunities
• Primary production
Good social relations
• Social cohesion
• Mutual respect
• Ability to help
• Provisioning services -
Products obtained from forest
ecosystems
• Regulating services -
Benefits from the regulation of
ecosystem processes
• Cultural services - Non-
material benefits obtained from
ecosystems
• Supporting services -
Services necessary for the
production of all other
ecosystem services
20
 Ecosystem Services, Types of Benefits and Beneficiaries
Ecosystem Service
Water supply and quality
regulation
 
Flood control regulation
Habitat for biodiverse,
rare and endangered
species
 
Source: United Nations Development Programme (UNDP), 2017.
Types of Benefits Selected Beneficiaries
 Public and private revenues from water supply  Domestic and industrial water
 Avoided water shortage impacts and costs users
 Reduced costs of water treatment, dredging and de-silting  Water supply companies
 Savings on breakages and repairs to equipment  Irrigated agriculture and
 Maintenance of dam and reservoir lifetime and productive  plantations
capacity  Mining operators
 Hydropower facilities
 Avoided damages to agriculture and infrastructure  Settlements
 Avoided costs of displace human population  Infrastructure
 Avoided clean-up and remediation costs  Agriculture and plantations
 Private and public revenues in primary and secondary tourism  Tourists and recreational visitors
and recreation industries  Tourism service industry
 Employment in primary and secondary industries  International community
 Value-addition in tertiary sectors
 Tourist visitor values
 Donations and other contributions to conservation
21
 Ecosystem Services, Types of Benefits and Beneficiaries

Ecosystem Service Types of Economic Values Selected Beneficiaries

Recreation and tourism
 Private and public revenues in primary and secondary tourism  Tourists and recreational visitors
and recreation industries  Tourism service industry
 Employment in primary and secondary industries
 Value-addition in tertiary sectors
 Tourist visitor values

Scientific and research
 Public and private research income  Global and domestic research
 Revenues from bioprospecting patents, licenses and fees institutions
 Earnings from product development and sale  Bioprospecting companies
 Cost savings through new products and technologies  Pharmaceutical, cosmetic, food
and industrial product
development companies

Global climate/carbon  Avoided costs of climate change and variability  Local, national, and global
sink  Mitigation value of carbon sink community
 Carbon trading-related earnings and revenues

Source: United Nations Development Programme (UNDP), 2017.

22
 Ecosystem Services, Types of Benefits and Beneficiaries

Ecosystem Service Types of Economic Values Selected Beneficiaries

Local microclimate  Value of enhanced productivity and production opportunities  Agricultural producers
 Costs avoided of dealing with temperature extremes  Forest-adjacent residents

Timber products  Local earnings and expenditures saved

 Private and public revenues in harvesting, processing and
marketing industries
 Value-addition in tertiary sectors  Forest-adjacent and small-scale
 Employment in primary and harvesting, processing and local users
marketing industries  Forest concessionaires
 Export and foreign exchange earnings from forest product  Sawmilling and wood processing
trade industry
 Wood products, pulp and paper
manufacturing industry
Non-timber forest  Forest-adjacent and small-scale local users
products  Harvesting and processing industries

Source: United Nations Development Programme (UNDP), 2017.

23
 Ecosystem Services, Types of Benefits and Beneficiaries

Overall message

The CFS provides a large number of goods and services to local communities, the State
of Pahang, Peninsular Malaysia, Malaysia, and the world.

Important implication

If conservation of the CFS would be left to Pahang alone, Pahang would account for its
own costs and for its own benefits. Pahang would not account for the benefits of
conservation to other states of Malaysia, and benefits to the world.
As a consequence, Pahang would under-invest in conservation.

24
 Economically Optimal Level of Conservation for Pahang’s CFS

• The marginal cost of conservation is a measure

of the cost of conserving an additional hectare of
the CFS in Pahang & the cost occurs in Pahang
• The marginal benefit is a measure of the total
benefit of conserving an additional hectare of the
CFS
• Insofar as Malaysia is concerned, Cm would be
the optimal number of hectares of the CFS to
conserve
• From a global perspective, Cw would be the
optimal number of hectares to conserve.

Conclusions:
• Left on its own, Pahang will under-invest in
conservation of the CFS in Pahang
Cp: Optimal level of conservation if accounting only for benefits to Pahang. • Achieving Cm or Cw requires support from the federal
Cm: Optimal level of conservation if accounting for benefits to Malaysia in addition to government and the international community
benefits to Pahang but not accounting for global conservation benefits. respectively
Cw: Optimal level of conservation if accounting for global benefits in addition to benefits to
Malaysia.
25
 Economic and Financial Values

Economic and financial values

The ecosystem’s goods and services have a financial value defined as their contribution
to Pahang’s financial situation.

The ecosystem’s goods and services also have an economic value defined as their
contribution to society’s welfare or well-being.

Financial values and economic values both use $$ as unit of measurement. But they have
completely different meaning.

26
 Estimated Economic Value of the CFS in Pahang

Ideally
Economists have developed various methodologies to estimate various types of
economic values. These methodologies have been used all around the world to
estimate economic values of different types of ecosystems.

The ToR for this study did not request original estimates of economic values specific to
Pahang CFS.

