THE ECONOMICS OF SUSTAINABILITY IN MALAYSIA: CHALLENGES AND OPPORTUNITIES FOR CARBON PRICING

Climate change presents significant challenges to global economic and environmental systems, necessitating urgent policy interventions to reduce greenhouse gas (GHG) emissions. As a developing economy and a signatory to the Paris Agreement, Malaysia is committed to achieving a 45% reduction in carbon intensity by 2030 and net-zero emissions by 2050. Carbon pricing mechanisms, including the Bursa Carbon Exchange (BCX) and the planned carbon tax, represent pivotal tools in Malaysia’s strategy to integrate sustainability into its economic framework. However, the implementation of these mechanisms is not without challenges. This paper examines Malaysia’s current carbon pricing landscape, highlighting the economic, social, and regulatory barriers that hinder effective implementation. High-emission industries, such as energy and manufacturing, face financial strain under carbon pricing policies, compounded by the coexistence of fossil fuel subsidies. Small and Medium Enterprises (SMEs), which make up 98.5% of Malaysia’s businesses, are particularly vulnerable due to limited access to green finance and technical expertise. Social equity concerns further complicate the adoption of carbon pricing, as low-income households bear a disproportionate share of the economic burden. Additionally, international trade policies, such as the European Union’s Carbon Border Adjustment Mechanism (CBAM), add pressure for Malaysia to align its policies with global carbon standards. Despite these challenges, carbon pricing offers significant opportunities for Malaysia. The focus of this paper is on the challenges and opportunities of carbon pricing, and give the recommendations for Malaysia Carbon Pricing Strategies, such as enhancing Monitoring, Reporting, and Verification (MRV) systems and addressing social equity concerns. By leveraging the economic potential of carbon pricing, Malaysia can achieve its sustainability goals while fostering inclusive economic growth, maintaining global competitiveness, and strengthening its leadership role in regional climate action.