The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) @#&OPS~Doctype~OPS^blank@pidaprcoverpage#doctemplate Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 07-Feb-2025 | Report No: PIDA0113 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) @#&OPS~Doctype~OPS^dynamics@pidaprbasicinformation#doctemplate BASIC INFORMATION A. Basic Project Data Project Beneficiary(ies) Region Operation ID Operation Name Malaysia Kigali Malaysia EAST ASIA AND PACIFIC P177789 Implementation Plan for HFC Phasedown (Stage I) Financing Instrument Estimated Appraisal Date Estimated Approval Date Practice Area (Lead) Environment, Natural Investment Project 23-Dec-2024 27-Feb-2025 Resources & the Blue Financing (IPF) Economy Borrower(s) Implementing Agency Ministry of Natural Resources and Department of Environmental Environment Sustainability Proposed Development Objective(s) To support the Government of Malaysia's efforts to comply with its first HFC phasedown obligations. Components Investment in HFC Consumption Reductions Support for Reducing HFC Demand in Servicing Technical Assistance and Policy Support Project Management @#&OPS~Doctype~OPS^dynamics@pidprojectfinancing#doctemplate PROJECT FINANCING DATA (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? Yes Is this project Private Capital Enabling (PCE)? SUMMARY Total Operation Cost 11.29 Total Financing 11.29 Page 1 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) Financing Gap 0.00 DETAILS World Bank Group Financing Non-World Bank Group Financing Commercial Financing 2.01 Unguaranteed Commercial Financing 2.01 Trust Funds 9.27 Montreal Protocol Investment Fund 9.27 @#&OPS~Doctype~OPS^dynamics@envsocriskdecision#doctemplate Environmental And Social Risk Classification Moderate Decision The review did authorize the team to appraise and negotiate Other Decision (as needed) B. Introduction and Context Country Context 1. Malaysia is embarking on the last major chapter of the Montreal Protocol on Substances that Deplete the Ozone Layer – the phasedown of global warming, non-ozone depleting, hydrofluorocarbons. Malaysia has been a party to the Montreal Protocol (MP) since August 1989 and has acceded to all subsequent amendments including most recently in October 2020 to the Kigali Amendment which added hydrofluorocarbons (HFCs) as controlled substances under the Protocol. Although successful in the control and gradual elimination of ozone-depleting substances (ODS), the MP has inadvertently given rise to these HFCs, non-ozone depleting, greenhouse gases (GHGs) ranging in global warming potential (GWP) from several hundred to more than 14,000 times that of carbon dioxide (CO2). 2. The Montreal Protocol is one of the most successful global environmental treaties, showcasing the power of international cooperation in tackling environmental challenges. Originally adopted in 1987, the Protocol aimed to phase out ODS such as chlorofluorocarbons (CFCs), commonly used in products like refrigerators, fire extinguishers, and foams. By addressing these human-produced substances which persist in the stratosphere and destroy ozone molecules while trapping heat, the Protocol has gradually restored the ozone layer and mitigated global warming. Malaysia has demonstrated strong commitment to the Protocol, establishing an Ozone Protection Section two years prior to its first Page 2 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) compliance obligations in 1997 to carry-out, coordinate, enforce and monitor ODS phase-out action. This commitment has ensured that Malaysia has remained in compliance with its various MP obligations over the last 35 years. 3. The Kigali Amendment reinforces the critical role of the Montreal Protocol in climate mitigation and as such brings new relevance to the instrument in achieving Malaysia’s climate and green growth goals across sectors . HFCs were first introduced to replace ODS such as CFCs and hydrochlorofluorocarbons (HCFCs) primarily in refrigeration and cooling equipment. Now coupled with the steep increase in demand for cooling in developing countries particularly in South and Southeast Asia, the climate benefits gained from the phaseout of CFC and HCFC (also GHGs) could be offset within a few decades with unabetted HFC growth. Paradoxically, a 2020 ASA1 found that non-ratification of the Kigali Amendment (KA) would be costly to industry at an estimated $13 billion – five times more than the estimated cost of ratification because of the MP’s non-trade provisions. The Kigali Amendment (KA) also introduces a gradual phasedown rather than a phaseout in recognition that commercially viable and safe technologies will not necessarily be available to all, preventing undue economic and societal harm of forcing immature technologies on to countries. 