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FOUR FACETS 1 Targeting the right sectors already on par with coal, and carbon pricing will only further

reinforce their competitiveness. In tandem with existing RE
CPIs issue incentives to decarbonise across economic and EE incentive programmes, carbon pricing can issue
OF CARBON PRICING activities within its scope; for this reason, comprehensive a strong impetus for an effective energy transition, which
DESIGN AND IMPLEMENTATION CPIs should cover as broad a range of economic activities as will have significant implications for decarbonisation within
possible, ensuring consistent signaling across all activities, the buildings sector. The International Energy Agency, for
industries, and sectors. This is particularly pertinent given instance, estimates that the operation of buildings accounted
the complexity and cross-sectoral nature of contemporary for almost a third of global energy consumption in 2021 and a
supply chains and the economy-wide consequences of similar share of energy-sector emissions.
01 Targeting the right sectors climate change. Nevertheless, the immediate implementation More broadly, a stepwise approach to regulating carbon
of CPIs within industries where technology-switching remains
would entail feasibility assessments of decarbonisation
costly, or even infeasible, risks generating costs that can options across key economic activities and sectors. This can
be detrimental to industrial and thus economic growth, in feed into a well-communicated approach towards expanding
exchange for little environmental benefit. Instead, to begin the scope of CPIs and allow Malaysia to circumvent some
with, CPI scope should be limited to activities that generate of the potentially negative impacts of carbon regulation.
high levels of emissions and which can employ cost-effective This may, for instance, include impacts on the international
02 Pricing carbon within the avenues towards the adoption of low-carbon practices and competitiveness of export-oriented industries, or on food
technologies.
Goldilocks zone
security, particularly where agricultural practices are
A good example of an activity ripe for low-carbon disruption carbon-intensive. Over time, as the lowest-hanging fruit
is energy generation, which in Malaysia is typically the result in the decarbonisation spectrum are captured, as carbon
of fossil fuel combustion. The energy sector is responsible prices rise (see next bullet), and as more countries move
for roughly 80% of Malaysia’s annual emissions, with towards the adoption of CPIs, a greater number of low-carbon
03 Pursuing a broad suite of approximately one-third of the total the result of electricity technologies will become economically viable, adding further
generation alone. This creates significant scope for emissions
fuel to efforts to transition successfully to a low-carbon future.
low-carbon policies
reductions and the past decade has seen tremendous growth
in the viability of low-carbon energy technologies such as 2 Pricing carbon within the Goldilocks zone
solar, wind, and biofuels from both technical and economic
standpoints, as well as energy efficiency (EE) enhancements. The pricing of carbon should be rooted in science. The
The signal of a strong carbon price can further speed up social cost of carbon (SCC), a science-based measurement
Introducing transparency
04 and accountability to carbon the transition from fossil fuels to renewable energy (RE) of the costs of each tonne of carbon-dioxide, is often touted
and greater EE. Indeed, the levelised costs of electricity for
by economists and scientists as the optimal carbon price.
pricing biomass and those observed during Malaysia’s third large- One of the latest and more comprehensive estimates of the
scale solar auction (LSS 3) reach parity with that of coal SCC, published in the journal Nature, suggests an average
under a carbon price of just RM26 per tonne. Levelised costs of roughly USD 185/tonne of carbon-dioxide, while the
for small hydro, biogas, and those observed during LSS 4 are Carbon Pricing Leadership Coalition cites a figure of between

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