PETALING JAYA: The introduction of a carbon tax next year could add close to RM1bil to the government coffers annually, analysts say.

The sectors with high emissions are energy, and iron and steel, as these are among the largest contributors to the country’s carbon footprint, said BIMB Research.

The research house said it believes Malaysia’s carbon tax should start at a low rate and be gradually increased.

The research house said, based on Singapore’s example of an introductory rate of S$5 per tonne (assuming S$1 equals RM3.40), Malaysia could potentially collect up to RM980mil in annual revenue.

Carbon taxes have been adopted by more than 36 countries and imposes charges on emissions resulting from the consumption of fossil fuels such as coal, petroleum, and natural gas.

The tax serves as an incentive for emitters to reduce their carbon footprint to avoid higher costs.

The research house said starting modestly allows time to evaluate the economic and environmental impact, while giving industries room to adapt.

In 2023, certain sectors in Malaysia, such as the power industry, transport, fuel exploitation, industrial combustion and industrial processes, collectively emitted an estimated 288 million tonnes of carbon dioxide equivalent.

Malaysia as a whole emitted around 325 million tonnes of carbon dioxide equivalent, with the energy sector contributing more than 80% of the total. Per capita emissions stood at nine tonnes, reflecting high fossil fuel reliance.

Though accounting for less than 1% of global emissions, the rising trend highlights the need to meet the country’s 2030 carbon intensity and 2050 net-zero targets.

The power industry was the largest contributor, emitting 117.3 million tonnes, accounting for over 36% of total emissions.

This was followed by transport with 67.4 million tonnes, fuel exploitation 43.3 million tonnes and industrial combustion 36.1 million tonnes.

Emissions from processes at 23.8 million tonnes, agriculture 14.6 million, waste 13.2 million and buildings 9.6 million were relatively smaller but still notable.

Among Asean countries, only Singapore and Indonesia currently have operational carbon pricing systems in place, while Brunei, Vietnam and Thailand have announced similar plans.

Malaysia’s 2026 rollout of its carbon tax aligns with the commencement of the European Union’s Carbon Border Adjustment Mechanism, which imposes a carbon tariff on high-emission imports to ensure a level playing field in global carbon pricing, the research house said.

Introduced in 2019, Singapore’s carbon tax is South-East Asia’s first carbon pricing scheme, targeting facilities that emit 25,000 tonnes or more of carbon dioxide equivalent annually.

Initially set at S$5 per tonne, the rate rose to S$25 last year and will increase to S$45 by 2026, with a projected range of up to S$80 by 2030.

Covering approximately 80% of national emissions, the tax provides no exemptions or allowances.

However, starting last year, emitters could offset up to 5% of their taxable emissions using approved international carbon credits.

Tax revenues are allocated to green initiatives in support of Singapore’s 2050 net-zero target, the research house said.