Malaysia's sustainable development plans for 2025: Will carbon taxes be replaced by fuel subsidy reductions?

In a significant move towards environmental sustainability, Malaysia introduced the Corporate Renewable Energy Supply Scheme (CRESS) in September 2024, enabling corporate consumers to purchase renewable energy directly from independent power producers (IPPs). This initiative is part of a broader strategy aimed at increasing the country's renewable energy capacity.

The energy sector, contributing significantly to Malaysia's greenhouse gas (GHG) emissions, is undergoing reforms to enhance efficiency and promote renewable energy integration. The sector aims to achieve a 31% renewable energy capacity this year, as part of the National Energy Transition Roadmap (NETR).

One of the flagship projects under the NETR is the 2.5GW of hybrid hydro floating solar projects, which will contribute to the country's renewable energy goals.

Malaysia is also addressing the challenge of managing its growing municipal solid waste by launching waste-to-energy (WTE) plants. However, over 1,000 kilotonnes of manufacturing waste is currently classified as 'others', indicating a gap in how Malaysia identifies and processes used materials. To address this, the country is moving towards a polluter-pays model by introducing a circular economy framework for the manufacturing sector and planning to implement a mandatory Extended Producer Responsibility (EPR) scheme within the next five years.

For effective implementation of EPR, policies should prioritize waste segregation and retrieval, data reporting mechanisms, and focus on reducing resource extraction and ensuring product longevity. Non-governmental organizations, Zero Waste Malaysia and Center to Combat Corruption & Cronyism (C4), emphasize the need for measurable waste reduction targets, timelines, economic incentives, and penalties for non-compliance.

Malaysia is also operationalizing the ASEAN Common Carbon Framework (ACCF) through an agreement with Singapore, Thailand, and Indonesia. However, information about the countries involved in the realization of the ASEAN Carbon Window Initiative in 2025 through an agreement with Malaysia is not currently available.

In the realm of climate policy, the draft climate change bill in Malaysia could establish a legal framework for climate action. However, it has been criticized for lack of provisions on climate adaptation, loss and damage, and the rights of Indigenous peoples. The draft bill underwent the first round of public consultation in October 2024, with concerns raised about gaps in the draft bill and the need for inclusive and participatory climate governance.

Malaysia is also pursuing fuel subsidy reforms to enhance economic efficiency and promote environmental sustainability. Prime Minister Anwar Ibrahim announced a plan to cut subsidies for RON95 petrol for the top 15% of income earners, starting mid-2025, with concerns about potential inflation disproportionately affecting lower-income groups. Economist Professor Dr Geoffrey Williams suggests a tiered pricing system to ensure fuel subsidy reforms are equitable and do not disproportionately burden lower-income groups.

In the electric vehicle (EV) sector, Malaysian carmaker Proton launched its first locally assembled EV, the e.MAS 7, in December 2024, expected to boost EV adoption nationwide. Williams believes market forces are driving the shift towards EVs, with no need for additional incentives, and rising petrol prices from subsidy cuts making EVs more viable.

Malaysia is also expected to leverage its leadership as ASEAN chair to drive the adoption of the ACCF and promote regional collaboration on carbon markets. Renard Siew, president of Malaysia Carbon Market Association (MCMA), expects 2025 to be a transformative year for Malaysia's carbon market.

Lastly, Malaysia is undertaking grid infrastructure investments, comprehensive electricity planning, and revising electricity planning and tariff structures, with the intention of liberalizing the electricity market. The country is also engaging companies in the iron, steel, and energy sectors to prepare for the carbon tax announced in the 2025 budget. Challenges remain in transitioning to cleaner energy sources, as Malaysia has yet to launch an emissions trading system and the addition of new data centers will increase greenhouse gas emissions. Nonetheless, Malaysia's commitment to sustainability and its ambitious plans for renewable energy integration and waste management are clear.

Malaysia's sustainable development plans for 2025: Will carbon taxes be replaced by fuel subsidy reductions?