MARCH-APRIL , 2023 | ESG
OPINION
31
of GDP by 45 per cent by 2030 or aim to achieve net zero by 2050 . Such an approach could establish a balanced ‘ introductory ’ carbon price for Malaysia , best suited to support the nation ’ s existing climate ambitions .
Over time , however , Malaysia should develop a clear roadmap for ratcheting up its climate targets and carbon prices , as is the case in Singapore , Canada , and many other nations .
Addressing climate change will necessitate more ambitious climate policies over time as the effects of climate change intensify . Furthermore , in the long-term , optimal economic theory suggests that there needs to be a global convergence of carbon prices , failing which economic activity – and thus emissions – can shift to jurisdictions with less stringent ( or no ) carbon regulation . Such ‘ carbon leakage ’ nullifies the collective efforts of nations to decarbonise , given the global nature of the atmosphere .
PURSUING A BROAD SUITE OF LOW-CARBON POLICIES
Carbon pricing is no silver bullet . Depending on the price and scope of carbon regulation , it has the potential to correct for the emissions ( and sequestration ) market failure , and can incentivise the shift away from using fossil fuels and other unsustainable practices .
But successfully meeting longerterm climate ambitions , including
net zero and other climate targets , will necessitate a continued focus on programmes which incentivise low-carbon technology investment and deployment . This includes programmes such as the feed-in tariff , net metering , EE incentives , and various low-carbon financial instruments .
Investment is also needed in infrastructure by enhancing Malaysia ’ s electricity grid , energy storage capacity , and public transport networks . A holistic approach to climate policy will allow Malaysia to adopt ambitious targets increasingly and set the nation towards being a regional climate leader .
On the side of conservation , carbon is not the only environmental variable counteracting pressures to exploit natural capital . Malaysia should continue and enhance its efforts to implement ecological fiscal transfers and payments for ecosystem services , as well as its forest conservation , management and rehabilitation initiatives .
This will ensure incentives favouring a broad set of environmental goods not measured solely in terms of GHG impacts . CPIs can inform the value of sequestration , but cannot factor in the benefits of improved access to and quality of water , biodiversity conservation , flood mitigation , erosion prevention efforts , and other beneficial environmental actions .
A suite of region-specific , impact-based approaches and policy instruments can address the various externalities causing the undersupply of environmental ‘ goods ’ and oversupply of environmental ‘ bads ’.
INTRODUCING TRANSPARENCY AND ACCOUNTABILITY TO CARBON PRICING
One of the chief political constraints facing carbon pricing adoption is the unpopularity of taxes . Indeed , carbon and fuel taxes have been mooted or implemented only to have later been abandoned partly due to such tax resistance , as evidenced by the repeal of a two-year-old carbon tax in Australia , and protests against fuel price hikes across several countries over recent years .
A study by Universiti Sains Islam Malaysia researchers finds that trust is a significant factor in determining public support for environmental taxes , supporting broader theoretical and empirical findings . CPIs can generate substantial revenues ; a carbon tax of just RM35 / ton in 2025 would generate RM4.2 billion .
Introducing transparency into carbon tax revenue collection and expenditure process could serve to build public support for Malaysia ’ s CPI journey ; this could be achieved by ensuring revenues are used to deliver outcomes beneficial to society . This includes further actions to mitigate and enhance the nation ’ s resilience to climate change .
The vast nature of climate change means carbon tax-funded government programming could reach a wide range of sectors and positively influence livelihoods across rural and urban Malaysia . Revenues can also be used to further support Malaysia ’ s B40 through rebate mechanisms or targeted subsidies that encourage the growth of a grassroots approach to the low-carbon transition .
There are also examples of CPI revenues being used to fund income and corporate tax reductions , which could also be targeted .
Such a transparent and accountable process makes it more likely for the broad public to accept the implementation of CPIs ; enhancing the likelihood that CPIs can persist gives these policies the bandwidth to have a steady but strong long-term influence on Malaysia ’ s low-carbon transition .
Indeed , carbon pricing should be accompanied by the introduction of climate budget tagging , a process by which public expenditures on climate change mitigation and adaptation efforts are tracked , making it straightforward to assess the government ’ s commitment to addressing climate change .
Eight years since the landmark Paris Agreement , global efforts towards limiting global warming to 2 ° C remain insufficient . The latest IPCC report finds that surface temperatures have already risen by an average of 1.1 ° C , and predicts that it is more likely than not that we will surpass 1.5 ° C in the 2030s .
Emissions must peak by 2025 and drop by almost 50 per cent by 2030 . These are challenging targets , but failing to meet them will lead to a significantly more challenging future . It ’ s time for climate policy to step up . Carbon pricing can be a vital component of the solution . – @ ESG
Note : This article is largely based on a study titled ‘ Carbon Pricing and the Business Case for Emissions Reductions and Nature Conservation in Malaysia ’ conducted by The Asia Foundation , in collaboration with the Institute of Strategic and International Studies ( ISIS ) Malaysia and Climate Governance Malaysia . The research summary can be found on The Asia Foundation website . A longer-form technical report will be published imminently .
Darshan Joshi is a climate consultant attached to the Malaysia hubs of The Asia Foundation and World Bank . His research interests centre around the economics of climate change , focusing on carbon pricing and climate policy more broadly .