Malaysia, being an oil and gas producer, has a natural disadvantage in implementing a carbon tax. Our carbon footprint is large and the national oil company is already dealing with those challenges steadfastly. — AZMAN GHANI/The Star
CONCERNS over climate change are driving socioeconomic decisions in ways never seen before. In many countries, environmental protection is given priority, and companies are following suit.
In Malaysia, a carbon tax is becoming increasingly likely as part of the country’s commitment towards net zero carbon emissions by 2050.
A carbon tax was mentioned this week specifically as a means of dealing with some exports to the European Union by 2026, and later the entire production spectrum by 2030, which gave a better understanding of the country’s commitment to implementing the sweeping environmental tax that will take effect in the near future.
According to politicians, the carbon tax is an eventuality, not a matter of if. The bigger question is how it will be done.
The word tax implies that the government is trying to raise revenue by taxing. It is no different with carbon tax, which in theory should be a means to to raise money to fund the nation’s commitment to a more carbon-neutral future.
Changing production and consumption habits will require capital and new technologies. Implementing a carbon tax requires a lot of planning, especially how to get it done.
Malaysia, being an oil and gas producer, has a natural disadvantage in implementing a carbon tax. Our carbon footprint is large and the national oil company is already dealing with those challenges steadfastly.
The next hurdle is reversing our low energy costs for both petrol and electricity. To move forward with a carbon tax will suggest that the cost for both energy sources will need to go up.
Petrol subsidies, especially for RON95, have to be removed. The recent diesel rationalisation shows that it has not moved the needle too much in terms of cost and inflation, and has been met with political opposition.
The diesel rationalisation will see the government save RM4bil but it still has to commit large amounts of money to keep prices stable. That’s just for an energy source that doesn’t really raise inflation much if fully floated.
What if the price of RON95 is raised to full-float and introducing market pricing for electricity? There is a possibility that the blowback could be as catastrophic politically as the introduction of the Goods and Services Tax.
Then there is the issue of moving away from coal-powered generation. Malaysia is not blessed with an abundance of solar radiation to fully swap its coal plants for solar.
There is hydropower potential but much of that is in Sarawak. Regulators will need to figure out how to adequately power Malaysia’s green ambition without the brownouts.
The main reason for this is the impact on the cost of living.
As it is, companies always strongly resist any move to raise minimum wage.
If, subsidies are removed and a tax is imposed on top of that, what would the outcome be? How is the ordinary Malaysian supposed to pay for large-scale cost increases?
The public outcry, with minimum wage being below the poverty line, will be politically challenging. Inflation will eat into the people’s purchasing power.
News of how a country like Canada is dealing with what some say is a cost-induced inflation brought about by the country’s carbon tax is akin to self-inflicted dystopia.
Singapore has introduced a carbon tax, and one can argue it can because of the structure of its economy and the First World issues it has to deal with being a developed economy.
Malaysia is just not there yet.
The government will need to show how it is going to spend money raised from the carbon tax for the benefit of people. If the answer is through a rebate or cash handouts, then there will be parties who will question its effectiveness.
The government has taxed tobacco, alcohol or gaming but how that extra income has benefitted society is still left wanting. There needs to be a clear revelation of a cost-inducing carbon tax on social and governmental services for the benefit of the people.
Having a carbon tax on industry will also raise the cost of Malaysia’s exports. How does that benefit the competitiveness of Malaysia’s exports and would it be best to have a carbon tax on companies that do export to Europe as it accounts for only 8% of exports? Why burden the rest of the 92%?
Then there is the global uniformity of carbon taxes and its effect on cost and inflation.
Maybe the solution lies somewhere in the middle with the government, for a start, looking at regulations instead of taxes to reduce carbon emissions.
