What you need to know about the newly launched policy
The Natural Resources and Environmental Sustainability (NRES) Ministry launched Malaysia’s National Carbon Market Policy (NCMP) on Tuesday.
In general, the policy aims at creating a carbon market with an enabling ecosystem for the trading of high-integrity carbon credits at the international level.
The carbon market is a system that assigns a financial value to greenhouse gas (GHG) reductions that are measured, verified and traded to offset emissions by other parties.
Carbon markets also enable targeted financing of projects that reduce or remove emissions across various sectors through a carbon crediting programme.
Buyers of carbon credits provide financing to project developers, who use the revenue from credit sales to fund projects that are otherwise not financially feasible.
One carbon credit represents one tonne of carbon dioxide equivalent (CO2e) removed or reduced.
In a Facebook post on Tuesday, NRES Minister Datuk Seri Arthur Joseph Kurup pointed out that while 70% of the country’s potential GHG reduction can be achieved through low-cost measures such as energy efficiency, the NCMP is a key instrument for addressing the remaining 30% – emissions that are harder to abate and require the wider adoption of high-cost technologies.
“With legislative support through the upcoming National Climate Change Bill, the NCMP will strengthen the competitiveness of our industries in the global market while preserving the sustainability of nature for future generations.”
What is NCMP
The National Climate Change Policy 2.0 identifies the NCMP as a catalytic initiative to advance market-based mechanisms that accelerate decarbonisation and and private sector participation.
The NCMP outlines the ecosystem and infrastructure needed to ensure a robust and effective carbon market.
It also provides the governance and technical foundation to establish a credible, transparent and effective carbon market ecosystem in Malaysia.
It sets out the following key components:
High-integrity carbon trading under the Article 6 of the Paris Agreement
A conducive carbon market ecosystem and infrastructure such as the development of a National Carbon Registry and the adoption of the Monitoring, Reporting and Verification (MRV) guidelines
Carbon pricing instrument integration
NCMP’s scope
NCMP provides policy guidance for the buyers and sellers of carbon credits generated from carbon projects in Malaysia.
Malaysia’s carbon market will focus on compliance-based mechanisms, and will complement the voluntary carbon market as it develops.
On the voluntary side, a domestic example is Bursa Carbon Exchange (BCX), which held its first carbon credit auction in July 2024 with carbon credits from the Kuamut Rainforest Conservation Project in Sabah.
Voluntary trading is often part of corporate sustainability strategies, internal mitigation goals or preparatory efforts for future regulation.
Meanwhile, compliance markets are driven by regulatory obligations. Offsets may be used within the domestic compliance framework or carbon pricing system to support progress towards the Nationally Determined Contribution (NDC, a country’s self-determined climate goals to limit global warming) or other international mitigation purposes.
The NCMP will also support participation in international markets such as Article 6 of the Paris Agreement and the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia).
Carbon credit vs carbon tax
While both carbon credits and carbon tax are tools for pricing carbon emissions, a carbon credit should not be confused with a carbon tax.
Using the carrot and stick analogy, carbon credits traded in a carbon market represent the carrot, while a carbon tax represents the stick.
A carbon tax “punishes” the source of pollution by placing a price on each tonne of CO2e released over a set threshold. The tax revenue is collected by the government and channelled into public funds.
In contrast, carbon credits create a revenue stream for projects that reduce emissions or increase greenhouse gas sequestration. The price of each tonne of CO2e is determined by market demand, and revenue from credit sales goes to the project developers.
How a carbon market works
Carbon credits are used to offset GHG emissions by companies, governments or individuals, either to achieve voluntary carbon neutrality or to comply with policy requirements.
This offset mechanism allows entities that find it difficult to reduce their own emissions to finance reductions elsewhere. It is also a cost-effective option for entities as it can quickly be sourced, compared to adopting technologies that may require time to be developed.
For hard to abate sectors, limited decarbonisation options would mean offsetting is the best solutions to contribute in reducing emission.
The issuance of carbon credits can only occur if the carbon credits fulfil the criteria set by recognised standards such as Verra (VCS) and Gold Standard. These standards define the methodological criteria, calculation methods and project boundaries, while MRV is carried out by independent verifiers.
Carbon credits should be registered in a recognised registry system. Each credit unit is unique, traceable and cannot be counted more than once. Therefore, the registry must be able to track transaction, issuance and retirement of carbon credits.
This ensures transparency, information accessibility and environmental integrity.
Why it matters
With Malaysia’s NDC 3.0 targeting an absolute emission reduction of up to 30 million tonnes of CO2e by 2035, the carbon market and the use of offsets play an important role in mobilising international carbon finance and investment.
The policy supports the country’s carbon emission reduction targets, advances the transition to a low-carbon economy and strengthens international cooperation in addressing climate change.
It is also expected to help raise funding for low-carbon projects, with potential carbon reductions of up to 56 million tonnes of CO2e by 2030.
In addition, the policy promotes the development of a green economy by attracting international investment and encouraging more renewable energy projects, in line with the National Energy Transition Roadmap.
It also enables local industries to reduce carbon emissions in a more cost-effective way.
What’s next
Among others, the focus will be on developing a national registry, operationalising the national arrangement and the enactment of the Climate Change Bill.
Targeted guidelines and training programmes will be developed to ensure stakeholders in Malaysia understand and can comply with the respective MRV requirements set by the standard owner.
Malaysia will strengthen the quality and credibility of carbon credits by promoting high-impact projects that deliver strong mitigation and sustainable development co-benefits.
At the same time, Malaysia will also strengthen linkages with international carbon markets. It has signed memoranda of understanding with South Korea in November 2024 and Singapore in January 2025 to collaborate on carbon markets aligned with Article 6 of the Paris Agreement.
Negotiations with Japan are underway.
