WELL-DESIGNED APPROACH FOR CARBON MARKET CREATES ROBUST TRADING ECOSYSTEM - ENGIE

By Siti Radziah Hamzah

KUALA LUMPUR, Dec 29 (Bernama) -- A well-designed approach can be transformative for Malaysia’s carbon markets as it incentivises industries to reduce emissions while creating a foundation for a robust carbon trading ecosystem, said Engie Services Malaysia Sdn Bhd.

Managing director Wong Yin Kee said the carbon tax complements initiatives like Bursa Malaysia’s carbon exchange, providing a transparent price signal and enabling businesses to earn and trade carbon credits by cutting emissions.

This not only drives decarbonisation but also positions the country as a key player in global carbon markets, aligning with mechanisms like Article 6.4 of the Paris Agreement, he said.

The Article 6.4 mechanism allows countries to trade reductions in carbon emissions, going beyond zero-sum offsetting, to fulfil their commitments under the Paris Agreement.

“In my view, tying financial incentives to emission reductions is an inevitable move to complement Malaysia’s broader decarbonisation efforts.

“With the right design and implementation, this will be a crucial step in ensuring Malaysia achieves its net zero ambition," he told Bernama in an interview.

In the recent Budget 2025, the government announced plans to implement a carbon tax for the iron, steel and energy industry by 2026, emphasising the country’s commitment to its emission reduction goals.

Wong pointed out that collaboration among government, industries, and stakeholders will be essential to align the tax with Malaysia’s nationally determined contributions (NDCs) and energy transition plans.

Moreover, he added that support for affected industries and communities, such as subsidies or incentives, will ensure an inclusive transition while maintaining economic growth.

Carbon Tax

Wong said the carbon tax can be a powerful catalyst for Malaysia’s carbon market.

He noted that the government sends a strong message to industries to prioritise decarbonisation by pricing emissions, creating strong incentives to adopt low-carbon technologies and energy-efficient practices.

Among the main advantages of implementing a carbon tax is ensuring Malaysian exports remain competitive, especially with mechanisms like the European Union's (EU) carbon border adjustment mechanism (CBAM).  

Wong said CBAM would impact businesses in Malaysia, especially carbon-intensive industries that are heavily reliant on exports to the EU, such as fertilisers, aluminium, cement, iron, and steel.

“When it comes to competitiveness, it goes both ways. Carbon tax encourages sustainable practices and alignment with global standards.

“However, CBAM may bring additional costs that may be unavoidable for businesses, especially those that have not adequately prepared for these changes,” he added.

 Wong explained that businesses should focus on reducing the carbon intensity of their products, and this would involve transforming operations and supply chains by adopting sustainable practices as well as improving efficiency by reducing energy use, adopting green energy, or a combination of both.  

“That is an area where Engie can help to make a difference. We help industries transition to greener practices by providing solutions like on-site solar power and large-scale renewable energy procurement.

“We also offer energy efficiency programmes, such as advanced energy performance contracts, to help businesses cut emissions and save costs,” he added.  

While the 2026 carbon tax implementation initially targets specific sectors, Wong said the scope would expand over time, and therefore, companies must start preparing now and avoid potential disruption to the business.

Challenges in Carbon Tax Implementation

Implementing a carbon tax is a significant transition that could open up opportunities for Malaysia to expedite its sustainable growth, but it is not without challenges.

Potential challenges include competitiveness, whereby export-driven, energy-intensive industries may face and fear higher costs, impacting their global standing.

Another challenge is that rising production costs could lead to higher consumer prices, which may raise concerns in a cost-sensitive environment.

Wong said industries might shift operations to countries without carbon pricing, reducing the tax’s effectiveness.

Additionally, heavy energy-consuming industries may resist the implementation of carbon tax due to increased costs that will affect their operational profit, requiring a gradual and supportive approach.  

He pointed out that implementing a carbon tax may not be easy in the initial stages, particularly for energy-intensive sectors.

He said overcoming these challenges will require close collaboration between the government, industries, and communities.

“I believe that with time, policy consistency, and the right support mechanisms -- such as subsidies for vulnerable sectors and transparent communication, businesses will adapt.

“So, we need to create a cohesive framework to build trust and ensure an inclusive transition,” he said.

Wong posited that the carbon tax may impact energy-intensive sectors like steel, iron and energy, raising costs due to higher energy prices and emissions fees.

Furthermore, many businesses may pass these additional costs onto consumers, leading to higher prices and potentially affecting demand.

However, Wong said these challenges could be mitigated through long-term planning and implementing low-carbon solutions, including energy efficiency measures and the adoption of renewable energy.

“This is the perfect time for businesses to develop and implement a decarbonisation roadmap. Early action will help establish an internal benchmark, making it easier to adapt to future regulations more seamlessly.

“Leaders should also start factoring the price of carbon into investment plans and operational strategies to future-proof their businesses against rising compliance and environmental demands,” he said.

Wong noted that public education campaigns would also be essential to highlight the long-term benefits of a carbon tax, while businesses should actively pursue decarbonisation strategies.

“Engie, for example, has partnered with UAC Bhd in Ipoh to modernise and decarbonise their utility infrastructure, cutting over 13,000 tonnes of carbon emissions annually.

“These partnerships demonstrate the potential of collective efforts to align with Malaysia’s net-zero ambitions,” he added. 

-- BERNAMA