Alternative: Benefit-transfer methodology

Use estimates from other studies – hopefully from same type of ecosystem and country
– and apply these values to the sites of interest.
In Malaysia, the most recent of economic valuation studies were undertaken under the
Biodiversity & Protected Area Finance Project on The Economics of Ecosystems and
Biodiversity of Terrestrial Protected Areas in Peninsular Malaysia implemented in 2020-
2021.
27
 Estimated Economic Value of the CFS in Pahang

Total Economic Value of Selected National Parks of Total Economic Value of Selected National Parks of
Peninsular Malaysia (RM millions per year) Peninsular Malaysia (RM per ha per year)

Endau- Royal Taman

Endau- Average
Royal Belum Taman Negara Rompin Belum Negara
Rompin (RM per
(RM millions (RM millions (RM per (RM per
(RM millions (RM per ha ha per
per year) per year) ha per ha per
per year) per year) year)
year) year)
Non-timber forest Non-timber forest
1 9 5 11.5 76.6 11.5 33.2
products products
Water purification 3 8 28 Water purification 34.5 68.1 64.5 55.7
Tourism 2 17 43 Tourism 23.0 144.7 99.0 88.9
Flood regulation 26 72 73 Flood regulation 298.9 612.8 168.1 359.9
Biodiversity Biodiversity
71 86 92 816.1 731.9 211.8 586.6
conservation conservation
Forest Forest
91 121 397 1,046.0 1,029.8 914.1 996.6
conservation conservation
Carbon 232 219 1,066 Carbon 2,666.7 1,863.8 2,454.5 2,328.3
Total 426 532 1,704 Total 4,896.6 4,527.7 3,923.6 4,449.3

28
 Estimated Economic Value of the CFS in Pahang

If we apply these values to Pahang CFS, we obtain the following estimated economic values:

Economic Value of Pahang’s Central Spine Forest (RM per year)

• The economic value of
Minimum Maximum Average %
(RM per year) (RM per year) (RM per year) Contribution Pahang’s CFS is estimated
to range between RM5.8
Non-timber forest
products
20,839,046 138,867,855 60,193,178 0.75 and RM9.8 billion on an
Water purification 62,517,138 123,438,094 100,947,328 1.25 annual basis, with an
average value of RM8.1
Tourism 41,678,092 262,305,949 161,162,898 1.99
billion.
Flood regulation 304,740,458 1,110,942,843 652,499,499 8.09
Biodiversity • A little more than 50%
384,056,468 1,479,572,264 1,063,529,413 13.18
conservation would pertain to the carbon
Forest sequestration services
1,657,287,149 1,896,353,184 1,806,880,500 22.40
conservation
provided by the CFS.
Carbon 3,379,117,813 4,834,658,667 4,221,274,025 52.33
Total 5,850,236,164 9,846,138,855 8,066,486,840 100 • Additional 13% is derived
from biodiversity
conservation.

29
 Government Revenue Structure for State of Pahang

Main components of Pahang’s revenue sources: 2018 to 2020

2018 2019 2020 The State of Pahang has

 Sources of revenue  also increased its
RM mil. % RM mil. % RM mil. %
revenue from land-based,
Forest-related 103.9 16% 94.8 11% 165.1 22% forestry-related, and
mining-related resources
Water-related 2.8 0% 2.7 0% 2.3 0% between 2018 and 2020.
Minerals-mining 58.5 9% 61.5 7% 77.5 10%

National park-related 0.5 0% 8.4 1% 8.4 1%

Land-related 169.8 26% 190.5 22% 322.9 43%

Resource-based 335 51% 357.9 41% 576.3 76%

Total Pahang revenues 647.5   847.3   744.0  

Note: 2020 budget is an estimate, whereas the 2018 and 2019 are actual expenditures
Source: Pejabat Kewangan dan Perbendaharaan Negeri Pahang Darul Makmur, 2019; Pejabat Kewangan dan Perbendaharaan Negeri Pahang Darul Makmur,
2021

30
 Benefit to Pahang: Revenues from Forestry in 2020

Forestry-related Sources of Revenue, 2020 (estimate)

Forestry Revenue Components 2020 (RM mil.) • Forestry-related revenues are the
closest in terms of relationship to
Premiums 79.0 current revenues from the CFS to
Royalties 43.8 the Pahang state government.

Other Forest Revenues 14.9 • The 2020 forestry contribution to

Pahang’s finances is RM165 million.
Total Revenues 137.8
• If the CFS is to be maintained at
Forestry Cess 27.6 optimal condition, the state’s
Total Forest-related Revenues 165.1 logging rate may have to be scaled
Source: Pejabat Kewangan dan Perbendaharaan Negeri Pahang Darul Makmur, 2020 back.
• The state government may seek
some form of payment for its loss
of revenue and royalties from forest
and land-based activities.

31
 Estimating Resources Gaps

• The CFS Master Plan estimated a resource needs of RM3.1 billion. It is important that
this is an estimate of the required capital investment.
• In addition to the capital investment, there is also annual operational cost.

• Based on international experience with the management of conservation areas, the

following resource needs were assumed:

Resource item Estimates

Staff per 1,000 km2 of the CFS 196
Operational budget per km2 of the CFS 1,500 USD

• We apply these numbers to the CFS, including the linkages to get a first-order
estimate of the resource needs and gaps.

