A plan by the Malaysian federal government to regulate carbon dioxide storage and turn it into a source of revenue for its oil-producing economy is facing roadblocks from two of the nation’s states on Borneo island.

Malaysia’s biggest state Sarawak, and neighboring Sabah, want to be excluded from a federal government-backed “Carbon Capture, Utilization and Storage Bill.” The two states are seeking to independently regulate these potentially lucrative projects on their side of the South China Sea as part of a push for greater economic autonomy from Peninsular Malaysia. 

“The Sarawak government’s position is that all carbon storage projects undertaken within the boundaries of Sarawak must be regulated by state law,” Sharifah Hasidah Aman Ghazali, a deputy minister in the Sarawak Premier’s Office, said in a statement on Thursday. “Carbon storage involves the use and occupation of state land.”

The opposition from the Borneo states, home to tracts of primary rainforests and offshore oil fields, complicates the federal government’s plans to turn Malaysia into a carbon capture and storage hub and add as much as an estimated $250 billion to its economy in the next 30 years. 

The technology is designed to suck CO2 out of the atmosphere and bury it underground forever, in theory neutralizing its effects on climate change. Offshore oil and gas fields — abundant in the Borneo states — are among the most popular facilities for carbon storage.

Sabah and Sarawak are supposed to be among the four regions that would spearhead the CCS sector in Malaysia, according to Economy Minister Rafizi Ramli. Sarawak’s offshore waters are home to Malaysian oil giant Petronas’s Kasawari project – one of the largest CCS projects in the world. 

Thailand’s PTTEP is studying the viability of a CCS project in Lang Lebah, also off the coast of Sarawak. A McKinsey report earlier this year projected Southeast Asia to attract 15% of global CCS investments by 2050. 

The Ministry of Economy didn’t respond to a Bloomberg request for comment.

At the heart of the dispute between the federal government and the two states is the use of the seabed for CCS. Sarawak and Sabah had control over offshore seabeds before they joined Malaysia in 1963 under an agreement that promised vast autonomy but hasn’t been fully carried out. 

Both states are now contesting legislation in 1966 that ceded their control of the continental shelf to a federal minister, which had paved the way for the formation of Petronas, formally known as Petroliam Nasional Bhd. 

Tensions between Borneo states and the federal government could threaten Prime Minister Anwar Ibrahim’s grip on power. He is reliant on the political backing from both states, especially from Sarawak Premier Abang Johari Openg, to control a loosely cobbled alliance. 

Sarawak has already been using its political leverage as a kingmaker to Anwar’s government to carve out greater economic autonomy. It has regained control of its biggest port, is in the midst of acquiring its own airline, and is also looking to buy a controlling stake in a national bank. 

“The government needs to be more delicate in advancing this bill,”said Awang Azman Awang Pawi, a political analyst at Universiti Malaya, who is from Sarawak. “A more nuanced approach is necessary to avoid conflicts.” –BLOOMBERG