Malaysia has published the country’s first National Carbon Market Policy (NCMP), reinforcing domestic climate targets and interest in international carbon trading even as the government reviews its timeline for introducing a carbon tax.
The NCMP, published on Tuesday, outlines how the country plans to achieve its national decarbonisation targets while also participating in international compliance carbon markets under Article 6 of the Paris Agreement.
At the launch of the policy, Minister for Environmental Sustainability and Natural Resources Arthur Joseph Kurup said that the implementation of a carbon tax, which was anticipated for hard-to-abate sectors this year, is being reviewed in light of current geopolitical circumstances.
He told local media that the government does not want to put “any extra burden” on industries and society at this time. Prime Minister Anwar Ibrahim had announced last October in his 2026 budget speech that the carbon tax would be introduced for the energy, iron and steel sectors first.
In the meantime, the Malaysian government will focus on verifying carbon credits, he said.
By establishing a foundation for compliance and voluntary carbon markets, the NCMP helps Malaysia move towards a more structured and investible ecosystem, said Renard Siew, president of the Malaysia Carbon Market Association.
It also aligns the country’s climate and economic goals, and integrates carbon markets into broader national policies such as Malaysia’s upcoming Climate Change act, Siew told Eco-Business.
However, there are some “constructive gaps” in the NCMP, which include details on how voluntary and compliance markets will interact, rules on carbon credit use and its limits, as well as cross-border trading mechanisms, he said.
“While the direction is clear, the market will benefit from further detail on [those items],” Siew said. “Clarity here is essential to drive investor confidence and liquidity.”
To assess which types of projects are suitable for international agreements, the NCMP introduces a National Marginal Abatement Cost Curve, which ranks decarbonisation solutions based on how affordable it is to abate one tonne of emissions.
“Low-cost abatement options are prioritised for domestic mitigation, while higher-cost and hard-to-abate measures are most suitable for international cooperation under Article 6,” the policy said.
It calculated that Malaysia has the potential to abate about 56 million tonnes of carbon dioxide and its equivalents (MtCO2e), of which about 70 per cent falls within the low-cost range.
The cost-effective solutions include energy efficiency improvements, renewable energy deployment, and waste management measures. Higher-cost abatement options include carbon capture, utilisation and storage (CCUS) and large-scale nature based solutions.
Malaysia’s national oil company Petronas has already inked deals with Japanese firms for the development of carbon capture and storage sites at depleted reserves off the coast of eastern Peninsular Malaysia and Sarawak.
Malaysia also signed a memorandum of understanding with Singapore last year to collaborate on carbon credits under Article 6 of the Paris Agreement.
The NCMP mentions that Malaysia will focus on operationalising Article 6.4, or the Paris Agreement Crediting Mechanism (PACM), which facilitates international cooperation to achieve countries’ climate targets, also known as Nationally Determined Contributions (NDCs).
“NCMP focuses on enabling the operationalisation of PACM at the domestic level, including establishing the necessary institutional arrangements, monitoring, reporting and verification (MRV) systems, and registry infrastructure to support project development and credit issuance,” said the policy.
Although it is also considering the transition of older credits under schemes such as Clean Development Mechanism, “this is expected to be limited and transitional in nature,” the NCMP added.
Last November, Malaysia updated its NDC to include a target of reducing absolute emissions by 15-30 million tonnes of carbon dioxide equivalent (tCO2e) by 2035 from a peak level, which was not specified.