32
 Estimating Resources Gaps

Required and Current Estimates of Staffing and Operational Budget

for Conservation in Pahang
  Required Estimates Current Estimates

Staffing 4,840 staffs 1,800 staffs

(250 staffs for primary and secondary linkages)
Operational Budget RM155 million RM45 million
(RM8 million for primary and secondary linkages)

33
 Agenda of the Meeting

INTRODUCTION
I

SFP FOR CFS OF PAHANG:

II

• CFS LANDSCAPE

• ECONOMICS, FINANCE AND PIL ASPECTS OF THE PLAN

RECOMMENDATIONS AND THE WAY FORWARD

III

01 02
Diversify sources of
financing
• A diversified strategy for
conservation financing is
necessary so that if one
source of funding under-
performs or dries up,
alternative sources can
either make up for the
balance or even provide
more financing
Principles Underlying the Sustainable Financing Strategy
03 04 05
Identify new sources Optimize existing Incentivize states Cost efficient &
of financing mechanisms maximize outcomes
• New financing options • Make better use of • Incentivize states to • Making conservation
would involve taking current financing pursue conservation more cost efficient &
advantage of new mechanisms. strategies that are in-line maximize the
developments around • Many existing with federal policies conservation outcomes.
the world & in Malaysia conservation financing • As the CFS is a national • This element is most as
• This will focus on tools may be good strategy for conservation there are many agencies
attracting additional ideas, but are stand- it deserves to be better having jurisdiction in the
funds & investment to alone, e.g. NCTF but it funded. 125,000 ha of primary &
conservation projects & appears to be a one-off • In 2018, the Federal secondary linkages.
enable protection of donation by the Federal Government announced
critical habitats & Government with a EFT to incentivize states
sensitive ecosystems general appeal for other to comply with Federal
that are at risk parties to donate to this Government’s policy on
fund, that has so far not conservation & also
attracted anything climate change
35
 A Long List of Financing Options

A long list of financing sources for conservation financing, current, emerging and potential ones,
were identified.

3. Transfer /
1. Conventional 2. Conservation 4. Tourism-related
Compensation
Financing Sources Trust Funds Instruments
Options

5. Carbon-related 7. Private
6. Environmental / 8. Conventional
Financing Investments & NGO
Pollution Fees Displays
Mechanisms Funding Options

A workshop was held in Kuala Rompin from March 21-24, 2022 to discuss all instruments on the
long list. Workshop participants then defined a short list of potential financing options.
36
 A Short List of Financing Options

1. Ecological fiscal 2. Carbon tax 3. Entrance fees to 4. Hotel room

transfer recreational areas surcharge

5. Payment for 6. Biodiversity offsets 7. Voluntary carbon

ecosystem services market (VCM)

37
 A Short List of Financing Options

Federal Pahang
1. Ecological fiscal 2. Carbon tax 3. Entrance fees to 4. Hotel room
transfer recreational areas surcharge

5. Payment for 6. Biodiversity offsets 7. Voluntary carbon

ecosystem services market (VCM)

38
 A Short List of Financing Options

Hence, while developing SFP for the State of Pahang, we cannot ignore that the Federal
government has an important role to play to incentivize conservation at state level.

This leads to the development of an Overall Sustainable Financing Framework.

39
Overall Sustainable Financing
Framework

Existing Flow
It is very unlikely that existing site specific
revenues could generate enough revenues for
conservation.
Additional site specific revenue generation
mechanisms are necessary.
But some of these mechanisms may not apply to
all sites. And some sites may have very limited
potential to generate sufficient revenues to pay for
conservation.
Hence, federal government must be involved by
providing fiscal resources in support of
conservation.
For this purpose, a key mechanism is the existing
EFT. However, EFT flows into State consolidated
budget and is not earmarked specifically for
conservation.

40
Overall Sustainable Financing
Framework

Potential Flow

At site levels, there are a number of options

which can be used by the state. We need to
examine which of these options has more
potential for each and very site.
However, new large sources of fiscal
resources to pay for conservation are
available at the federal level.

41
 Short List at the Federal Level: Ecological Fiscal Transfer (EFT)

1. Ecological
Rationale for EFT:
fiscal transfer

 Compensation of expenses/supply costs for ecological public goods and services.

 Payment for opportunity costs.
 Payments for benefits provided to jurisdictions other than the jurisdiction undertaking the
investment.
 Fiscal equalization / distributive fairness.

42
 Short List at the Federal Level: Ecological Fiscal Transfer (EFT)

1. Ecological
Description:
fiscal transfer

 In 2022, the EFT allocation was raised to RM100 million up from RM60 million when it was
launched in 2019. EFT allocation (RM100 million) maintained in 2023 budget (Oct 2022).
 KeTSA is in charge of its distribution, and has drawn 6 criteria for which claims can be made.
 The EFT will be a reimbursement (claim back) method. EFT funds will be disbursed to the State
Financial Office, which will be responsible for managing its disbursements. Payments are made
on half-yearly basis.
 For Pahang, the annual EFT allocation is RM8 million (2022). Applications for multi-year
allocations is also entertained. Pahang must be positioned to take full advantage of the EFT to
raise the conservation level of the CFS.

43
 Short List at the Federal Level: Ecological Fiscal Transfer (EFT)

1. Ecological
PIL Indicates:
fiscal transfer

 Very positive development. But the EFT currently lacks legal foundation ( Act of Par.). It is
thus not considered long term, sustainable under TAHAP & FEDERAL CONSTITUTIONAL
provisions.
 As a result, the EFT is allocated on yearly basis, is variable and unpredictable, and may
change, from time to time, depending on government priorities.
 Lacks definition : reference to a mechanism/tool only but no rationale. Policy rationale/basis
is still insufficient.
 The EFT Guidelines by KeTSA is endorsed and published. However, ambiguities and clarity
on flow of monies and source of Authority remain.
 Is the EFT strategic ? Is it based on priorities? Can the Guidelines ensure these factors?

