Richard Baker, director of sustainability at PwC Malaysia.
KUALA LUMPUR: Malaysia’s impending carbon tax is set to reshape corporate balance sheets and accelerate demand for carbon credits as companies move to manage a new cost that will affect energy prices, supply chains and export competitiveness.
With the carbon tax taking effect from Jan 1 this year, Malaysia is positioning itself to retain carbon-related revenues domestically while aligning with global climate regimes particularly Europe’s carbon border rules.
According to Richard Baker, director of sustainability at PwC Malaysia, the policy will not only force corporates to internalise emissions costs, but also spur growth in Malaysia’s nascent carbon exchange.
“With Malaysia having a carbon tax coming out, there will now be more demand for the carbon exchange,” Baker said at CGS International Malaysia Corporate Day here yesterday.
“Because there’s no carbon tax, there’s no real demand for carbon offsets.”
Once pricing is imposed, companies facing higher tax liabilities are expected to turn to carbon credits to offset emissions, pushing up demand and prices for locally generated offsets from activities such as reforestation, renewable energy and emissions mitigation projects.
“When the carbon tax comes in, people will buy these credits to reduce their emissions and the price will increase,” he added, suggesting this to be a potential new revenue stream for project developers.
In Budget 2025, the government outlined plans to introduce a carbon tax targeting the iron, steel, and energy sectors by 2026.
The carbon tax could eventually be expanded to other critical sectors, including those already under the scope of the European Union’s Carbon Border Adjustment Mechanism, such as cement, aluminium, fertilisers, electricity, and hydrogen, as well as sectors regulated by other international frameworks.
Baker explained that without a domestic carbon price, Malaysian exporters effectively pay the tax at the European Union (EU) border instead.
“What Malaysia then said is: why is our product being taxed once it gets to the EU?
“Why don’t we tax it here in Malaysia first, get the revenue for ourselves, and then once it gets to the EU, there is less tax for that customer to pay?”
The policy also reinforces Malaysia’s broader sustainability architecture, including the National Sustainability Reporting Framework, which mandates climate disclosures for listed companies in phases from 2027 onwards.
Under the framework, sustainability data, including Scope 1 and Scope 2 greenhouse gas emissions, will eventually require external assurance, similar to financial audits.
“These are legal, these are mandatory requirements that companies will start to have to do,” Baker said.
“Your sustainability reporting will also need to be checked and verified.”
While the government has yet to announce the carbon price or legislative mechanism, Baker stressed that uncertainty should not delay preparation.
“The carbon tax is coming. It’s not ‘if’, it’s actually happening now,” he highlighted.
Even companies outside the targeted sectors will feel the impact.
Energy producers paying the tax may pass costs downstream, while higher prices for steel and cement will raise construction and manufacturing costs.
“All of you will start to see your energy prices increasing because the company you are buying from has to pay the carbon tax,” he said.
For boards and investors, the tax alters long-term investment calculations. Projects approved today without factoring in carbon costs could see returns stretched years later once the tax comes into effect.
As a result, more companies are expected to adopt internal carbon pricing, either as a “shadow price” used in feasibility studies, or as an internal charge to business units, to anticipate future liabilities and guide capital allocation.
“It’s now a real business issue,” Baker stressed. “Customers will go elsewhere, we will lose business, we will have to pay more in the carbon tax.”
