Malaysia Sets 2026 Carbon Tax: ESG Ratings Compliance for Steel and Energy Exporters

Malaysia Sets 2026 Carbon Tax – Malaysian exporters are entering a new phase of international scrutiny shaped by carbon pricing, ESG disclosures, and new regulatory barriers they didn’t face even five years ago. Europe’s Carbon Border Adjustment Mechanism (CBAM), Japan’s growing ESG compliance demands, and impending domestic carbon tax legislation mean companies can no longer afford a wait-and-see approach.

For a practical roadmap on how Malaysian companies can prepare for mandatory sustainability disclosure and certification, read Malaysia’s ESG Certification Landscape: Standards and Certification Processes. This piece highlights required processes, sector focus, and government support for export-facing businesses.

Malaysia Carbon Tax Implementation 2026

Malaysia will implement a carbon tax in 2026, targeting the iron, steel, and energy industries to drive decarbonisation and align with international climate standards. The tax promotes low-carbon technologies, with revenue allocated to green research and technology programs. While the exact tax rate and mechanism have yet to be detailed, this move is part of Malaysia’s broader strategy to support emission reductions and prepare exporters for measures such as the EU’s Carbon Border Adjustment Mechanism.

So, how fast can Malaysian companies prepare for these compliance demands?

CBAM: Europe’s Carbon Filter on Trade

The Carbon Border Adjustment Mechanism (CBAM), introduced by the European Union, imposes a carbon price on imported goods that don’t meet EU climate standards. The mechanism is in its transitional phase (2023–2025), with full implementation scheduled for January 2026.

During this phase, Malaysian exporters of iron, steel, aluminium, fertilisers, cement, electricity, and hydrogen must report the embedded emissions in their products. From 2026 onwards, these importers will also need to purchase CBAM certificates reflecting the carbon price that would have been paid had the goods been produced under the EU’s emissions trading system.

If your business is just starting to navigate the complexities of cross-border ESG regulations and carbon tariffs, our blog’s coverage on Bursa Malaysia’s Updates on Sustainability Reporting Framework for Listed Companies provides timely guidance on phased reporting obligations, data requirements, and best practices for compliance.

From that point onwards, EU importers of these goods will be required to purchase CBAM certificates. These certificates represent the carbon cost that would have been incurred if the goods had been produced under the EU’s emissions regime. This effectively applies a carbon price at the border, making the EU’s climate policy global by extending its cost structure to imported goods.

To understand the financial impact, consider the average EU carbon price in 2023, approximately €80 per tonne of CO₂. For a Malaysian steel exporter emitting approximately 1.8 tonnes of CO₂ per tonne, the carbon cost of exporting just one tonne could reach around €144. When multiplied by export volume, especially in high-emission industries, this cost becomes material, like potentially altering pricing, competitiveness, and market access.

CBAM operates much like a carbon tariff. Its function is not only protective but also transformational. By introducing a cost for carbon-intensive imports, non-EU exporters are compelled to decarbonise their production processes. More than a reporting obligation, CBAM is a policy signal that expects exporting countries and companies to align their climate practices with EU standards, or risk being priced out of the market.

The Reality of Malaysia’s Carbon Tax Implementation 2026

Domestically, Malaysia has signalled that a carbon tax is not a matter of if, but when. The government has launched the Voluntary Carbon Market (VCM) and introduced a Domestic Emissions Trading System (DETS) pilot. In its recent budget statements, the Ministry of Finance confirmed that carbon pricing is being studied as a policy tool for reducing emissions and promoting fiscal reform.

While no official rate or rollout date has been confirmed, Malaysia Carbon Tax Implementation 2026 will likely begin at a modest level, perhaps RM30–50 per tonne and rise gradually to align with international benchmarks.

This will affect not just heavy industries but any business with significant Scope 1 and Scope 2 emissions, especially those reliant on fossil fuels or intensive logistics operations.

The Scope 3 Factor: What Buyers Are Asking For

Even if a company isn’t directly covered under CBAM or a carbon tax, pressure comes from upstream and downstream in the supply chain.