4. As of 1 January 2024, Malaysia, as an “Article 5� and Group 12 country, is obligated by the KA to freeze HFC consumption to not more than its baseline level. Malaysia’s KA baseline, and the starting point for gradual HFC consumption reduction by 80 percent by 2045 is 26.7 million tCO2eq as shown in Table 1. The baseline includes additional “headroom� of 65 percent of Malaysia’s HCFC baseline consumption in CO2 equivalent to account for the ongoing transition of Article 5 (A5) countries to HFCs from HCFCs that will be practically eliminated by 2030. Malaysia must ensure that its calculated level of “consumption� (imports plus production minus exports) of controlled substances listed in Annex F3 and expressed in CO2 equivalent, does not exceed the maximum allowable limit in each 12-month period. Annual reductions to be achieved during the Kigali compliance period in Malaysia amount to 21.36 million tCO2eq by 2045, which represent emissions avoided of more than 5 coal-fired power plants in a year. Table 1. Kigali Amendment and Malaysia’s Obligations as an A5 Country Baseline Calculation: 2020, 2021, and 2022 Average Consumption of HFCs plus 65% of the HCFC Baseline in CO2 eq. Target Year HFC Phasedown Obligation Maximum Allowable HFC Consumption (m tCO2eq) 2024 Freeze at the baseline level 26.7 2029 10% reduction from the baseline 24.03 2035 30% reduction from the baseline 18.69 2040 50% reduction from the baseline 13.35 2045 80% reduction from the baseline 5.34 5. Unchecked HFC growth would prevent Malaysia from meeting its first HFC phasedown target. According to Malaysia’s overarching HFC phasedown strategy that was developed in cooperation with the World Bank and approved by the Malaysia Cabinet in January 2024, Malaysia’s HFC consumption is projected to surpass the freeze level of the Kigali baseline in 2028 under a business-as-usual scenario4 and prevent the 10 percent reduction target to be met by 2029. This is despite the voluntary end of the use of HFC-23 (GWP of 14,800) in new fire suppression systems stemming from successful industry consultations surrounding enabling work to inform KA ratification. 6. Malaysia, as an A5 party, receives grant assistance under the MP’s financial mechanism for meeting agreed 1 “Strategy Options for Initial Implementation of the Kigali Amendment in Malaysia� (P166761), June 2020. 2 Designation of countries that consumed less than 0.3 kg of controlled substances per capita at the MP’s entry into force. A5 countries are primarily developing economies and the majority fall into Group 1, designating the start-date (2024) and control period for Kigali compliance. 3 Annex F of the Kigali Amendment was added as another group of substances and includes 18 different HFCs that are subject to MP controls. 4 Applying 2019-21 average growth rates by sector and HFCs. Page 3 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) incremental costs of reducing and eliminating controlled substances. Considered to be a medium-volume consuming country with an HCFC consumption baseline of 515.8 tons of ozone depleting potential (ODP), Malaysia is in the advanced stages of HCFC phaseout. It receives funding support from the Multilateral Fund (MLF) for MP implementation through staged HCFC Phaseout Management Plans (HPMPs), with UNDP serving as the MLF Implementing Agency. 7. Performance-based, national ODS phaseout plans that combine investment, technical assistance (TA) and policy for achieving verified annual ODS reductions are not new to Malaysia. With support by the World Bank in its capacity as an MLF Implementing Agency, Malaysia was one of two countries to first introduce this innovative approach and alternative to stand-alone industry investment projects to the MLF in 2002. The MLF Executive Committee agreed in 2021 to similarly support Article 5 countries to meet stepped and verified HFC reductions against the release of tranches of approved grants through national phasedown plans termed “Kigali Implementation Plans� (KIPs). 8. Malaysia prepared, and received Executive Committed approval, of an overarching KIP strategy and the first of four anticipated KIP stages through World Bank assistance. The overarching KIP strategy sets forth the proposed pathway for HFC phasedown in each stage by HFC consuming sector, balancing phasedown obligations with economic growth. It was based on a compliance model to prioritize phasedown according to criteria aligned with the KA objectives including use of high-GWP HFCs in applications where viable alternatives exist; where high-GWP HFCs are growing to the point that it might impact compliance later in Kigali implementation; and where there is a subsector grouping that facilitates government regulation. Malaysia’s Stage I KIP therefore reflects this approach. It was approved in December 2023 and covers Malaysia’s first KA obligations (the 2024 freeze through the 2029 10 percent reduction) for anticipated annual