44
 Short List at the Federal Level: Carbon Tax

2. Carbon tax Description:

 Tax per ton of CO2 is included in the price of fuel based on fuel carbon content.
 EU is implementing programmes for carbon neutrality by 2050. A carbon border adjustment
mechanism (CBAM) will require all products entering EU to be carbon neutral.
 12th Malaysia Plan: (…) a feasibility study will be conducted on carbon pricing, such as carbon
tax and the Emissions Trading Scheme. The study will recommend the most suitable carbon
taxation system to incentivize the right behavioral changes..”

45
 Short List at the Federal Level: Carbon Tax

2. Carbon tax On the way:

46
 Short List at the Federal Level: Carbon Tax

2. Carbon tax Estimate:

Just looking at numbers in Malaysia

For example:
• Take Energy and Industrial
Processes

• Assume a carbon tax of RM30 per

ton applied to all emissions of
these 2 sectors.

• Approximately RM8 billion per

year
Source: Malaysia (2020). Third Biennal Update Report to the UNFCCC.
https://penanginstitute.org/publications/issues/a-proposal-for-carbon-price-and-rebate-cpr-in-malaysia/#:~:text=A%20carbon%2Dpricing%20s
cheme%20commencing,revenues%20over%20the%20next%20decade

47
 Short List at the Federal Level: Carbon Tax

2. Carbon tax On the way:

 Remains to be seen - the nature of tax, channeling of tax revenue/monies, distribution and
beneficiaries.
 It is up to the environment / conservation community to advocate and make the case for some of
the revenues generated from the forthcoming carbon tax to be earmarked in support of
conservation purposes.

48
 Short List at State Level: Entrance Fees to Protected Areas

3. Entrance fees to
recreational Description:
areas

 Well-entrenched principle that users of recreational and/or protected areas should pay a fee to
enjoy the benefit of the area and cover some of the area’s operational cost
 However, except for very iconic areas (e.g. Yellowstone in the US, or Kilimanjaro in Tanzania)
entrance fees never cover a large percentage of these costs.

 In Peninsular Malaysia, entrance fees (and activity fees) are particularly low.

 For example, entrance fees to Taman Negara was set up 80 years ago and have never been
revised to date.

 The decision to increase entrance fees for Taman Negara and other parks in Pahang has been
made but implementation set for January 2022 was put on hold because of the pandemic.

49
 Short List at State Level: Entrance Fees to Protected Areas

3. Entrance fees to
recreational Estimate:
areas

EXAMPLE OF DIFFERENT FEE STRUCTURE

RM30 for RM15

RM1 RM10 for
visitors for those
entrance 12 years
13-60 above 61
and below
fee years years

 Based on the 90,000 visitors to Taman Negara National Park before the pandemic, the revision of fees
could potentially raise RM2 million per year.
 There are 60 eco-parks in Pahang, and so the revenue potential from this source is high.

50
 Short List at State Level: Hotel Room Surcharges

4. Hotel room Description:

surcharges

Hotel notice (posted on hotel website):

Dear Guests,
Please be informed that the State of Pahang has
imposed a Sustainability Fee of RM 3.00 per room per
day to all hotel guests with effect from 1 March 2022;
in accordance to the Pahang Hotel Regulation
2021. This Sustainability Fee is to be collected by the
Hotel on behalf of the Government and it is not
included in the total room cost. 

51
 Short List at State Level: Hotel Room Surcharges

4. Hotel room Issues:

surcharges

 Same room surcharge of RM3 whether the market price of the room RM100/night or RM500/night.
 The uniform RM3 captures too much from those who cannot pay a lot and not enough from those
who can pay a lot more.
 This Sustainability Fee is not earmarked for conservation purposes but in support of the tourist
sector.

52
 Short List at State Level: Hotel Room Surcharges

4. Hotel room PIL findings

surcharges

 The 2020 Hotels (Pahang) Enactment came into force into 2021. The Enactment was passed in
Pahang for the purpose of regulating the operation of hotels through a licensing system.
 Repealed the ‘Pahang Boarding Houses Enactment 1929’ which previously regulated hotel
licensing. The 2020 Enactment applies over and above any requirements of the Tourism Industry
Act (1992). It gives local authorities the power to grant a license and to collect fees that are paid
into a fund. The annual licensing fee can vary from one local authority to another and are
calculated based on the number of rooms.
 In the parent Enactment there is no reference to the ‘sustainability fee’. This prescription is found
in the Regulations, i.e. Section 34 (2) (f) the Hotels (Pahang) Regulations 2021.

53
 Short List at State Level: Hotel Room Surcharges

4. Hotel room PIL findings

surcharges

 The imposition proper of the sustainability charge is found in Regulation 6 which reads-
 “6. (1) Sustainability Charge will be imposed for each hotel’s room occupied in the area
administered by the local authority as stipulated in the First Schedule”
 no further details as to the main purpose for which the monies in the sustainability fund will be
utilized
 Though fund generation potential is positive, the monies received do not appear to be available
for Pahang CFS or for conservation purposes (within the framework of this Enactment and the
Regulations). It exists merely as additional revenue for the Local Authorities and the State.
 Despite presence of the term ‘sustainability’, interpretation for conservation/landscape/CFS
purposes is not assured. Additional regulations/amendments will be required from definitions,
purpose, use to add these purposive values. State LA to advise.

