Carbon Tax

Oct 13, 2022 | 0 comments

Increasing rate of carbon emissions is a threat to sustainable development as it highly affects the aspects of sustainability, mainly the environmental aspect. These emissions are capable of causing climate change as they trap heat and subsequently lead to extreme weather, food supply disruption, wildfires, and other climate change effects1. To mitigate this matter, one of the approaches is to impose carbon tax.

Carbon tax refers to the tax imposed on carbon emissions which in turn causes the emitters to pay for the impacts of their activities. The introduction of this tax leaves the emitters to either reduce their emissions or increase their expenditure as a mean of paying the imposed tax. It was also implemented with the aim to incorporate costs for elimination of environmental harm into the pricing decisions2. In Malaysia, the introduction of this tax is still under planning by the government and will be introduced alongside other carbon reduction measures by the end of 2022 as stated in the Twelfth Malaysia Plan3

The implementation of this tax has been a common discourse in various sectors. In a working paper by Alonso & Kilpatrick (2022), it was discovered that the implementation of carbon tax would cause a hike in energy prices, especially coal-based electricity generation as it emits high amount of GHG during its combustion. For example, increases of over 300% for Mongolia, 113% for Indonesia and 154% for Singapore were observed4. This impact will lead to increasing prices of goods production and services, particularly for carbon-intensive things such as electricity and transportation5.

Conversely, carbon tax imposition contributes to a country’s revenue generation. In a document by the US’s Congressional Budget Office (CBO), imposing USD20 per ton of CO2 (and increment of 5.6% each year thereafter) would raise approximately USD1.2 trillion during the first decade of the imposition6. Additionally, this levy also contributes to environmental improvement efforts as carbon emitters will employ emission reduction measures in their operation to meet the emission cap and avoid paying the imposed carbon tax.

By and large, there are two sides of the coin for carbon tax implementation. Its introduction was to curb environmental impacts of fossil fuels-based activities and to hold the producers responsible for the management of their fossil fuel wastes. While this contributes to sustainable development, another aspect that needs to be considered is the impacts on consumers in reaction to the price increase. Therefore, a thorough study will need to be done to ensure that all impacts of this tax implementation are covered.

In conclusion, the imposition of carbon tax plays a role as a policy tool in combating climate crisis while also helping improve the fiscal outlook of a country. However, the rate of the tax, who pays it, how it affects the lower-income households and how the generated revenue will be spent need to also be considered in developing this tax.


1.Nunez, C. Greenhouse gases, facts and information. National Geographic (2019).

2.Hájek, M., Zimmermannová, J., Helman, K. & Rozenský, L. Analysis of carbon tax efficiency in energy industries of selected EU countries. Energy Policy 134, 110955 (2019).

3.Economic Planning Unit. 12th Malaysia Plan (2021-2025). Economic Planning Unit, Prime Miniter’s Department (2021).

4.Alonso, C. & Kilpatrick, J. The Distributional Impact of a Carbon Tax in Asia and the Pacific. (2022).

5.What is a Carbon Tax? How Would It Affect the Economy? Peter G. Peterson Foundation (2021).

6.Congressional Budget Office (CBO). Effects of a Carbon Tax on the Economy and the Environment. (2013).


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