Malaysia is at a turning point in its sustainability journey. To achieve its goal of net-zero greenhouse gas emissions by 2050, the government will introduce the country’s first carbon tax in 2026.
This policy is more than an environmental measure—it represents a major shift in the way businesses in Malaysia will operate, trade, and compete in a global economy that prioritises sustainability.
Prime Minister Datuk Seri Anwar Ibrahim confirmed in April 2025 that the carbon tax framework will be finalised by the end of 2025 and implemented the following year. Beyond cutting emissions, the carbon tax aims to protect Malaysia’s competitiveness, encourage innovation, and prepare businesses for global trade challenges.
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Why Malaysia Is Introducing the Carbon Tax
The carbon tax supports Malaysia’s ambition to balance economic growth with climate responsibility. By putting a price on greenhouse gas emissions, the government wants businesses to reduce their carbon footprint, adopt cleaner technologies, and invest in sustainability.
According to BIMB Research, the tax could generate over RM1 billion annually in its early phases. The funds will be channelled into projects that accelerate Malaysia’s transition to a low-carbon economy, including:
- Developing renewable energy infrastructure
- Investing in carbon reduction technologies
- Supporting green innovation and industry upgrades
The policy also plays a critical role in maintaining Malaysia’s competitiveness in international trade. With mechanisms like the European Union’s Carbon Border Adjustment Mechanism (CBAM) introducing tariffs on carbon-intensive products, Malaysian exporters must show lower emissions to access global markets.
By adopting carbon pricing, Malaysia signals to trading partners and investors that the country is aligned with international sustainability standards, safeguarding future economic opportunities.
How the Carbon Tax Will Work
The carbon tax Malaysia 2026 rollout will happen in phases. Initially, it will target iron, steel, and energy sectors, which are among the largest contributors to national emissions. Over time, coverage is expected to expand to other high-emission industries, including cement, aluminium, fertilisers, and hydrogen production.
Although the exact tax rate has yet to be announced, early projections suggest it could range between RM45 and RM150 per tonne of CO₂ equivalent, placing Malaysia within regional and global benchmarks. This pricing approach is designed to balance economic competitiveness while driving businesses towards cleaner operations.
The government will also coordinate the carbon tax with its fossil fuel subsidy rationalisation strategy. Gradually reducing subsidies while introducing carbon pricing will encourage renewable energy adoption, improve energy efficiency, and give industries time to adapt without facing sudden cost pressures.
Carbon Tax Impact on Businesses
The introduction of Malaysia’s carbon tax presents both challenges and opportunities. Businesses will need to adapt quickly to remain competitive in a low-carbon economy.
1. Rising Operational and Compliance Costs
Industries heavily dependent on fossil fuels—such as manufacturing, plantations, construction, and logistics—will face higher operating costs as emissions are priced. Beyond direct costs, companies must prepare for:
- Tracking greenhouse gas emissions
- Enhancing data transparency
- Meeting stricter reporting requirements
Organisations that delay preparation risk increased financial exposure, particularly those engaged in export markets affected by global carbon regulations.
2. Supply Chain and Export Pressures
The carbon tax will affect more than just the targeted sectors. Exporters could face double taxation—once under Malaysia’s carbon pricing and again under the EU’s CBAM or other similar frameworks.
To remain competitive, businesses will need to engage suppliers and collaborate across value chains to reduce overall emissions. Supply chain transparency will become a necessity, not an option.
3. Opportunities for Early Movers
Businesses that act early will gain a strategic advantage. By measuring, reducing, and reporting emissions proactively, companies can:
- Minimise future carbon tax liabilities
- Access green financing and sustainability-linked loans
- Strengthen partnerships with investors and global buyers seeking low-carbon suppliers
Additionally, the government may offer incentives and financing support for businesses adopting low-carbon technologies, making early action even more rewarding.
Carbon Tax Preparation in Malaysia: A Three-Step Strategy
To succeed in this new regulatory landscape, businesses need to prepare now. At Bernard Business Consulting, we recommend a three-step carbon readiness strategy:
Step 1: Measure Emissions and Establish a Baseline
Start by conducting a comprehensive greenhouse gas (GHG) inventory across your operations and supply chain. Include Scope 1, Scope 2, and material Scope 3 emissions to fully understand your carbon exposure.
Having accurate data helps you identify cost-saving opportunities and prepare for compliance under the carbon pricing Malaysia framework.
Step 2: Reduce Emissions and Optimise Operations
Once you know your emissions, develop a decarbonisation plan tailored to your business. This may involve:
- Transitioning to renewable energy sources
- Upgrading equipment to energy-efficient technologies
- Improving resource optimisation within operations
- Exploring carbon offsets where immediate reductions are not feasible
These actions will not only reduce your future carbon costs but also improve operational efficiency.
Step 3: Strengthen ESG Reporting and Compliance
Transparent reporting is key to building trust and meeting evolving regulatory requirements. Align your sustainability disclosures with leading frameworks such as:
- IFRS S1 & S2 (Sustainability Disclosure Standards)
- TCFD (Task Force on Climate-related Financial Disclosures)
- Bursa Malaysia Sustainability Reporting Guidelines
Companies that adopt strong reporting frameworks early will be better positioned to attract investors, gain customer trust, and comply with upcoming regulations.
Malaysia’s carbon tax in 2026 marks a significant shift towards a low-carbon economy. While it presents challenges such as higher operating costs and compliance requirements, it also creates opportunities for businesses to innovate, improve efficiency, and secure long-term competitiveness. Companies that act early—by measuring emissions, adopting cleaner technologies, and enhancing reporting—will gain a clear advantage and strengthen their role in the evolving marketplace.
At Bernard Business Consulting (BBC), we help businesses prepare for the upcoming carbon tax and strengthen their sustainability strategy through carbon accounting, ESG compliance consulting, decarbonisation planning, and training workshops via the Bernard Business Academy.
We equip SMEs, mid-tier companies, and corporates with the tools, insights, and practical solutions to manage emissions, reduce risks, and stay competitive in an evolving regulatory landscape. Contact us today to learn how we can support your organisation in navigating Malaysia’s carbon tax and driving low-carbon growth.
Public Workshop
September 25, 2025 | November 20, 2025 @ 9:00 AM to 5:00 PM MYT
Navigating Sustainability Reporting Using IFRS Sustainability Disclosure Standards
This interactive IFRS workshop offers expert-led guidance and hands-on tools to help businesses identify ESG risks, uncover opportunities, and align with Malaysia’s NSRF.