54
 Short List at State Level: Payment for Ecosystem Services

5. Payment for
ecosystem Description
services

 PES can potentially provide medium to large revenue payments in Pahang.

 A case study of one specific site for a specific ecosystem service could demonstrate its
economic feasibility.
 A good example would be the Lubuk Yu area where the recreational/amenity forest area is the
catchment for the Ulu Jempol Water Treatment Plant. There is logging in the upper reaches of
that catchment. A study of the water PES could provide estimates of willingness to pay by
downstream beneficiaries for good quality water.

JPSM is amending the Forestry Act (new section 75A) to enable the use of Payment for Ecosystem Services, and is
conducting a study next year to examine the feasibility of applying it to 22 types of ecosystem services.

The current focus is on four types: conservation of biodiversity, carbon, water, ecotourism & also bulk services (perkhimatan
pukal).
55
 Short List at State Level: Payment for Ecosystem Services

5. Payment for
ecosystem PIL findings
services

 There is no common definition of PES and no legal precedent – despite many years of attempts.
 PES schemes in PM are rare and mostly enabled through contracts between State Authority & 3 rd
Party. No process guidance is available. At the start of this study, JPSM informed that the NFA
Amendments were being proposed.
 In the passed Amendment Act, the current and sole provision of PES seems inadequate,
insufficient and cannot be deemed PES provision.
 In view of the above, the PIL discusses a more ‘regulated’ option for enabling PES and made
recommendations for more concrete PES type enablers within the NFA.

56
 Short List at State Level: Biodiversity offsets

6. Biodiversity Description
offsets

 Biodiversity offsetting is a policy approach that seeks to minimise the

environmental impacts of a development project by ensuring that any damage
in one place is compensated for somewhere else.
 Examples relevant to Malaysia include:
• Requirement for certain large scale development projects that are funded by loans
from international banks (signatories of the Equator Principles) or the World Bank/IFC.
• Roundtable for Sustainable Palm Oil (RSPO)’s Remediation and Compensation
Procedure (RaCP).
• Compensation funds by companies in the commodity sector as part of their
sustainability policy commitments.

57
 Short List at State Level: Biodiversity offsets

6. Biodiversity Description
offsets

 New Option in Malaysia being explored- many versions of hybrids.

 Malaysia’s policy on Biodiversity Offsets is in National Policy on Biodiversity. State of Pahang
does not have policy or offset law. The State’s Biodiversity Enactment has no provision for it.
 An offset policy is required even though Pahang has jurisdictional authority - elements are
different for biodiversity and carbon.
 The key offset policy elements include - no net loss of forests, types of ecosystems, species or
species habitats. A no net loss policy can be linked to a no net loss of Permanent Reserve
Forests (PRFs) or key primary or secondary linkages within the Pahang CFSMP.
 Biodiversity offsets are being considered alongside (and in addition to) other environmental
mitigation strategies in Pahang. In addition, a net gain or positive gain policy position is ideal.
 Capacity to undertake crucial- contract negotiations, Due Diligence SOP, Rights of Off setter
and State Rights, etc.
58
 Short List at State Level: Voluntary Carbon Market (VCM)

7. Voluntary carbon
market (VCM) Description

 Bursa Malaysia is working on a VCM blueprint that is expected to be ready by the end of 2022.
Under VCM’s nature based component, sellers of carbon credits can trade them on the Bursa
market. The buyers, i.e., companies aiming for carbon neutrality, will be prioritised.
 States need to develop their baseline and existing forest cover (i.e., replanting, no double
counting) to be issued carbon credits.
 The credits will depend on the carbon stock, size of the forest area, its classification, and issue
of additionality. Larger areas will be first to be considered. A rating scale may be used to
provide indicative probability rating for getting carbon financing for each linkage.
 VCM is seen to be socially and regulatory more favorable because of government support to
operationalize the VCM market as compared to a carbon tax, for which it is important to first
remove the fuel subsidy.

59
 Short List at State Level: Voluntary Carbon Market (VCM)

7. Voluntary carbon
Estimate
market (VCM)
Combined carbon stock (tC) Min: 155 – 175 tC/ha;
No. Forest Complex Area (ha)
Min Max Max: 175 – 265 tC/ha.
1 Main Range 426,183 75,434,391 112,938,495 Except SE Pahang and
2 Greater Taman Negara 757,411 134,061,747 200,713,915
C-PL5: Max: 5,115 tC/ha
3 Benom 156,353 24,391,068 41,433,545
4 Chini-Bera 168,508 26,287,248 29,657,408
5 Southeast Pahang 86,677 15,341,829 443,439,532
6 Endau Rompin-Sedili 113,000 17,628,000 19,888,000
  Primary Linkages      
C-PL1 Tanum FR - Sungai Yu (Main Range) FR 3,953 699,681 1,047,545
C-PL2 Ulu Jelai FR - Bukit Bujang FR - Hulu Lemoi FR 43,849 7,761,273 11,619,985
C-PL3 Lesong FR - Resak FR 4,700 733,200 827,200
C-PL4 Bukit Ibam FR - Sungai Marong FR & Lesong FR 1,983 309,348 349,008
C-PL5 Ibam FR - Kedondong FR, Pekan FR and Nenasi FR 11,508 2,036,916 58,874,928
C-PL6 Bera RAMSAR Reserve - Ibam FR 753 117,468 132,528
   Secondary Linkages      
C-SL1 Krau Wildlife Reserve - Benchah FR - Som FR - Yong FR 12,529 2,217,633 3,320,185
C-SL2 Lepar FR - Berkelah FR 615 95,940 108,240
C-SL3 Chini FR - Lepar FR 11,721 1,828,476 2,062,896 60
 Short List at State Level: Voluntary Carbon Market (VCM)

