A carbon tax will incentivise industries to use more green energy, for example, and also reduce emissions plus all the other bad things that contribute to greenhouse gases. — Photo: The Star
MALAYSIA should go ahead with implementing a carbon tax, but with certain conditions. This is to protect the rakyat from the negative effects.
There is no doubt that Malaysians, especially the less privileged, are uncomfortable with any new tax.
It is a matter of time before the rising cost of living climbs another rung when petrol subsidies are removed.
A carbon tax has long-term positives but we will come to that later.
First up is the point that Malaysia needs an effective rebate system built into the carbon tax.
What this means is that lower income groups will receive monies from the tax collected as rebates.
One of the first countries to implement a carbon tax was Canada, whose liberal government has drawn a lot of flak.
However, the government claims that its critics miss out one important point: That in Canada, over 80% of people receive more money back through the rebates than they pay through the carbon tax.
Additionally, if the same people use less fossil fuels in their daily lives (which is the ultimate goal of a carbon tax in the first place), they will actually benefit more from the rebates.
The rebates should be the main use of the collection of carbon taxes.
In many cases, carbon tax collection is used to reinvest in new green initiatives, but Malaysia should not allow the government to have too much control over that money.
Instead, the money should be channelled back into the economy in a more direct way, with less involvement of government officials. This will prevent any abuse. Aside from hefty rebates to the rakyat, proceeds from the carbon tax can also go into grants for companies to embark on green initiatives.
Now to make the argument of why we need a carbon tax.
The textbook reasons for having a carbon tax are to reduce greenhouse gas emissions (as it provides a financial incentive for individuals and businesses to reduce their emissions), help the country meet emission reduction and energy transition targets, and to simply address climate change.
While all that is nice to have, many would question if an economically struggling country like Malaysia can afford such luxuries?
But there is also an economic benefit from having a carbon tax. In a nutshell, it will nudge Malaysia into a more competitive position, which in turn will benefit the economy, bring in more investments and create more jobs.
It will also boost our renewable energy sector. A carbon tax is also possibly the only way Malaysia can achieve its net zero targets.
A carbon tax will incentivise industries to use more green energy, for example, and also reduce emissions plus all the other bad things that contribute to greenhouse gases.
One example is the steel industry. Deputy Investment, Trade and Industry Minister Liew Chin Tong pointed out this week that Malaysia’s crude steel industry utilisation rate is lower than the global average. More steel can be exported if Malaysia has carbon pricing imposed on the sector.
Under the Carbon Border Adjustment Mechanism (CBAM), the European Union (EU) will from 2026 tax steel exports from Malaysia and five other listed items.
Universiti Tunku Abdul Rahman economics professor Wong Chin Yoong points out that instead of letting the CBAM revenue go to the EU authority, it is better to have our own carbon tax to keep the proceeds in the country.
Industries must be given sufficient notice to prepare them for carbon tax, which should start at a low level and rise gradually. Interestingly, there is no uniform carbon tax level across the globe.
Here are some interesting statistics:
Nearly 30 countries have a carbon tax in one form or another. Many more including Thailand, Indonesia and Vietnam are considering it.
Sweden has one of the highest carbon taxes at US$120 (RM565)per tonne of CO2 equivalent (tCO2e), while the lowest taxes are in Ukraine (US$0.77 per tCO2e) and Poland (US$0.10 per tCO2e).
In 2019, Singapore became the first country in South-East Asia to introduce carbon tax at S$5 (RM17.45) per tCO2e. It was imposed on facilities that emit 25,000 tonnes or more of greenhouse gases annually, primarily in the manufacturing, power generation, waste and water treatment sectors.
The Singapore government has announced plans to increase the tax rate to S$25 per tCO2e and to S$45 per tCO2e in 2026 and 2027. The long-term goal is to reach a rate of S$50-80 by 2030.
This article first appeared in Star Biz7 weekly edition.
