KUALA LUMPUR (July 29): A planned carbon tax next year could add close to RM1 billion annually to the government’s coffers, while pushing heavy industries to cut their emissions, said BIMB Securities.

A tax that starts at a low rate of S$5 per tonne based on Singapore’s approach could target power, transport, fuel exploitation, industrial combustion, and industrial processes sectors that collectively emit an estimated 288 million tonnes of carbon dioxide equivalent, according to the research house.

“Starting modestly allows time to evaluate its economic and environmental impact, while giving industries room to adapt,” BIMB Securities said.

Introduced in 2019, Singapore’s carbon tax is Southeast Asia’s first carbon tax targeting facilities that emit 25,000 tonnes or more of carbon dioxide-equivalent annually. Initially set at S$5 (RM16.46) per tonne, the rate rose to S$25 in 2024, and will increase to S$45 by 2026.

The tax, covering about 80% of national emissions, provides no exemptions or free allowances. Brunei, Vietnam, and Thailand have announced similar carbon tax plans.  

Malaysia’s carbon tax, meanwhile, was announced in Budget 2025 and will target high-emission sectors such as iron, steel, and energy for a start, which are among the largest contributors to the country’s carbon footprint.

The rollout coincides with the start of European Union’s Carbon Border Adjustment Mechanism that imposes carbon tariff on goods imported into the bloc, to level the playing field for Europeans who might otherwise shift their production and emission elsewhere.

In 2023, Malaysia emitted around 325 million tonnes of carbon dioxide-equivalent, with the energy sector contributing more than 80% of the total. Per capita emissions stood at nine tonnes, reflecting high fossil-fuel reliance.

“Though accounting for less than 1% of global emissions, the rising trend highlights the need to meet its 2030 carbon intensity and 2050 net-zero targets,” BIMB Securities noted.