7. Voluntary carbon
market (VCM) Estimate

Value ($) ($8 per ton) Value ($) ($12 per ton)
No. Forest Complex
Min Max Min Max
1 Main Range 603,475,128 903,507,960 905,212,692 1,355,261,940
2 Greater Taman Negara 1,072,493,976 1,605,711,320 1,608,740,964 2,408,566,980
3 Benom 195,128,544 331,468,360 292,692,816 497,202,540
4 Chini-Bera 210,297,984 237,259,264 315,446,976 355,888,896
5 Southeast Pahang 122,734,632 3,547,516,256 184,101,948 5,321,274,384
6 Endau Rompin-Sedili 141,024,000 159,104,000 211,536,000 238,656,000
   Primary Linkages
C-PL1 Tanum FR - Sungai Yu (Main Range) FR 5,597,448 8,380,360 8,396,172 12,570,540
C-PL2 Ulu Jelai FR - Bukit Bujang FR - Hulu Lemoi FR 62,090,184 92,959,880 93,135,276 139,439,820
C-PL3 Lesong FR - Resak FR 5,865,600 6,617,600 8,798,400 9,926,400
C-PL4 Bukit Ibam FR - Sungai Marong FR & Lesong FR 2,474,784 2,792,064 3,712,176 4,188,096
C-PL5 Ibam FR - Kedondong FR, Pekan FR, Nenasi FR 16,295,328 470,999,424 24,442,992 706,499,136
C-PL6 Bera RAMSAR Reserve - Ibam FR 939,744 1,060,224 1,409,616 1,590,336
   Secondary Linkages
C-SL1 Krau Wildlife Reserve-Benchah FR-Som FR- Yong FR 17,741,064 26,561,480 26,611,596 39,842,220
C-SL2 Lepar FR - Berkelah FR 767,520 865,920 1,151,280 1,298,880
C-SL3 Chini FR - Lepar FR 14,627,808 16,503,168 21,941,712 24,754,752
61
 Short List at State Level: Voluntary Carbon Market (VCM)

7. Voluntary carbon
market (VCM) PIL findings

 Each State can pursue its own VCM – caveat: with proper enablers – most States do not have a
climate change mitigation policy or position – VCM, and forest carbon cannot exist in a vacuum.
 Additionally, State government’s role or manner of contribution towards NDC targets, especially
as it relates to land use and land use change (LULUCF)) are not clearly prescribed – no guidance
other than double counting.
 VCM connected to legality and ownership of carbon – carbon rights – settles definitions not
available. Pathways for carbon projects need to be secured via NFA, NLC.
 Many issues to consider – project proponents, entities that will assist in forest carbon projects -
technical, administrative capacities will be needed to pursue VCM for International Carbon
Standards- Verification & Validation facilitation.
 For international carbon standards, contractual agreements and legal capacity are required -
safeguards, limitations, conditions etc.

62
 Financing Potential for Ecological Linkages
Potential for financing

CFS ecological linkages

Tourism-
Carbon Biodiversity Water-based
based

C-PL1: Tanum (Greater Taman Negara) FR- Sg. Yu (Main Range)

Low High High Medium
FR

C-PL2: Ulu Jelai FR-Bukit Bujang FR-Hulu Lemoi FR High High High Medium

C-PL3: Lesong FR-Resak FR Low High Low Low

C-PL4: Bukit Ibam FR-Sg. Marong FR & Lesong FR Low Medium Low Low

C-PL5: Ibam (Rompin) FR, Kedondong, Pekan FR and Nenasi FR High High Low Low

C-PL6: Ramsar Bera Reserve-Ibam FR Low Low Medium High

C-SL1: Krau Wildlife Reserve-Benchah FR-Som FR-Yong FR Medium High Medium Low

C-SL2: Lepar FR-Berkelah FR Low Low Low High

C-SL3: Chini FR-Lepar FR Medium High Low Medium

63
 Financing Potential for Ecological Linkages

Financing Instruments Current SFP Proposals

EFT (2021) 8.4 ++
EFT (increase protected areas in conjunction with VCM)   to be estimated
Timber (year 2020) 165 to be reviewed
VCM (low carbon estimate) 0 179
Room Surcharge (2022) 30 65
Park Entrance Fees    
Taman Negara (2019) 0.09 2.0
All 26 eco-parks (2020) 0.5 3.0
PES 0
Case by case
Biodiversity Certificates 0
Revenue for Pahang (RM million) 195.2 249 ++

Detailed studies must be conducted to facilitate the actual design (level, structure, legal
enabler, etc.) of each specific instrument.

64
 Agenda of the Meeting

INTRODUCTION
I

SFP FOR CFS OF PAHANG:

II

• CFS LANDSCAPE

• ECONOMICS, FINANCE AND PIL ASPECTS OF THE PLAN

RECOMMENDATIONS AND THE WAY FORWARD

III
 Overall Conclusions

Existing sources of conservation financing are too few in numbers, lack diversity and are not
fully enabled within an appropriate policy and legal framework. Simultaneously, existing sources
of funding (mostly trust funds) appear to have similar funding objectives. Each one of these
funds is small in size, and operates relatively independently from one another.
Fragmentation of resources is not the most effective way to enable conservation efforts in PM
and leveraging large fiscal resources for that purpose has not been undertaken. A single
biodiversity conservation trust fund – perhaps designed as an umbrella under which individual
initiatives could operate – would likely be a superior funding instrument.