avoided emissions of 2.7 million tCO2eq starting in 2029. Sectoral and Institutional Context 9. HFCs and HFC blends have been used extensively in Malaysia by its well-established manufacturing base and in servicing products and installed equipment. This includes residential and commercial air conditioning (AC), heat pumps, building chillers; domestic, commercial, and industrial refrigeration for food and vaccine cold chains; mobile AC (MAC) for cars, buses and rail; and fire suppression systems. HFCs are additionally used in manufacturing processes such as solvents or cleaning agents in the electronics and medical industries, as aerosols in pharmaceutical products such as metered dose inhalers (MDI), and to a limited extent to date, as blowing agents for production of foam. 10. Malaysia consumes primarily eight types of pure HFCs and five common HFC blends . Per a comprehensive data survey of consumers and importers for the 2019-2021 period, as well as national level data, HFC consumption was determined for Malaysia’s KIP. The HFC in greatest demand is HFC-134a or “R-134a� (GWP=1,430) used in MAC and refrigeration manufacturing and servicing, with nearly 4,800 MT imported in 2022, followed by R-32 and R-410A.5 11. With the global pandemic, HFC consumption growth slowed but 2022 data indicated an upswing. Although net growth in HFCs was flat until 2022, projections showed potential for steep increases from baseline years and beyond in certain sectors in tCO2eq. Further review of the 2022 consumption data reveals unusually large imports of three high- GWP HFCs by two importers possibly trying to increase their quotas (“Other� in Table 2). The analysis excluded the anomalous data and used historical consumption instead. Still, growth rates across HFCs and HFC-consuming sectors were largely positive, in part because more HFCs are entering the market as replacements as Malaysia steps up HCFC phaseout to meet the 67.5 percent phaseout of its baseline in 2025 and near total phaseout in 2030. 5 Refrigerants such as HCFCs, hydrocarbons, and hydrofluorocarbons (HFCs) follow an industry nomenclature, where “R� replaces the generic kind of refrigerant. R-32 is the same as HFC-32. HCFC-22 is the same as R-22. Page 4 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) Table 2. HFC Consumption in Malaysia by Sector from 2018 to 2022 (kg)* Sector 2019 2020 2021 2022 Air conditioning 3,593,905 3,462,176 3,671,432 4,096,277 Chillers (Building AC) 1,375,130 1,538,066 1,441,682 1,992,913 Mobile AC 285,816 242,593 240,826 251,000 Refrigeration 390,886 778,316 413,304 575,168 Servicing Sector 2,010,615 2,593,255 2,561,502 4,763,549 Fire fighting 228,968 265,263 309,832 139,242 Foam 475 8,013 6,086 5,221 Solvent 87,197 85,186 51,488 50,036 Aerosol 23,788 30,744 48,099 49,052 Other 500 708 600 1,950,947 Total 7,997,279 9,004,320 8,744,851 13,873,405 *2022 consumption data is calculated according to previous sector consumption, excluding consumption appearing to be stockpiling. 12. The largest HFC consumer in Malaysia is by Figure 1. HFC Consumption in Malaysia by Sector: 2019-2021 far the cooling and refrigeration sector. Malaysia is a production hub for residential AC and other export- oriented cooling and heating products, hosting 7 large foreign-owned manufacturers. About 3.4 million units of split-type AC, commercial AC, and heat pumps were produced in 2021 of which, 70 percent were exported to Europe, the Americas, and the Middle East. These appliances are charged with HFCs in Malaysia, counting as official consumption. AC manufacturing and servicing activities make up about 60 percent of all HFCs consumed in the country. 13. Car manufacturing and servicing is the second largest source of demand for HFCs. Malaysia manufactures and assembles various motor vehicle models, hosting several major global brands as well as two prominent Malaysian companies that also serve as original equipment manufacturers (OEMs) for major car brands. New motor vehicle production and imports (the latter about 10 percent of registered vehicles) have been consistently high since 2010 to 2019 and then dropped slightly due to the COVID-19 pandemic which affected this sector more than others. The motor vehicle industry is almost wholly dependent on HFC-134a refrigerant for mobile air conditioning. Only imported vehicles from the EU use the alternative HFO-1234yf6 because developed countries must reduce HFC consumption in CO2eq. by 40 percent of their Kigali Amendment baselines by 2024 under an accelerated phasedown schedule. Similar to other countries in the Region, Malaysia is embracing electric mobility to reduce GHG emissions and local car manufacturers have begun plans to introduce electric vehicles (EVs). The efficiency of refrigerant technology is even more important in EVs where MACs can consume up to 30 percent of the power in hot, humid, and congested areas. Newer, efficient technologies will likely employ R-1234yf, bypassing HFCs altogether, making knowledge and experience with this new refrigerant even more important to the economy. 