Malaysia Unveils National Carbon Market Policy to Build Credible Trading Framework Ahead of Carbon Tax

KUALA LUMPUR, April 23, 2026 – Malaysia has taken a significant step towards formalising its carbon market ecosystem with the launch of a National Carbon Market Policy (NCMP), aimed at establishing a structured framework for carbon credit trading before the introduction of a carbon tax.

The policy, approved by the Cabinet earlier this month, is designed to create both voluntary and compliance carbon markets, while positioning Malaysia as a credible participant in global carbon trading systems.

The move reflects a broader recalibration of climate policy across Asia-Pacific, where governments are increasingly focused on balancing decarbonisation ambitions with economic competitiveness and industrial transition.

Sequencing carbon markets before carbon pricing

A key feature of Malaysia’s approach is the sequencing of carbon market infrastructure ahead of direct carbon pricing mechanisms.

Policymakers have indicated that introducing a carbon tax without an operational carbon market could place undue cost pressures on industries. Instead, the NCMP aims to ensure that companies have access to measurable and verifiable carbon credits that can be used to offset emissions before any penalty-based mechanisms are introduced.

This approach underscores a growing recognition across emerging markets that carbon markets are not just financial instruments, but critical enablers of transition, particularly in economies where industries remain heavily reliant on carbon-intensive processes.

The timeline for introducing a carbon tax is also being calibrated in line with global economic and geopolitical conditions, reflecting a pragmatic and phased approach to climate policy.

Building integrity and infrastructure for carbon trading

At the core of the NCMP is a focus on establishing high-integrity carbon markets supported by robust measurement, reporting and verification systems.

The policy outlines plans to develop a national carbon registry to track the issuance, ownership and transfer of carbon credits, helping to prevent double counting and enhance transparency.

This focus on integrity is particularly important as global scrutiny of carbon markets intensifies. Ensuring that credits are backed by credible data and standardised methodologies will be critical to attracting both domestic and international participation.

The framework is also expected to support compliance markets aligned with international mechanisms such as Article 6 of the Paris Agreement, while continuing to stimulate activity in voluntary carbon markets.

Aligning federal and state-level carbon initiatives

Malaysia’s carbon market ambitions will require coordination across federal and state jurisdictions.

States such as Sabah and Sarawak have already introduced their own carbon-related regulations, creating a need for harmonisation to ensure consistency in pricing, verification and market participation.

The federal government is expected to work closely with state authorities to align these systems, recognising that fragmentation could undermine the credibility and efficiency of the national framework.

Positioning within APAC’s evolving carbon market landscape

Malaysia’s strategy reflects a broader trend across Asia-Pacific, where countries are adopting different pathways to build carbon market ecosystems.

In Singapore, policymakers have taken a more direct pricing approach, implementing a carbon tax while simultaneously developing international carbon credit frameworks and positioning the country as a hub for carbon services and trading. Singapore’s strategy emphasises global connectivity, high-integrity credits and cross-border carbon flows.

In Indonesia, the focus has been on establishing a domestic carbon exchange and gradually building a compliance market, particularly for the power sector. The country is also exploring cross-border credit trading, although challenges around pricing and standardisation remain.

Japan has adopted a voluntary and hybrid approach through initiatives such as the GX League, encouraging corporate participation while gradually moving towards more structured mechanisms. Meanwhile, South Korea operates one of the region’s most mature emissions trading systems, though it continues to refine allocation and pricing mechanisms.

India’s parallel push towards carbon market development

In India, the government is advancing its own carbon market framework through the Carbon Credit Trading Scheme (CCTS), which aims to establish both compliance and voluntary mechanisms.

India’s approach is closely linked to its existing energy efficiency programmes and sectoral decarbonisation targets. The focus is on building a domestic ecosystem that can support large-scale industrial transition while gradually integrating with global carbon markets.

Similar to Malaysia, India faces the challenge of balancing economic growth with decarbonisation, particularly given the scale of its industrial base. The development of credible measurement, reporting and verification systems is expected to be a key priority, alongside ensuring that carbon markets remain accessible and effective for a wide range of industries.

Expanding international linkages and capital flows

Beyond domestic implementation, Malaysia’s NCMP places strong emphasis on international cooperation.

The country aims to enable cross-border transfer of carbon credits and participate more actively in global carbon markets, including transitioning existing clean development mechanism projects into frameworks aligned with the Paris Agreement.

Such linkages are expected to play a critical role in attracting international capital, particularly as demand for high-quality carbon credits grows among corporates pursuing net-zero targets.

For businesses, the introduction of the NCMP signals a shift towards a more structured and regulated carbon landscape.

Companies in emissions-intensive sectors are likely to face increasing expectations around emissions reporting, reduction strategies and participation in carbon markets. At the same time, the development of a formalised market creates new opportunities for project developers, technology providers and investors.

Across Asia-Pacific, the convergence of policy frameworks suggests that carbon markets will play an increasingly central role in shaping capital allocation and industrial strategy.

Malaysia’s National Carbon Market Policy represents an important step in building the institutional and market infrastructure required for a low-carbon transition.

By prioritising market integrity, regulatory alignment and international connectivity, the policy seeks to create a credible platform for carbon trading that supports both domestic decarbonisation and cross-border climate finance.

As carbon markets continue to evolve across Asia-Pacific and India, the region is moving towards a more interconnected ecosystem. While approaches differ, the common objective remains clear, to create scalable, credible and economically viable pathways for achieving climate goals.