By Khor Yu-Leng, yuleng@segi-enam.com,
Malaysia’s planned carbon tax is designed to help achieve its climate commitments, particularly its goal to reach net-zero emissions by 2050, and complement the National Energy Transition Roadmap (NETR) and its evolving fossil fuel subsidy rationalization strategy. The tax aims to kick-off in 2026 for high-emission industries like iron, steel, and energy, and phase to other sectors over time.
NETR projects, including CCUS, hydrogen, and modern grid initiatives, are expected to further cut residual emissions, especially in hard-to-abate sectors. But it is widely acknowledged that Malaysian scientists are skeptical of CCUS, a significant part of the strategy. Will Malaysia’s carbon tax have to bear more of a burden if NETR projects fall short? The carbon tax is a critical step forward, but its success needs to balance the power of price signals, hopefully with the effective strategic investment of tax revenues, supported by strong monitoring, reporting and verification (MRV) systems and adaptive policies.
Malaysia proposes to introduce a carbon tax at MYR 15/ton (USD3.60) in 2026, starting with iron, steel, and energy sectors and expanding coverage over time, with revenue directed to green transition programs and targeted incentives. Singapore began its carbon tax at SGD5/ton (USD3.84) and it is now SGD25/ton (USD19.13) for industry, power, and large facilities, using the proceeds broadly including for R&D and its carbon tax is set to rise sharply: to SGD45/ton (USD34.47) in 2026 and up to SGD50–80/ton (USD38–61) by 2030.
Thus, Malaysia’s carbon tax likely has to increase over time, faster than industry might like. So far, our check with some key players affected points to rising cost pressures and uncertainty about implementation timelines. A representative from the energy and cement sector noted that with fuel prices now market-based for businesses, operational costs continue to climb. In his view, any additional carbon tax would likely be passed through to customers, as companies have limited flexibility to absorb new charges amid already elevated energy inputs.
In the iron and steel sector, sentiment was more cautious. Market participants highlighted that many firms are currently facing losses due to a construction slowdown, while structural steel demand for data centers is being met largely by imports from China. This raises concerns about the sector’s ability to handle both carbon accounting requirements and new taxation burdens. Several buyers said the carbon tax discussion surfaced recently in management meetings, with the assumption that implementation might only occur closer to 2030, and many are still seeking clarity on the framework and compliance expectations.
Malaysia faces key challenges in rolling out its carbon tax by 2026. First, remaining fossil fuel subsidies undermine the carbon price’s effectiveness and create conflicting signals unless phased out alongside the tax. Second, industries—especially energy-intensive sectors and exporters—will face compliance, reporting, and operational costs, compounded by potential double taxation through mechanisms like the EU’s CBAM. Lastly, there is a critical need to establish robust MRV systems coupled with transparent stakeholder engagement to ensure a just and manageable transition for businesses and communities.
We need to see absolute reduction in national greenhouse gas emissions (especially in phased sectors), year-on-year growth in renewable energy adoption and green technology investment, rising effective carbon price aligned with regional/global benchmarks (versus EU’s CBAM for relevant exports), industrial energy efficiency improvements and supply chain decarbonization, and keep an eye on the reinvestment of tax revenue in climate solutions.
For more info, see China Daily - ASEAN mulls carbon taxes to cut emissions
Reach us at khorreports@gmail.com