During its 2026 Budget session, the Malaysian government has confirmed plans to introduce a carbon tax next year, aligning with its commitment to build a low-carbon economy and reach net-zero emissions by 2050.
The initiative will start with sectors that generate the highest emissions, iron and steel, and energy. The ministry of finance will finalize the tax rate and mechanism in coordination with other agencies.
Carbon tax revenue to support energy transition
Revenue from the carbon tax will feed into the National Energy Transition Fund, which has been allocated RM 150 million ($35.46 million) for 2026.
The fund will finance renewable energy projects, green infrastructure, and industrial decarbonization initiatives under the National Energy Transition Roadmap (NETR).
The budget also highlights the need to support energy-intensive industries, including steel, cement, and petrochemicals, in adopting cleaner and more efficient technologies.
Expanding renewable energy capacity
Under the NETR, Malaysia aims to boost its renewable energy share to 70 percent by 2050.
Major programs include:
- Large-Scale Solar 6 (LSS 6), adding 2 GW of solar power with RM 6 billion ($1.42 billion) in private investment.
- Corporate Renewable Energy Scheme, which is expected to mobilize RM 3.5 billion ($827.43 million) in clean energy investments.
These initiatives will strengthen Malaysia’s renewable ecosystem, encourage corporate power purchase agreements (PPAs), and reduce fossil fuel dependency.
Green industrial transformation through NIMP 2030
The New Industrial Master Plan (NIMP) 2030 complements the carbon tax initiative by incentivizing industries to adopt low-carbon operations, waste reduction, and renewable energy integration.
Key financial allocations include:
- RM 180 million ($42.55 million) from the NIMP Industry Development Fund.
- RM 200 million ($47.28 million) from the Co-Investment Fund (CoSIF) for green innovation projects.
- RM 500 million ($118.20 million) in soft loans via Bank Pembangunan Malaysia Berhad (BPMB) for R&D and technology upgrades.
Fiscal incentives to support industrial shift
The budget also provides tax rebates and accelerated capital allowances for investments in energy-saving equipment and renewable energy systems, aiming to lower operational costs and stimulate green investment.
Public-private partnerships will expand access to green financing, ensuring long-term support for clean industrial growth.
Steel industry at heart of transition
The iron and steel industry has been identified as a priority sector for Malaysia’s carbon reduction strategy due to its high energy use and emissions.
Policy efforts will focus on energy efficiency improvements, expanded scrap recycling capacity and renewable energy integration in steelmaking.
Through these measures, Malaysia aims to transform its steel industry into a competitive, sustainable, and low-carbon sector, fully aligned with its national climate and industrial objectives.