6 Hydrofluoroolefins (HFOs) are the “4th generation� of fluorinated gases to be introduced as replacements. Currently under production and use patents, they remain high in cost compared to controlled substances and other alternatives. Page 5 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) 14. Refrigeration and fire suppression are relatively small HFC consumers in tonnage, but demand continues to grow, especially for extremely high-GWP substances. Refrigeration manufacturing and servicing, comprising freezers and stand-alone display cases to large cold storage and industrial refrigeration, is a diverse sector, consuming approximately 13 different HFCs depending on the application. Because of safety and toxicity issues of the alternatives, conversion is challenging and is limited to smaller units with low-refrigerant charge sizes that comply with international standards. Although globally this subsector of small stand-alone units is transitioning, Malaysia’s two key manufacturers continue to produce using older, less efficient technologies based on HFC-134a and HFC-404A (GWP of 3,922). The fire suppression sector in Malaysia uses HFCs as clean agents for systems installed in primarily high value, sensitive areas such as data centers, in the telecom industry, and tech industries. Although HFC-23 will be voluntarily discontinued by the industry of about 36 systems suppliers, it is highly dependent on the HFC, FM-200 (GWP of 3,220) and to a lesser extent HFC-125 (GWP of 3,500). Alternatives exist but recently the main alternative has been classified as a PFAS (a carcinogenic “forever� chemical) in the EU. 15. HFCs are increasingly consumed by the servicing sector. Other than manufacturing with HFCs, Malaysia utilizes HFCs in maintenance and repair of installed equipment across refrigeration, AC, and the fire suppression sectors. From 2019 to 2022, the percentage of HFCs going to service installed equipment or mobile AC in cars and rail went up from an estimated 21 to 35 percent. Smaller quantities of HFCs are widely installed in Malaysia’s public rail transport sector and buildings and may be a liability later in KA implementation. The Government of Malaysia is an important consumer of HFCs and continues to procure rail and metro cars, and other public transport that have AC systems based on HFCs. It is normal to see new Government buildings in Malaysia with HFC-based fire suppression systems and central AC. As building and rail systems can last up to 20 years, HFCs will be needed well into advanced stages of KA implementation. 16. Malaysia’s HFC consuming industry, whether it be for manufacturing, cleaning, installation or servicing, is diverse in terms of MLF assistance that can be provided. Some of the largest consumers have non-Article 5 ownership which automatically excludes that portion of ownership from financing. Very small HFC users have other restrictions – they often come and go more frequently and those that are established after the Kigali “cut-off� date of 1 January 2020 will not be eligible. Many of the low-GWP alternatives are flammable or toxic which can be challenging with enterprises or service shops with limited capacity. In addition, some markets are rapidly transitioning on their own to lower GWP substances, as is the case for the residential AC and heat pump markets that are moving to HFC-32 (GWP of 675) due to a market preference and restrictions in export markets on high-GWP alternatives such as HFC-410A. 17. Malaysia has a long established regulatory and policy framework for controlling ODS, including a licensing and quota system enabling 2024 controls. The framework is managed by the competent authority, the Ozone Section in the Department of Environment (DOE). In line with the 2020 ASA, “Strategy Options for Initial Implementation of the Kigali Amendment in Malaysia (P166761)7,� and reinforced in the Malaysia-approved, “2024 overarching KIP strategy�, a new approach to allocating quotas based on CO2eq, taking into account other unique KA aspects, has been launched for the 2024 start of the compliance period. The approach is captured in a World Bank-developed tool for DOE and prioritizes reductions in sectors that use high-GWP HFCs while balancing this with any needed growth of lower-GWP HFCs, as seen in the AC sector where no other feasible technologies exist. An institutional set-up surrounding the new quota approach that promotes Kigali objectives while giving industry and other stakeholders certainty on procedures, sufficient forewarning of HFCs to be targeted, and opportunity for early adoption of commercially available, low-GWP alternative technologies through MLF technical and investment support will help bolster competitiveness while strengthening capacity for sustainable management and elimination of controlled substances. 