However, the good news is that sources of conservation financing do exist and could generate
the fiscal resources needed to achieve conservation in the CFS if properly designed and
effectively implemented.

66
 Recommendations towards implementing SFP in Pahang
R1: Pahang Strategic R2: Ecological Fiscal
Policy & Legal
Implementation Transfer (EFT) policy
Issues
Framework actions

R4: Implement Payment

R3: Biodiversity offset
for ecosystem
policy for Pahang
services (PES)

R5: Initiate carbon R6: Hotel room

financing (VCM) surcharges

R7: Develop baseline for R8: Develop baseline for

Baseline Data
carbon & biodiversity water-based PES
Development
offset projects projects

Economic &
R9: Incentivize & support R10: Assess and Develop
Financial Design
conservation Specific Options
& Implementation
67
 Recommendations: Policy and Legal Issues
R1: Pahang CFS Strategic
Implementation Framework
01
Streamline CFS-Pahang actions,
IC-CFS Pahang initiatives &
National Physical Plan (NPP)
implementation in Pahang into a
‘Pahang CFS Strategic
Implementation Framework
‘Document.
BPEN Pahang to lead with various
implementation strategies clearly
outlined by governing law(s) in the
State. This framework clarifies and
reaffirms the need for financing
02
Support activities in the above
Framework through sustainable
financing mechanisms identified in
the SFP and anchor the SFP within
the Framework document
03
Develop context specific policy for
financing options such as
Voluntary Carbon Mechanisms
approved and endorsed by the
Pahang State EXCO.
These options should not stand
alone & must be supported,
legitimised and safeguarded
through policy pronouncements.
68
 Recommendations: Policy and Legal Issues

R2: Ecological Fiscal Transfer

(EFT) policy actions

01 02 03 04
At Federal Level- KeTSA, Related to entrenching the State of Pahang – Provide voluntary reporting
MoF with UNDP & other EFT on a stand-alone legal Demonstrate voluntary of the impact of EFT
relevant stakeholders to framework provisioned by good governance for CFS allocation to the National
convene policy dialogues the Federal Constitution, Pahang by earmarking EFT Finance Council to
on the continued Policy papers to be monies. This could be engender support for
sustainability of EFT. developed by KeTSA, MOF through existing fund continued EFT to the
& UNDP and presented to mechanisms prescribed by states, including the State
the National Finance the Financial Procedure of Pahang.
Council (NFC) Act 1957 i.e., Trust
Accounts under Section 9
and Section 10 or other
earmarking mechanisms
available in Pahang.

69
 Recommendations: Policy and Legal Issues

R3: Biodiversity offset policy for

Pahang

01 02 03 04

Develop policy basis for
Biodiversity Offsets
schemes or projects –
ensure that they have
elements of a no net loss
of biodiversity &
ecosystems.
Develop the capacity
(technical, institutional and
administrative) to
implement Biodiversity
Offset schemes of multiple
nature.
Develop a Due Diligence Conduct consultations
standard of practice to with all stakeholders for
screen all project proper development of
proponents, developers & biodiversity offset
funders of Biodiversity Schemes.
Offset schemes in Pahang.

This Policy must be

additional to other
biodiversity loss mitigation
aspects required by law.
70
 Recommendations: Policy and Legal Issues

R4: Implement payment for

ecosystem services (PES)

At the Federal level, amendments to National Forestry Act does not incorporate proper
01 provisions for enabling policy basis for payments for ecosystem services. A relook
advised in the future.

At the State level amend the Pahang Forestry Enactment to incorporate provisions
02
for ecosystems; including management plans for watersheds/catchments

Pursuant to the above recommendation to provide the power to impose payment or fees
03 or enter into contractual arrangements for watershed ecosystem services payment. All
recommended provisions are found in PIL

04 Develop the capacity to shape and negotiate on PES contracts at the State Level

At Pahang level, use section 111 (u) of the National Forestry Act to provide procedural
05 Rules for governing payment for environmental services

71
 Recommendations: Policy and Legal Issues

R5: Initiate enablers for carbon

financing (voluntary carbon
markets)

01 02 03

Develop a climate change Forest carbon projects & Amend the Pahang Forest
mitigation policy in order State level financing ought Enactment (Section 10) to
to provide legitimacy for to be anchored within such a add a classification
Voluntary Carbon Market policy to substantiate such corresponding with climate
projects. projects and to add value. change-based ecosystem
functions i.e. ‘climate
change mitigation forest’.

04 05 06

Develop the capacity to If pursuing VCM’s, ensure Establish transparent &

negotiate carbon contracts that National reporting well governed accounts to
including any safeguards standards are adhered to manage carbon related
needed in the sale of by Pahang. funds or monies from VCM.
carbon credits and claims
to carbon 72
 Recommendations: Policy and Legal Issues

R6: Legal consult and expand and

diversify hotel room
surcharges

01 02 03 04

• The objective needs • Decisions must be • Amend the Enactment • Develop terms of
clarity and made as to whether & Regulation to reference for the
prescription for monies collected provide for clearer Committee that is
purpose and use under the Regulations objectives and usage expected to manage
(consult the State can be diverted to of such funds and such fund monies
Legal Advisor’s Office conservation efforts diversification (multistakeholder at
for drafting). and financing of CFS State level).
related matters in
Pahang (led by BPEN
Pahang and District
representatives),

73
 Recommendations: Baseline Data Development

Developers of carbon and biodiversity offset projects generally

R7: Develop baseline for carbon & undertake a pre-feasibility or a preliminary assessment study to
biodiversity offset projects quickly determine the potential of a proposed area as a carbon or
biodiversity offset project.

