Overview

Description

The Malaysian Ministry of Environment and Water (KASA) published the “National Guidance on International Voluntary Market Mechanisms” in September 2021, which indicates its intent to implement a domestic ETS. The Malaysian government, in close cooperation with the World Bank, is conducting the Malaysia Partnership for Market Implementation (MY PMI). It is looking into the implementation of carbon pricing instruments such as a carbon tax and an ETS in Malaysia and is covering several key aspects such as policy and market design frameworks, national registry development, and alignment with international standards. On 25 September 2025, the Cabinet approved the National Climate Change Policy 2.0 (NCCP 2.0), which identifies carbon pricing instruments and carbon markets as mechanisms to unlock climate financing and positions a forthcoming Climate Change Act as the basis for regulating these mechanisms. A consultation paper for a Climate Change Bill, released in 2024, includes provisions for the legal establishment of a domestic ETS. Under the 13th Malaysia Plan (2026–2030), the government announced it will introduce a National Carbon Market Policy and launch a domestic ETS to incentivize private sector GHG reductions. On 18 October 2025, during the Budget 2026 tabling, the Prime Minister announced the introduction of a carbon tax on the iron, steel, and energy industries by 2026, to be aligned with the National Carbon Market Policy and the forthcoming Climate Change Bill. At the subnational level, in November 2023 the state of Sarawak passed a climate bill that includes provisions to introduce mandatory emissions thresholds for certain industrial emitters. According to Sarawak officials, covered entities will be required to report their annual emissions to the state regulator and to set themselves binding emissions thresholds. Entities that fail to do so will be subject to a carbon tax, the rate of which is still to be determined by the state Cabinet.

Recent Developments

The Cabinet approved the National Climate Change Policy 2.0 on 25 September 2025, establishing carbon pricing as a strategic policy direction. The 13th Malaysia Plan (2026–2030) formally announced the introduction of a domestic ETS. A carbon tax on iron, steel, and energy industries was announced in Budget 2026 on 18 October 2025.

Coverage

Not Specified

Pricing and Allocation Approaches

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Compliance Approaches

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Relation to Other Compliance CPIs

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Covered Sectors

No eligible activities specified for this instrument.