7 The ASA highlighted that non-ratification of the KA would be costly to industry and emphasized the importance of controlling HFC growth to meet HFC phaseout requirement. Moreover, it gave assurances that KA compliance is manageable and more affordable if Malaysia prioritizes the early reduction of high-GWP HFCs, particularly, in the fast-growing fire suppression sector. This has become a basic principle of the country’s strategy. Page 6 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) C. Proposed Development Objective(s) 18. The proposed development objective is to support the Government of Malaysia's efforts to comply with its first HFC phasedown obligations. Key Results 19. The PDO level result indicators are: a) annual HFC consumption is within Malaysia’s maximum allowable limit; and b) net GHG emissions. 20. Based on Malaysia’s official consumption data, these indicators track in tCO2eq (a) whether total annual consumption is within its Kigali Amendment baseline freeze level between 2024-2028 and within 90% of the baseline level in 2029, and (b) annual HFC emissions avoided by reducing consumption by 10% of the KA baseline in 2029 and indicated as a negative value, in accordance with the World Bank scorecard methodology. D. Project Description 21. The project will provide technical, policy and financial assistance to eligible enterprises, and servicing sector and other beneficiaries to reduce HFC demand and enable Malaysia to meet its KA freeze and 10% reductions from the baseline by 2029. It will combine investment support and policy to the stand-alone commercial refrigeration subsector to sustainably convert all remaining manufacturers and importers from HFC to natural refrigerants. To increase climate benefits, the project will pursue, through forthcoming additional financing, standard and policy revisions that promote uptake of high energy efficient compressors in the sector. A pilot activity in automobile industry will promote the conversion from HFC-134a to HFO-1234yf, the technology of choice in major developed economies. Through the pilot, the entire sector and supply chain will be sensitized about costs, challenges, and opportunities for transitioning away from HFC-134a in a future project stage. 22. The servicing sector will receive assistance to adapt to reduced HFC supply by eliminating practices that emit and waste HFCs. An early start in preparing the MAC servicing sector for the eventual adoption of 1234yf will help appease carmakers which worry about the cost impact of the substance on consumers when bringing cars for service. The safety of technicians must also be ensured as hydrocarbons and mildly flammable refrigerants begin to replace high-GWP HFCs in refrigeration and cooling equipment. 23. Technical assistance and policy activities that engage public and private stakeholders in a cross-cutting manner are also proposed. Implementation will require a significant amount of upstream work to inform and prepare relevant stakeholders and sectors for the phasedown in this and subsequent stages and to seize on the window of opportunity to align industry conversion with increased ambition on energy efficiency and better management of both global warming and flammable refrigerants. A pivotal aspect of the Project is to build on the HFC policy foundations started during the process of Kigali ratification and project preparation. Policy work is thus proposed to better control and curb HFC consumption at the national level while developing and instituting strategically timed bans of specific HFCs across select sectors and applications. 24. Component 1 – Investment in HFC Consumption Reductions (US$3.48 million of which IBRD is US$1.46 million). This component will channel grant funding for three investment subprojects for complete HFC phaseout in stand-alone Page 7 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) commercial refrigeration manufacturing and for a pilot HFC conversion for safe and effective use of alternatives in MAC systems. Two manufacturers of refrigerated display cabinets and freezers in Malaysia will be supported to replace the use of HFC-134a and HFC-404A as refrigerants with a low GWP, natural refrigerant. As the proposed alternative, a hydrocarbon (HC), is flammable, new investments will focus on explosive proof production equipment, safety measures and training. Enterprises will be supported not only on R&D and design changes to accommodate HC refrigerant, but to also improve energy performance to better compete in the market. The third subproject will be for a Malaysian owned car manufacturer to convert MAC systems installed in one model of passenger cars to pilot a non-HFC, low GWP refrigerant technology, HFO-1234yf. The pilot will introduce manufacturing in Malaysia with the alternative while monitoring needed design changes, duration, technical challenges, and incremental cost changes for dissemination among manufacturers for future adoption. 