For the purpose of such assessment, various types of data and information are required. It is recommended that
the following data and datasets – at a minimum – be maintained up-to-date:

01 02 03 04 05 06

GIS shapefiles on GIS files on PRF List of conservation Biodiversity

GIS boundary GIS dataset on
primary & cover available from initiatives conducted inventory in the
shapefiles of aboveground and
secondary forests in JPSM’s GIS Unit & by JPSM, proposed project
potential project belowground carbon
Pahang. land use data by PERHILITAN, NGOs areas, recognizing
areas in potential project
Forest data is JUPEM (survey and & other relevant that potential funders
areas based on
available from the mapping department) agencies to evaluate tend to be most
carbon stock data
National Forest additionality to qualify interested in rare,
presented in FRIM’s
Inventory (NFI) which for biodiversity threatened and
2018 report
is done every 10 financing endemic species
years, the latest of
which is NFI-4

74
 Recommendations: Baseline Data Development

R8: Develop baseline for water-

based PES

 The development of water-based payment for ecosystem services typically requires

detailed knowledge of the geo-physical nature of water catchment and of the key water
users within the catchment.

 GIS dataset on water catchment PRF (which is a legal definition), total catchment area
(from a hydrological point of view), dam catchment area and water intake point catchment
area should also be available.

 This information should not be limited to large dams but also be available to planned mini
and micro-hydro schemes.

75
 Recommendations: Economic and Financial Design

R9: Incentivize and support  Given the crucial role of the federal government to
conservation actions incentivize and support conservation at state level:

Continue to develop the

design & implementation
options for a carbon tax
& ensure that a
significant percentage of
the revenues be
earmarked for
conservation and
implementation of the
CFS Master Plan.

76
 Recommendations: Economic and Financial Design

R10: Assess and Develop Specific

Financing Options

01 Conduct a study to facilitate the implementation of at least one water-based PES scheme in Pahang.

77
 Short List at State Level: Payment for Ecosystem Services

Example: Lubuk Yu

78
 Short List at State Level: Payment for Ecosystem Services

Example: Lubuk Yu

Lubuk Yu is a recreational forest within which one finds the Lubuk Yu Recreational Area.

At the time of our visit, the Recreational Area was closed because of recent flooding but is expected
to open soon.

The operator got (paid for) the 30-year license to operate the area a few months prior to the COVID
crisis. During those months, 1,000 to 2,000 visitors per month visited the site.

The operator pays an annual fee to the Forestry Department, and charges fees to visitors:

Entrance: RM3 per visitor

Parking: RM2 per car
Additional fees for camping, hammocking.

The operator indicated that when (if?) the number of visitors return to pre-COVID, he will make a
profit.
79
 Short List at State Level: Payment for Ecosystem Services

Example: Lubuk Yu

Downstream the Lubuk Yu recreational forest, there are 3 water treatment plants using the river as
their source of water.

These 3 water treatment plants provide water supply to approximately 70,000 households
(approximately 350,000 people).

Problem is….

80
 Short List at State Level: Payment for Ecosystem Services

After heavy precipitation

81
 Short List at State Level: Payment for Ecosystem Services

Example: Lubuk Yu

The water treatment plants have to shut down when sedimentation concentration is too high.

From an economic point of view: River sedimentation is costly.

 To the operator of the treatment plants (additional operation and maintenance
costs).
 To consumers (water supply disruptions)

A priori (further investigation would certainly be needed) this could be a good setting for
implementing a PES scheme with the overall purpose of reducing river sedimentation with
appropriate activities (perhaps including land use change) in the upstream watershed.

There could be other locations in Pahang where similar PES schemes could be used as a means
to finance conservation.

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 Recommendations: Economic and Financial Design

R10: Assess and Develop Specific

Financing Options

01 Conduct a study to facilitate the implementation of at least one water-based PES scheme in Pahang.

Conduct a willingness-to-pay study to inform the development of an economic & financial model to assess the impacts
02 of various forms and levels of room surcharges in Pahang.

Develop at least one project which could be funded through the EFT scheme in line with the guidelines developed by
03
KeTSA

Assess the feasibility of implementing a tourist arrival fee in the country informed by a tourist willingness-to-pay study
04
and for revenues to be earmarked to finance conservation purposes

Conduct an analysis to revise the existing system of environmental fees & extend it to industrial sectors beyond the
05 palm oil sector

Given the complex issues involved in developing a sustainable finance plan for the CFS landscape management in
06 Pahang, BPEN Pahang should take the lead in coordinating various strategies, initiatives, plans and programmes to
secure sufficient and sustainable financing. The CFS task force, led by BPEN Pahang, should continue to manage the
important task of realizing the conservation of the CFS landscape in Pahang. ToT can improve process outcomes.
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 PE Research
P lan ning & E cono mi c C onsult ants

PE Research Sdn Bhd

www.peresearch.com.my
Tel: 03-7804 2664
Email: pe_cfs@peresearch.com.my

Thank You
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