Bioelectricity in Malaysia: Economic Feasibility, Environmental and Deforestation Implications

Abstract

We investigate the economic feasibility of bioelectricity production from biomass in Malaysia, and its impact on greenhouse gas (GHG) emissions and storage, agricultural prices, agricultural employment, and deforestation. For this purpose, we develop a partial equilibrium (PE) model that projects agricultural prices, production, imports, exports, domestic consumption, and land use in five-year increments between 2015 and 2065. Our results show that by 2030 biomass-generated electricity can supply 36.5% of the electricity generated in Malaysia, 16 times more than the 2016 electricity supply from biomass. Increased bioelectricity production from biomass will significantly reduce GHG emissions and will help Malaysia meet its commitment in the Paris Agreement to mitigate GHG emission by 45% before 2030. Our modelling shows that biomass-generated electricity creates a derived demand for waste biomass that expands the area of oil palm plantations. The expansion lowers agricultural prices, boosts agricultural employment and leads to some deforestation as landowners clear rainforest to plant oil palm trees. Nonetheless, the deforestation does not increase GHG emissions since GHG gains from bioelectricity significantly exceed GHG losses from deforestation.

Keywords: bioelectricity; waste biomass; partial equilibrium model; cost competitiveness

JEL Classification: C61, O13, Q42