25. Component 2 – Support for Reducing HFC Demand in Servicing (IBRD - US$6.05 million). The sector responsible for servicing HFC-based equipment and vehicle MACs will be gradually sensitized on sound refrigerant management and good practices to reduce wasteful use and emissions of HFC-134a and to minimize accidents when using flammable substitutes. Early interventions in these servicing applications, namely in mobile air-conditioning and in refrigeration will begin to prepare the sector when HFC supply begins to tighten as a result of quota reductions and as more and more equipment is installed that is based on HFC alternatives. 26. Subcomponent 2.1: Refrigeration Servicing Sector Training and Capacity Building. Tailored training material will be required for a servicing sector cohort of technicians that specializes in repairing refrigeration equipment, including primarily, commercial but also transport and domestic refrigeration. The focus of the curricula will be safe handling of refrigerant and equipment during maintenance and repair given the increasing likelihood that equipment on the market, either from Malaysian manufacturers (in Component 1) or that imported will be charged with flammable hydrocarbons. Several existing authorized training centers (ATCs) will be selected to provide training to a targeted 2,000-plus technicians in safe practices, complemented by training on electronics repair for a smaller group on a pilot basis to link energy performance improvement with refrigerant servicing. Small equipment and tools used to service refrigeration equipment such as pressure gauges for determining levels of refrigerant during repair will be provided on a limited basis to incentivize participation in the training. 27. Subcomponent 2.2: MAC Servicing Sector Training and Capacity Building. Servicing of mobile air-conditioners in vehicles is usually conducted by dedicated technicians who will require refresher training by select ATCs in good practices after nearly 20 years of the wide use of HFC-134a in the sector without intervention. New curriculum and training modules will be developed, and a training program initiated to reach an estimated 2,500 technicians. Small equipment and tools used to service MACs such as for recovering refrigerant during repair and recharge will be provided on a limited basis to incentivize participation in the training. 28. Subcomponent 2.3: MAC in Public Transport. The Land Public Transportation Agency (APAD) and its associated agencies and contractors will be assisted to safely and effectively manage high-GWP R-404A refrigerant until new MAC systems in various fleets can be introduced. Various TA activities and a study tour will inform the development of specifications for new railcars and alternative systems in the future. APAD contractors responsible for servicing trains in different regions of Malaysia will be supported to develop refrigerant management plans. In consultation with APAD, rail transport systems, and contractors, equipment and tools and infrastructure needed from implementing refrigerant management plans in future KIP stages will be assessed. 29. Subcomponent 2.4: Strengthening Recovery and Recycling Efforts. To determine the feasibility of enforcing refrigerant management regulation through a scheme that tracks controlled substances rather than the technicians and Page 8 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) shops which do not report their activities despite the regulation, (a) a study tour for ATCs and government agencies to countries that have deployed this system of tracking refrigerants will be supported and (b) a feasibility study will be undertaken in Malaysia taking into account regulations on the books, current practices of shops and technicians, barriers and incentives and other factors to develop recommendations for such a system and associated costs. 