Balancing Growth and Sustainability: The Role of Carbon Tax in Malaysia
Abstract
This concept paper discusses the important role of carbon tax as an innovative policy tool to strike a balance between economic development and environmental sustainability in Malaysia. The primary objective of this paper is to investigate the potential of carbon taxation to curtail carbon emissions in Malaysia without compromising its economic growth. This study adopts a qualitative approach, incorporating an extensive review of existing literature on carbon taxation, its implementation experiences in other countries, and Malaysia's current environmental and economic landscape. The analysis reveals that carbon taxation has the potential to incentivize carbon-emitting industries to adopt cleaner technologies and sustainable practices while generating revenue for environmental initiatives. The findings suggest that a carefully designed and well-implemented carbon tax policy can lead to a more sustainable development path for Malaysia. This paper contributes to the body of knowledge by presenting a comprehensive analysis of carbon taxation's potential to address climate change issues in the country. The originality lies in bridging the gap between economic growth imperatives and the need for sustainable environmental practices, particularly in the context of an emerging economy. This paper offers valuable guidance to policymakers, businesses, and other stakeholders involved in shaping Malaysia's environmental and economic policies. By understanding the potential benefits and challenges of carbon taxation, policymakers can design effective and efficient policies that foster economic growth while mitigating the adverse impacts of climate change. Moreover, businesses can strategize for a greener future, ensuring long-term competitiveness and sustainability in the global market.
Downloads
References
Andersson, J. J. (2019). Carbon taxes and CO2 emissions: Sweden as a case study. American Economic Journal: Economic Policy, 11(4), 1–30. https://doi.org/10.1257/pol.20170144
Ardhimansyah, T., & Khaddafi, M. (2024). A study on the management of administrative challenges and market strategies in the implementation of the carbon tax in Indonesia. Advances In Social Humanities Research, 2(7), 979-985. https://doi.org/10.46799/adv.v2i7.270
Ariffin, Z. Z., Saad, N., & Mustaphanin, S. M. S. (2024). Unveiling Perspectives on Carbon Tax in the Carbon Emissions Industry. PaperASIA, 40(3b), 12-21. https://doi.org/10.59953/paperasia.v40i3b.108
Baumol, W., & Oates, W. E. (1988). The theory of environmental policy. Cambridge University Press.
Baranzini, A., van den Bergh, J. C. J. M., Carattini, S., Howarth, R. B., Padilla, E., & Roca, J. (2017). Carbon pricing in climate policy: Seven reasons, complementary instruments, and political economy considerations. WIREs Climate Change, 8(4), 1–17. https://doi.org/10.1002/wcc.462
Barker, T., Ekins, P., & Foxon, T. (2007). Macroeconomic effects of efficiency policies for energy-intensive industries: the case of the UK Climate Change Agreements, 2000–2010. Energy Economics, 29(4), 760-778.
Carattini, S., Carvalho, M., & Fankhauser, S. (2018). Overcoming public resistance to carbon taxes. Wiley Interdisciplinary Reviews: Climate Change, 9(5), e531. https://doi.org/10.1002/wcc.531
Chow, D. S. (2024). Carbon pricing and its role in decarbonising Malaysia. PwC. Retrieved from pwc.com/my/en/perspective/esg/241017-carbon-pricing-in-malaysia.html
Cracolici, M. F., Cuffaro, M., & Nijkamp, P. (2010). The measurement of economic, social and environmental performance of countries: A novel approach. Social indicators research, 95, 339-356. https://doi.org/10.1007/s11205-009-9464-3
Das Neves Almeida, T. A., Cruz, L., Barata, E., & García-Sánchez, I. M. (2017). Economic growth and environmental impacts: An analysis based on a composite index of environmental damage. Ecological Indicators, 76, 119-130. https://doi.org/10.1016/j.ecolind.2016.12.028
