Malaysia’s Prime Minister, Anwar Ibrahim, has announced the introduction of a carbon tax set to begin in 2026, aiming to advance the country's decarbonisation goals. The tax, which was revealed alongside the 2025 budget, targets industries such as energy, iron, and steel, with proceeds directed towards research and development.
Sunset view over the lush landscapes of Taman Negara, Malaysia. AI generated picture.
The move places Malaysia among several Southeast Asian nations exploring carbon pricing strategies to support nature rejuvenation and counter potential tariffs from developed economies like the EU. However, the announcement surprised some, given Malaysia’s ongoing research with the World Bank on choosing the most efficient carbon pricing mechanism—either an emissions trading system (ETS) or a tax.
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Meanwhile, Malaysia’s Forest Fund (MFF) has plans to release four new carbon crediting methodologies in 2025 and seek certification under the UN-backed CORSIA aviation offset scheme by 2026. The country is also working on its first national carbon offset protocol, the Forest Carbon Offset (FCO). It remains unclear if the FCO credits will be used domestically or primarily for export under Article 6.
The 2025 budget, Anwar’s third, also includes a $16 million (MYR70 million) rebate to promote energy-efficient purchases and incentives for carbon capture, utilisation, and storage (CCUS). Additionally, the government plans to introduce a CCUS framework bill soon.
The budget highlighted biochar’s potential for land rehabilitation and greenhouse gas storage, urging collaboration across sectors to advance this sustainability agenda.
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