KUALA LUMPUR (Jan 7): Industry players on Wednesday said a lack of a clear carbon tax mechanism and limited fiscal incentives pose challenges to a wider adoption of carbon capture, utilisation and storage (CCUS) in Malaysia.
While the government has laid the groundwork through the landmark Carbon Capture, Utilisation and Storage (CCUS) Act 2025 as well as other legislations, uncertainty over carbon pricing is making it difficult for companies or even other countries to justify large-scale investments with Malaysia, according to panellists speaking at CGS International’s 18th Annual Malaysia Corporate Day 2026.
“The main thing is carbon tax — everyone wants to know how much it is and how it affects their operations before they think about an investment in CCUS,” ERM senior partner for the Decarbonisation League in Southeast Asia, Voon Jye Yng said as a panelist while discussing the prospects of CCUS in Malaysia.
Malaysia’s carbon tax is pending the tabling of the long-awaited Climate Change Bill. It is expected to be tabled during the first sitting of Parliament this year.
Voon noted that expectations are however for the initial price to be relatively low, which may not be sufficient to incentivise carbon capture projects, given their high capital and operating costs.
CGS International Securities Malaysia Sdn Bhd head of research Prem Jearajasingam earlier told The Edge on sidelines of the event that Malaysia should at least benchmark its initial carbon tax rate similar to Singapore’s starting price of S$5 (RM16) per tonne of carbon dioxide equivalent (tCO2e).
Singapore introduced its carbon tax at S$5/tCO2e before raising it to S$25/tCO2e in 2024. The rate is set to increase to S$45/tCO2e in 2026 and 2027, with a longer-term target of S$50 to S$80/tCO2e by 2030.
“Carbon price competitiveness is still uncertain ... and that affects the overall picture [business case],” Voon added.
Cost structure of CCUS don’t help
Hibiscus Petroleum Bhd (KL:HIBISCS) head of decarbonisation Nurzalina Jamaluddin added that even when carbon capture infrastructure already exists — such as in gas processing facilities — storage costs alone can still be significant.
“Even without the capture cost, storage can be around US$10 to US$15 per tonne of CO2 — which is a significant amount of money that needs to be spent and invested, and that really erodes your ROI [return-on-investment]," she said.
Nurzalina added that, unlike projects in Europe and the US, CCUS developments in Malaysia currently lack strong financial support mechanisms such as tax credits, grants or subsidised financing.
“Projects like Northern Lights are highly subsidised ... and that support is what makes them work commercially,” she said, while arguing that even though Malaysia has announced CCUS incentives in principle, detailed guidance on taxation and fiscal support has yet to be issued.
Other gaps in CCUS execution being discussed during the forum also include the uncertainty over incentives, and carbon accounting, as well as long-term monitoring and verification requirements.
Malaysia national oil-and-gas giant Petroliam Nasional Bhd, or PETRONAS, currently leads the CCUS industry with its PETRONAS CCS Ventures awarded the country's first offshore CCS assessment permit for the Duyong field, to work in collaboration with TotalEnergies and Mitsui & Co.
Meanwhile Kasawari CCS, one of the world’s largest offshore CCS projects, is currently under development, while Lang Lebah CCS and the Bintulu Integrated Gas Storage and Transportation (BIGST) CCS projects are moving towards final investment decision.