Freire-González, J. (2018). Environmental taxation and the double dividend hypothesis in CGE modelling literature: A critical review. Journal of Policy Modelling, 40(1), 194–223. https://doi.org/10.1016/j.jpolmod.2017.11.002
Goh, H. H., Xu, Z., Liang, X., Zhang, D., Dai, W., Liu, H., ... & Goh, K. C. (2023). Solving carbon tax challenges with a holistic approach: Integrating evolutionary game theory and life cycle energy solutions. Journal of Cleaner Production, 423, 138817. https://doi.org/10.1016/j.jclepro.2023.138817
Goulder, L. H., & Parry, I. W. H. (2008). Instrument choice in environmental policy. Review of Environmental Economics and Policy, 2(2), 152–174. https://doi.org/10.1093/reep/ren005
Hasnu, N. N. M., & Muhammad, I. (2022). Environmental issues in Malaysia: Suggestion to impose a carbon tax. Asia-Pacific Management Accounting Journal, 17(1). https://www.doi.org/10.24191/APMAJ.V17i1-03
Hong, C.-Y., Huang, C.-H., Li, J.-F., & Tsai, Y.-C. (2018). Environmental tax reform, R&D subsidies and CO2 emissions: View the double dividend hypothesis. International Journal of Energy Economics and Policy, 8(5), 288–293. https://www.econjournals.net.tr/index.php/ijeep/article/view/6699
ICAP (2024). International Carbon Act Partnership, ICAP 2024 Status Report Executive Summary, https://icapcarbonaction.com/en
Ikram, I. (2024). Malaysia to introduce carbon tax for select industries by 2026 — PM, Budget 2025. The Edge Malaysia. Retrieved from https://theedgemalaysia.com/node/730766
IPCC. (2018). Special Report on Global Warming of 1.5°C. Retrieved from https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_High_Res.pdf
George, P. (2024). Carbon Tax: A Catalyst for Malaysia’s Carbon Market?, PwC Malaysia, https://www.pwc.com/my/en/perspective/esg/241121-malaysia-carbon-tax.html
Koppl, A., & Schratzenstaller, M. (2023). Carbon taxation: A review of empirical literature. Journal of Economic Surveys, 37(4), 1353–1388. https://doi.org/10.1111/joes.12531
Liat, C. N. A. S., Aminudin, E., Lou, E., Teck, G. L. H., Chung, L. P., Zin, R. M., & Zakaria, R. (2022). A review of the carbon tax for the Malaysian construction industry. In M. F. M. Din, N. E. Alias, N. Hussein, and N.S. Zaidi (Eds.), Sustainability Management Strategies and Impact in Developing Countries (Community, Environment and Disaster Risk Management, Vol. 26, pp. 3-13), Emerald Publishing Limited, Leeds. https://doi.org/10.1108/S2040-726220220000026001
Lin, B., & Li, X. (2011). The effect of carbon tax on per capita CO2 emissions. Energy Policy, 39(9), 5137–5146. https://doi.org/10.1016/j.enpol.2011.05.050
Maestre-Andrés, S., Drews, S., & Van den Bergh, J. (2019). Perceived fairness and public acceptability of carbon pricing: a review of the literature. Climate policy, 19(9), 1186-1204. https://doi.org/10.1080/14693062.2019.1639490
Ministry of Economy (2024). The Malaysian Economy in Figures 2024, https://ekonomi.gov.my/en/socio-economic-statistics/malaysian-economy-figures
Ministry of Finance. (2019). Economic Outlook and Policy Review. Kuala Lumpur: Government Printing Press.
Metcalf, G. E., & Stock, J. H. (2020). Measuring the macroeconomic impact of carbon taxes. AEA Papers and Proceedings, 110, 101–106. https://doi.org/10.1257/pandp.20201081
Muhammad, I., Hasnu, N. N. M., & Ekins, P. (2021). Empirical research of public acceptance on environmental tax: A systematic literature review. Environments, 8(10), 109. https://doi.org/10.3390/environments8100109
Muhammad, I., Hasnu, N. N. M., Ibrahim, M. A., Abdul Hamid, S., & Mohd Hanefah, M. (2022). Trust in government and its determinants: An empirical study of public acceptability for carbon tax in Malaysia. Sustainability, 14(23), 15684. https://doi.org/10.3390/su142315684
Nobanee, H., & Ullah, S. (2023). Mapping green tax: A bibliometric analysis and visualization of relevant research. Sustainable Futures, 6, Article 100129. https://doi.org/10.1016/j.sftr.2023.100129
Nakamura, M., Yang, F., & Watanabe, C. (2023). Carbon tax and economic development: A cross-country panel analysis. Journal of Cleaner Production, 401, 136923.
