Malaysia is set to roll out its first carbon tax by 2026 under the upcoming National Climate Change Bill, a move Hong Leong Investment Bank (HLIB) Research says is both “strategically vital and economically pragmatic” as the nation works toward its net-zero 2050 target.
According to HLIB, the tax will initially cover carbon-intensive industries such as steel, aluminium and cement, before transitioning into a full Emissions Trading System (ETS) under the 13th Malaysia Plan. The carbon tax is expected to provide immediate price signals, while building the institutional groundwork for a more sophisticated compliance-based carbon market.
Malaysia currently relies on the Bursa Carbon Exchange (BCX), launched in 2022, which facilitates voluntary trading of carbon credits and renewable energy certificates. However, HLIB notes that a voluntary platform cannot deliver the scale of emissions cuts required. “The transition to a compliance regime is critical if Malaysia is to safeguard both its climate commitments and export competitiveness,” the research house said.
A key driver is the European Union’s Carbon Border Adjustment Mechanism (CBAM), which takes full effect in 2026. Under CBAM, importers into the EU must pay for the embedded carbon in goods such as steel, cement, and aluminium—sectors that account for an estimated 75% of Malaysia’s exports to the EU. Importantly, CBAM allows deductions for carbon taxes already paid in the country of origin, making Malaysia’s domestic carbon pricing framework essential to prevent revenue leakage abroad.
“By legislating a carbon tax, Malaysia can retain revenue domestically and recycle it into industrial decarbonisation efforts, rather than seeing it flow into EU coffers,” HLIB highlighted.
The National Climate Change Bill, expected to be tabled after Budget 2026, will serve as the legal backbone of Malaysia’s climate strategy. It will mandate ISSB-aligned climate disclosures, establish a regulatory entity, and roll out national infrastructures such as a climate data repository, carbon credit registry, and a climate fund. Non-compliance, HLIB warns, could carry financial, reputational, and competitive risks.
Industries will inevitably face higher compliance costs, but some players are already positioning themselves ahead of the curve. Press Metal Aluminium Holdings (PMetal) is leveraging hydropower to produce its low-carbon GEM™ aluminium, while Malayan Cement (MCement) has launched ECOCem™, a cement range with up to 50% lower emissions. HLIB maintains BUY ratings on both stocks, with target prices of RM6.60 and RM7.43 respectively.
HLIB concludes that while Malaysia may be a latecomer globally, the 2026 carbon tax marks a turning point. “It is not merely a defensive response to CBAM but a necessary step to institutionalise carbon pricing and align Malaysia with global low-carbon competitiveness,” the report stated.