30. Component 3 – Technical Assistance and Policy Support (IBRD - US$1 million). This component will finance (a) feasibility studies related to green procurement and mandatory MAC leak testing; (b) training of targeted industry sectors, including the fire suppression industry, on HFC alternatives; (c) 1-3 study tours for beneficiaries in the MAC, refrigeration and fire suppression sectors, and relevant government authorities; and, (d) support for convening technical working group meetings on HFO-1234yf developments in the MAC sector. This component will also focus on policy work. As a pivotal aspect of the project is to support the Government of Malaysia manage and allocate annual import quotas of HFCs and HFC blends, development of standard operating procedures or guidelines as well as online system and interface will be financed to facilitate a transparent and simplified approach to applying for and processing quotas. Three Customs training sessions on HFC monitoring and enforcement are also planned along with the acquisition of refrigerant identifiers to inform enforcement work. Several impact assessments and studies will be financed on developing and instituting HFC bans in specific applications (fire suppression, building chillers, refrigerated transport, split-type AC, and heat pumps) and subsectors (stand-alone commercial and domestic refrigeration manufacturing and import). 31. With MLF support on energy efficiency, a complementary activity will support policy development on energy performance in the commercial refrigeration sector. This is to include a market survey followed by recommendations for developing guidelines to include commercial refrigeration as one type of equipment with voluntary energy performance labeling. The feasibility of and timeline for the development of a mandatory energy performance standard is also to be investigated. 32. Component 4 – Project Management (IBRD - US$0.77 million). Component 4 will support (a) the establishment and operations of a project management unit (PMU); (b) capacity building and support for project, financial, procurement, environmental and social management, and others as needed; (c) stakeholder engagement activities, including public awareness and outreach, inter-agency coordination and consultations, and the operation of a grievance redress mechanism (GRM); (d) verification audits of annual consumption; and (e) project monitoring and reporting. @#&OPS~Doctype~OPS^dynamics@pidaprlegalpolicy#doctemplate Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts 33. Environmental risk rating is Moderate. Overall, the Project will have positive impacts on the global environment and climate through reducing GHG emissions and improved energy efficiency. Potential adverse risks and impacts on the environment are associated with the change of refrigerants from non-flammable to mildly flammable in case of the MAC sector, and highly flammable for commercial refrigeration alternatives. However, risks and impacts are assessed to be Page 9 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) moderate because: (i) location sensitivity is low as the potential sites will be located in designated industrial areas, and away from residential and environmentally sensitive areas; and (ii) risks and impacts from use of flammable refrigerants are predictable, temporary/reversible, site-specific and can be mostly avoided by following the safety protocols as per the material safety data sheet (MSDS) and mitigated by adopting relevant environmental management and occupational health and safety (OHS) protocols. In addition, project interventions relating to flammable refrigerant are limited to two enterprises. These enterprises already use highly flammable substances for insulation purposes and hence are not new to handling flammable substances. Support to ensure safe technology conversion has been included in the project design. 34. Project activities under Subcomponents 2.1 and 2.2 will support training for service technicians on the safe handling of refrigerants and equipment. This will include a review and possible revision of the training curriculum in the sector for managing flammable substances, as well as technical assistance to promote longer term good practices in the servicing sector related to HFC consumption reduction. The locations of the training activities are unknown at this stage. During project implementation, the terms of reference (ToR) for these activities will be reviewed to ensure potential environmental and social (E&S) risks and impacts (e.g., those related to cultural appropriateness, labor, and community health and safety) are identified and properly managed in accordance with the Environmental and Social Standards (ESSs). Additionally, the ToRs for three feasibility studies related to strengthening recovery and recycling, green procurement, and mandatory MAC leak testing under Components 2 and 3 will be reviewed to ensure that relevant E&S issues are considered when conducting the studies in a manner consistent with the Environmental and Social Framework (ESF). 