Olpah, H., Ambarwati, Suwandi, Bachtiar, W. A., & Ananda, L. D. (2023). The implementation of the carbon tax in Indonesia: regulations, challenges, and its impacts. Jurnal Riset Akuntansi Keuangan, 8(2), 180-193. https://doi.org/10.31002/rak.v8i2.1142
Parry, I., Veung, C., & Heine, D. (2015). How much carbon pricing is in countries’ own interests? The critical role of co-benefits. Climate Change Economics, 6(4), 1-26. https://doi.org/10.1142/S2010007815500190
Pegels, A. (2016). Taxing carbon as an instrument of green industrial policy in developing countries. Discussion paper (No. 23/2016), German Institute of Development and Sustainability (IDOS).
Piluso, N., & Rau, C. (2025). Carbon tax and economic stability: A broader approach to the double dividend of ecological taxation. Journal of Applied Business and Economics, 27(2). https://doi.org/10.33423/jabe.v27i2.7556
Semet, R. (2024). Coordinating social equity and emissions: Challenges in carbon tax policy. Energy Policy, 185, 113954.
Smith, J. K., & Johnson, A. B. (2021). Global warming and the impact of carbon emissions. Environmental Science Journal, 15(2), 45-58.
Sofiyati, R. A., & Hermawan, S. (2023). Tantangan dan Faktor yang Mempengaruhi Penundaan Implementasi Pajak Karbon di Indonesia. Bilancia: Jurnal Studi Ilmu Syariah Dan Hukum, 17(2), 187-208.
Statista. (2024). Carbon dioxide (CO2) emissions from energy consumption in Malaysia from 2014 to 2023. https://www.statista.com/statistics/1394260/malaysia-co2-emissions-from-energy-use
Sulistiyanti, U., & Falikhatun (2023). Carbon tax: A bibliometric analysis for future research in Indonesia. Jurnal Akuntansi dan Auditing Indonesia, 27(2), 198-207. https://doi.org/10.20885/jaai.vol27.iss2.art8
Tan, S.-H., Hong, M., & Chan, T.-H. (2020). Economic Growth, Urbanisation And Carbon Emissions: Evidence From Selected ASEAN Countries. International Journal of Industrial Management, 6, 9-16. https://doi.org/10.15282/ijim.6.0.2020.5637
Tan, Z., Wu, Y., Gu, Y., Liu, T., Wang, W., & Liu, X. (2022). An overview of the implementation of environmental tax and related economic instruments in typical countries. Journal of Cleaner Production, 330. https://doi.org/10.1016/j.jclepro.2021.129688
Tax Foundation (2025). Carbon Taxes, https://taxfoundation.org/topics/carbon-taxes/
Wang, Q., Hubacek, K., Feng, K., Wei, Y.-M., & Liang, Q.-M. (2016). Distributional effects of carbon taxation. Applied energy, 184, 1123-1131. https://doi.org/10.1016/j.apenergy.2016.06.083
Wijaya, M. (2023). Complexity of tax aspects in carbon tax implementation. Jurnal Multidisiplin Madani, 3(12), 2585-2595. https://doi.org/10.55927/mudima.v3i12.7294
World Bank (2022). State and Trends of Carbon Pricing 2022, https://documents.worldbank.org/en/publication/documents-reports/documentdetail /099045006072224607/p1780300092e910590acb201757ecd54322
World Bank (2025). World Bank Carbon Pricing Dashboard, https://carbonpricingdashboard.worldbank.org/
Yahoo, M., Salleh, N. H. M., Chatri, F., & Huixin, L. (2024). Economic and environmental analysis of Malaysia's 2025 renewable and sustainable energy targets in the generation mix. Heliyon, 10(9). https://doi.org/10.1016/j.heliyon.2024.e30157
Yamazaki, A. (2017). Jobs and climate policy: Evidence from British Columbia's revenue-neutral carbon tax. Journal of Environmental Economics and Management, 83, 197-216. https://doi.org/10.1016/j.jeem.2017.03.003
Yan, H., Shen, Q. P., Fan, L. C. H., Wang, Y. W., & Zhang, L. (2010). Greenhouse gas emissions in building construction: A case study of One Peking in Hong Kong. Building and Environment, 45(4), 949–955. https://doi.org/10.1016/j.buildenv.2009.09.014
Copyright (c) 2025 Siti Nurhazwani Kamarudin, Noor Emilina Mohd Nasir, Azmira Abdullah, Quihong Liu
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.
