CARBON markets have emerged as pivotal mechanisms in the global effort to mitigate climate change, enabling countries and corporations to trade carbon credits and thereby incentivise the reduction of greenhouse gas emissions.
Malaysia, with its rich natural resources and strategic position in Southeast Asia, is actively developing its carbon market infrastructure.
This article explores the current state and future prospects of Malaysia’s carbon markets, comparing them to initiatives in other countries, and highlighting the challenges and opportunities ahead.
Malaysia’s Commitment to Carbon Reduction
Malaysia has set ambitious climate goals, aiming to reduce its carbon emissions intensity by 45% relative to 2005 levels by 2030.
This commitment positions Malaysia alongside nations like China and Japan in terms of per capita emissions reduction targets.
The energy sector, responsible for approximately 79% of the country’s total emissions in 2022, is a primary focus for these reduction efforts.
Development of Carbon Pricing Mechanisms
In recent years, Malaysia has made significant strides in establishing carbon pricing mechanisms:
Carbon Tax Implementation: In the 2025 Budget, the Malaysian government announced plans to implement a carbon tax targeting the iron, steel, and energy industries by 2026.
This move is designed to align with international standards, particularly in light of the European Union’s Carbon Border Adjustment Mechanism (CBAM), which imposes carbon taxes on imports from countries without equivalent carbon pricing.
Voluntary Carbon Market (VCM): The Bursa Carbon Exchange (BCX), launched in December 2022, is the world’s first Shariah-compliant VCM platform. It facilitates the trading of carbon credits from both nature-based and technology-based projects accredited by Verra, with vintages from 2016 onwards. Trading on the BCX officially commenced in March 2023.
We reached out to Prof Azlizam bin Aziz, Dean, Faculty of Forestry and Environment, Universiti Putra Malaysia, to gather his insights regarding the future of the carbon market. He stated that, “In response to the rising global and local demand for carbon neutrality, Malaysian enterprises are incorporating carbon trading into their ESG strategies.
“This will foster innovation in renewable energy, reforestation, and carbon capture initiatives, establishing Malaysia as a regional leader in climate action.”
Comparison with Regional Initiatives
Malaysia’s efforts can be contextualised by examining similar initiatives in neighbouring countries:
Singapore: Singapore has implemented a carbon tax and established a comprehensive carbon credit trading system, positioning itself as a leader in the region’s carbon market development.
Thailand: Thailand has established a voluntary carbon exchange and is exploring pathways to introduce domestic carbon trading mechanisms, driven by rising investor demand for sustainable finance and a growing awareness of climate risks.
Indonesia: Indonesia is developing both voluntary and compliance carbon markets, leveraging its vast forest resources to generate carbon credits and attract international investment.
Challenges and Opportunities
While Malaysia has made commendable progress, several challenges and opportunities lie ahead:
Regulatory Framework: The legal landscape for carbon trading in Malaysia is still developing. At the federal level, there are no specific laws directly addressing carbon credits, which may lead to uncertainties for investors and project developers.
Market Integration: Establishing interoperability between Malaysia’s carbon market and those of other ASEAN countries could enhance market efficiency and liquidity.
Collaborative efforts, such as the ASEAN Carbon Connectivity Framework (ACCF), aim to standardise legislation and processes across the region, unlocking prospects for long-term growth while addressing pressing climate concerns.
Capacity Building: Developing local expertise in carbon project development, validation, and verification is crucial. Engaging local players and collaborating with global organisations can accelerate the pace of project development and carbon credit issuances.
Technological Advancements: Leveraging technology, such as blockchain, can enhance transparency and efficiency in carbon trading.
Malaysia’s position as the first Shariah-compliant carbon exchange could attract foreign Islamic finance, further boosting
the market.
Future Outlook
The future of Malaysia’s carbon markets is promising, with several key developments on the horizon:
Expansion of Carbon Tax: The initial implementation of the carbon tax in 2026 may be extended to other key sectors in the future, especially those already covered by the EU’s CBAM, such as cement, aluminium, fertiliser, electricity, and hydrogen sectors.
Regional Collaboration: Malaysia’s role as ASEAN Chair in 2025 presents an opportunity to lead regional efforts toward carbon neutrality.
Collaborations, such as the ACCF, aim to create a unified regional carbon market, ensuring a larger pool of high-quality carbon credits and facilitating more efficient trading.
Market Potential: Southeast Asia’s overall carbon market could potentially reach a cumulative value of up to $3 trillion by 2050, creating 13.7 million new jobs and reducing 1.1 billion tons of carbon emissions annually. Malaysia, with its rich natural carbon sinks, is well-positioned to capitalise on this growth.
Conclusion
Malaysia’s proactive approach to developing its carbon markets reflects a strong commitment to achieving its climate targets and contributing to global carbon reduction efforts. By addressing current challenges and leveraging regional collaborations, Malaysia can position itself as a leader in the ASEAN carbon market, driving sustainable growth and environmental stewardship in the years to come.
The views expressed here are those of the writer and do not necessarily represent the views of Sarawak Tribune.