35. Social risk rating is Low. The project will provide investment support to three well-established enterprises in the commercial refrigeration and MAC sectors, including support to strengthening occupational health and safety systems and processes within these enterprises. Risk associated with cost increases is low although in the short to medium term, there will be an impact to cost of the equipment and systems that transition to HFC-alternatives; costs typically passed on to the end-user. However, for the sectors prioritized, end-users are collectively and likely not individual consumers and vulnerable groups. It is also expected that the new technology will have lower leakage rates, reducing the frequency of servicing and associated cost. The project is not expected to have direct or indirect negative impact on employment when shifting to new technologies. Effective stakeholder engagement and communication will be needed for conversion and phase-down activities to raise awareness and present environmental benefits while balancing economic outcomes. 36. Risk associated to SEA/SH is considered Low. Environmental and social management plans (ESMPs) with site- specific measures have been prepared and will be disclosed for each subproject including appropriate emergency preparedness and response measures consistent with the ESF requirements and relevant requirements of the World Bank Group's Environment, Health and Safety (EHS) Guidelines and minimum requirements related to Sexual Exploitation and Abuse and Sexual Harassment (SEA/SH). 37. Environmental and social management measures. Environmental and Social Standards that apply to the project include ESS1, ESS2, ESS3, ESS4, and ESS10. Consequently, the site-specific ESMPs with/for each of the three enterprises as well as labor management procedures (LMP) have been drafted for Component 1. A draft stakeholder engagement plan (SEP) and overarching LMP have been developed for all components, and the legally binding Environmental and Social Commitment Plan (ESCP) is in draft. For ESF implementation arrangements, a technical staff shall be part of the PMU to support E&S implementation, for tracking ESCP compliance, and for reporting. A point person to respond to any complaints and to lead consultations will also be designated. E. Implementation Page 10 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) Institutional and Implementation Arrangements 38. The Ministry of Finance (MoF) has designated Ministry of Natural Resources and Environmental Sustainability (NRES) to be the recipient of the Grant and act as the Stage I HFC Phasedown Project Recipient. A dedicated National Ozone Unit (NOU) within the Department of Environment, under the NRES, which is tasked to manage Malaysia’s Montreal Protocol obligations, will house the project management unit. The Ozone Division within DOE leads the Government’s sustained efforts to phase out MP controlled substances in the country and is the main institutional partner for this project. It also serves as the Secretariat to the National Steering Committee (NSC) for the Protection of the Ozone Layer, the advisory body to the Government on strategic and policy aspects of MP implementation that is headed by the Secretary General under the Ministry of Natural Resources and Environmental Sustainability (NRES). 39. Day to day management and coordination of project activities will be handled by the PMU. Core PMU staff will include an accountant, a procurement officer, a technical officer (who is responsible for environment and social aspects too), as well as an M&E Officer. The project’s grievance mechanism will be managed by DOE. Other technical specialists and short-term consultants will be recruited as needed to manage and implement the project. The PMU will directly oversee and manage the delivery of project support under all components. Upon receipt of grant proceeds, the PMU will finance part of the costs for conversions for eligible enterprises under Component 1 which will be effectuated through signing of subgrant agreements. 40. A Project Implementation Manual (PIM) will be prepared by the PMU to further detail project components and institutional and project implementation arrangements. The PIM will include information and details to guide project financial management, procurement, environmental and social risk management, monitoring, evaluation and reporting, processing of subgrants, verification and payment mechanisms, and other aspects of project management. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate CONTACT POINT World Bank Mary-Ellen Foley Senior Environmental Specialist Waraporn Hirunwatsiri Senior Environmental Specialist Borrower/Client/Recipient Ministry of Natural Resources and Environmental Sustainability Mazrini Binti Mohmad Principal Assistant Secretary mazrini@nrecc.gov.my Implementing Agencies Page 11 The World Bank Malaysia Kigali Implementation Plan for HFC Phasedown (Stage I) (P177789) Department of Environment Ryan Ooi Chean Weai Principal Assistant Director and Head of Ozone Protection Un ocw@doe.gov.my FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Mary-Ellen Foley, Waraporn Hirunwatsiri Approved By Practice Manager/Manager: Muthukumara S. Mani 07-Aug-2024 Country Director: Zafer Mustafaoglu 07-Feb-2025 Page 12