Malaysia Says Carbon Tax Policy in Final Formulation Stage

Malaysia's government has announced that its carbon tax policy is now in the final phase of formulation, marking a significant step towards the country's carbon pricing framework. Deputy Finance Minister Liew Chin Tong told Parliament that details such as the tax rate, emissions threshold and scope of coverage are still being finalised before the policy is formally introduced.

The carbon tax will initially be applied to the iron, steel and energy sectors, which are among the country's largest sources of greenhouse gas emissions. According to the government, the policy is intended to establish a price on carbon emissions and encourage decarbonisation rather than serve as a revenue-generation mechanism.

Officials said the tax will be introduced gradually to avoid placing excessive pressure on businesses, particularly small and medium-sized enterprises, amid ongoing global economic uncertainty. The government recently indicated that implementation timelines were being reviewed due to geopolitical developments and concerns over rising costs, but reaffirmed its commitment to introducing the measure.

The policy is being developed alongside Malaysia's broader climate governance framework, including the National Carbon Market Policy and the proposed National Climate Change Bill. The legislation is expected to establish monitoring, reporting and verification systems that will support carbon pricing and strengthen the country's transition towards a low-carbon economy.

Malaysia first announced plans for a carbon tax in Budget 2025 as part of efforts to align with international climate commitments and evolving trade requirements such as the European Union's Carbon Border Adjustment Mechanism (CBAM). Once implemented, the tax is expected to play a key role in supporting emissions reductions and accelerating the adoption of cleaner technologies across high-emitting industries.

Final-formulation stage for Malaysia's carbon tax means corporates should now be building carbon-price scenario plans - waiting for gazetting is too late for capex sequencing. Our climate-action and market-intelligence teams help clients build carbon-pricing scenarios that stay robust across delay and acceleration paths.