Malaysia’s Path to Carbon Pricing: Preparing for the EU’s Carbon Border Adjustment Mechanism
Malaysia is gearing up to implement carbon pricing as part of its efforts to facilitate carbon trading and consider carbon taxing, in anticipation of the European Union’s Carbon Border Adjustment Mechanism (CBAM) set to commence in 2026. This initiative, announced by the Investment, Trade, and Industry Ministry, underscores Malaysia’s commitment to a greener economy and the global decarbonization agenda.
The Importance of Carbon Pricing and Taxing
Deputy Minister Liew Chin Tong highlighted that carbon pricing, trading, and taxing are essential components of Malaysia’s strategy to reduce carbon emissions. As the EU plans to tax the export of steel and other listed items under CBAM, Malaysia must adopt similar measures to avoid double taxation and remain competitive in the global market. Liew emphasized, “Collections from carbon pricing should be channeled into green investment, including green steel.”
Impact on the Iron and Steel Industry
The announcement was made during the launch of the Malaysian Iron and Steel Industry Federation’s 15th report on the industry’s status and outlook. Liew noted that the iron and steel sector is significantly influenced by global factors, with policy changes or market trends in major economies like China or the US having substantial impacts on the Malaysian industry.
The construction and real estate sectors in China are undergoing significant structural shifts, affecting global demand for construction steel. This decline in demand, coupled with a reduction in global steel demand for the second consecutive year, poses challenges for the Malaysian steel industry.
Addressing Industry Challenges
Liew stressed the ministry’s commitment to working with the industry to address the scrap metal challenge and create a more sustainable ecosystem. The regional analysis provided by the federation’s report is crucial for policymakers and industry leaders to make informed decisions.
In 2023, Malaysia’s capacity utilization of crude steel products stood at 39.1%, significantly lower than the global level of 75.7% and the ASEAN-6 level of 60.1%. However, there is a brighter outlook for flat products used in automotive, heavy machinery, and appliance industries, driven by the relocation of supply chains from China to Southeast Asia.
The Role of Green Investment
Green investment is a vital aspect of Malaysia’s decarbonization agenda. By channeling funds from carbon pricing into green technologies and industries, Malaysia aims to build a more sustainable and resilient economy. Investments in green steel production will not only reduce carbon emissions but also enhance the competitiveness of Malaysian steel in international markets.
Future Prospects and Global Influence
The implementation of carbon pricing and the commitment to green investment reflect Malaysia’s proactive approach to environmental sustainability and economic resilience. As the global steel industry faces shifts in demand and policy changes, Malaysia’s strategic moves will position it better in the evolving market landscape.
Liew concluded that more manufacturing activities in Southeast Asia present opportunities for the Malaysian steel industry, particularly for flat products. The government’s initiatives and collaborations with industry stakeholders will be crucial in navigating these changes and ensuring long-term growth and sustainability.
Conclusion
Malaysia’s commitment to implementing carbon pricing and investing in green technologies marks a significant step towards a sustainable future. By aligning with global standards and preparing for the EU’s CBAM, Malaysia aims to enhance its competitiveness and foster a greener economy. The iron and steel industry’s adaptation to these changes will be pivotal in achieving these goals and ensuring continued growth and resilience in the face of global challenges.
