KUCHING: Sarawak’s carbon levy must be matched with captive renewable energy options for heavy industry, or firms will face rising costs without a practical way to adjust.
Universiti Malaysia Sarawak (UNIMAS) senior lecturer at the Faculty of Economics and Business, Dr Dzul Hadzwan Husaini, said the design should focus on reducing economic shocks and building viable alternatives, rather than merely imposing charges.
“Levy revenues should therefore be used to expand market choices, including matching grants or incentives for captive renewable systems such as solar, mini-hydro or biomass with storage in industrial zones, support for grid upgrades, energy efficiency financing and energy audits; and transition funds for technology upgrading and demonstration projects,” he told Sarawak Tribune.
He said the sequencing matters for competitiveness and support for the transition.
“If a levy is imposed before viable alternatives exist, industries face a double burden: rising costs with no practical pathway to adjust,” he added.
“That outcome would weaken both economic competitiveness and public support for the climate transition.”
He stressed that the levy must be implemented cautiously and in phases because it is not only a technical climate policy.
“This is not merely a technical climate policy. It is fundamentally a political economy policy that involves costs, market power and public acceptance,” he said.
He cited overseas outcomes as a warning against overly aggressive implementation or weak communication.
“International experience clearly shows the risks of overly aggressive implementation or weak policy communication.
“Australia, for example, introduced a carbon pricing mechanism but later repealed it in 2014 following political pressure and a change of government,” Dzul added.
“Japan, by contrast, adopted a more gradual approach with relatively low and cautious rates, complemented by other policy instruments introduced progressively as part of its transition strategy.”
He added that the immediate burden in practice falls on domestic players, especially heavy industries and large conglomerates.
“The key lesson is this: while economic theory may suggest that governments can raise substantial revenue through carbon pricing, in practice the immediate burden falls on domestic players, especially heavy industries and large conglomerates,” he opined.
On the rate path, Dzul said the levy should start low but meaningful and rise gradually along a clearly communicated trajectory.
“The initial rate should be low but meaningful and increased gradually along a clearly communicated trajectory, for example, over a five to ten year ‘glide path’,” he explained.
He said predictability affects investment decisions.
“Investors can adapt and invest in cleaner technologies if the pathway is predictable,” he reiterated.
“However, they are more likely to delay or withdraw investment if the policy environment appears unstable or politically vulnerable.”
On scope, he said the early phase should focus on sectors where emissions can be accurately measured and monitored, aligning with Sarawak’s plan to target oil and gas and the power sector from 2026.
“In the early phase, the levy should focus on sectors that are already well identified and where emissions can be accurately measured and monitored,” he added.
“This aligns with Sarawak’s current plan to target oil and gas as well as the power sector from 2026.”
He said expansion should follow only after the MRV system is mature and credible.
“Once the measurement, reporting and verification (MRV) system is mature and credible, the scope can then be expanded gradually,” he explained.
On exemptions, he opined that the levy should not be made cosmetic, while trade-exposed and heavy industries should receive conditional relief.
“Exemptions should not be so broad that the levy becomes merely cosmetic,” he said.
“At the same time, there must be conditional relief for trade-exposed sectors and heavy industries that face international competition and lack immediate low-carbon alternatives.”
He said output-based rebates are preferable to full exemptions.
“A more effective approach includes output-based rebates rather than full exemptions, ensuring firms still have incentives to reduce carbon intensity,” he added.
On the Climate Change Fund, he said a strengthened social safety net must run in parallel with the levy because costs will eventually flow through to consumers.
“Carbon costs will eventually flow through to consumers via higher energy and goods prices,” he pointed out.
“A portion of the Climate Change Fund must therefore be channelled back to the public through targeted assistance, particularly for vulnerable and rural communities.”
He said the levy’s credibility depends on a social buffer.
“Without a social ‘shock absorber’, the carbon levy risks becoming a political flashpoint and losing long-term credibility,” he warned.