To understand the significance of Scope 3 emissions in your value chain and what global buyers expect, see Scope 3 Emissions: Indirect Emissions Yet Significant Impact. This article explains how to approach data collection and supplier engagement, which is now critical for maintaining export relationships.

Global customers, particularly in Europe and Japan, demand Scope 3 emissions data from their suppliers. These are indirect emissions that occur across the value chain, including:

• Purchased goods and services
• Transportation and distribution
• Business travel and waste disposal

Failing to provide this data may soon mean losing contracts for Malaysian manufacturers. Some Japanese buyers have already begun including climate-related disclosure clauses in their supplier agreements, and European importers are following suit.

In this environment, the ability to report Scope 3 emissions serves as a license to operate in export markets.

ESG Ratings and the Compliance Signal

Beyond regulatory risks, ESG ratings are becoming another filter that international buyers and financiers use. Companies with weak ESG performance may be excluded from global supply chains, pay higher interest rates on green-linked financing, or be flagged as higher risk by insurers and investors.

To get an in-depth view of how these ratings work and why they matter for your exports, check out What Companies Need to Know About FTSE4Good Ratings. This article details methodology, benchmarking, and actionable steps for boosting your scores before they impact your market access and financing.

Additionally, exporters looking to directly improve their ESG rating for global supply chains and regulatory reporting can find practical, industry-specific advice in How to Get a Good ESG Rating for Listed Companies in Malaysia.

In Malaysia, ESG ratings by FTSE Russell (read our article here on “What Companies Need to Know About FTSE4Good Ratings “) and MSCI, as well as local agencies such as RAM Sustainability, are now used as reference points by government-linked funds and banks. Ratings reflect how well a company identifies, discloses, and manages ESG risks, with carbon being the most material for many export-facing sectors.

If you’re exporting and don’t know your ESG score or don’t have one, that gap is a business risk.

What Malaysian Exporters Must Do Now

1. Start Measuring Emissions Accurately

Develop a verifiable GHG inventory for Scope 1, Scope 2, and primary Scope 3 categories. Use ISO 14064 or GHG Protocol standards. Without reliable data, disclosure is meaningless, and buyers will notice.

2. Prepare for Carbon Reporting

CBAM transitional reporting is already required for applicable sectors. If your product category falls under the scope, ensure you can calculate product-level emissions using EU-aligned methodologies.

3. Track Regulatory Announcements

Stay updated on developments related to the Ministry of Finance, Natural Resources, and Environmental Sustainability, particularly regarding implementing the Malaysia Carbon Tax 2026 policy. Early preparation will reduce future compliance costs.

4. Engage with Your Supply Chain

Collect emissions data from your suppliers. This is critical for meeting Scope 3 disclosure requests. Expect this to become standard in procurement audits.

5. Improve ESG Ratings

Review your performance across all ESG pillars. Focus on material topics such as carbon, labour rights, governance, and ensure you can point to public policies, measurable progress, and external audits.

Implementing these actions requires a proactive approach.

For help building an effective disclosure, reporting, and audit process that stands up to both EU and Malaysian scrutiny, our blog also features Malaysia’s Evolving ESG Report Creation, a guide to turning emissions data into credible reports that meet emerging expectations.

The Carbon Cost of Inaction

The global shift toward carbon accountability is accelerating. For Malaysia’s exporters, especially those targeting Europe and Japan, the impact is clear: lower emissions, higher transparency, or restricted market access.

Your competitors are already disclosing. Your buyers are already asking. The cost of compliance may be high, but the cost of being left behind is higher.

Is your company ready to meet the carbon reduction expectations of the next five years, or are you still planning based on assumptions from the last decade?

For Companies That Need Support

Implementing these actions takes time, expertise, and cross-functional coordination. If your ESG, compliance, or finance teams are not yet aligned on carbon disclosure strategy, Elite Asia can help. Our ESG services support companies in preparing for CBAM and carbon tax compliance, calculating and reporting emissions, training internal teams on sustainability and risk disclosure, or improving their overall ESG ratings. 

Whether you’re already exporting or preparing to scale into ESG-sensitive markets, now is the time to act.

For any enquiries or quotations pertaining to ESG Solutions, get in touch with our ESG solutions department below: