Assessing the Sectoral Economics Consequences of Carbon Price Using Price-Output Model Analysis

Abstract A carbon pricing policy is featured in the Twelfth Malaysia Plan as a considered measure for Malaysia to achieve its net-zero emissions goal by 2050.This study utilised price and output model analysis using Eora Multi-Region Input-Output Table 2016 (MRIO) database to assess the impact of carbon tax policy on price and output changes. The study reveals that the manufacturing sector is the most sensitive to the introduction of a carbon tax, with pronounced effects including a price escalation of 0.54% and a reduction in output of 0.81%. The ranks of sensitivity then followed by agriculture, services, mining and construction sector. the services sector presents a compelling opportunity for policymakers, offering a robust tax revenue stream while displaying lower vulnerability to the tax’s effects. This observation underscores the importance of a strategic approach in carbon tax policy, where the potential for revenue generation is balanced against the differential impacts on sectoral vulnerability. This study provides an insightful information for policymakers to develop strategic plans to ensure a smooth transition towards carbon pricing policy and foster sustainable economic development.