Malaysia carbon tax 2026: Impact on hard-to-abate sectors and decarbonization costs

Malaysia is moving closer to implementing a carbon tax under the proposed Carbon Tax Act, targeting emissions-intensive industries like mining, iron and steel, and energy production. A hypothetical RM15 per tonne rate would add roughly RM30 per tonne to steel output and RM13.70 per tonne to cement, potentially raising construction material costs by about 1% for a typical house. But actual decarbonization in cement and steel costs between RM240 and RM360 per tonne, making a low tax rate largely symbolic. The article proposes a RM20 per tonne starting rate with a 25:75 fiscal split, where 25% of the cost passes to consumers and 75% is absorbed by industry through a transition fund. This would keep inflation below 1% while giving hard-to-abate sectors time to adjust. The key policy challenge is balancing consumer price pressure, industry affordability, and revenue for green investments without causing market disruption.