Recommendation for a National Carbon Pricing Mechanism: The Hybrid Upstream-Downstream Model

To solidify Malaysia's role as a climate leader and gain a decisive economic edge in response to global pressures like the EU's Carbon Border Adjustment Mechanism (CBAM), this paper proposes a pragmatic and equitable hybrid carbon tax framework for implementation starting in 2026. This forward-thinking model provides a clear roadmap that harness existing institutions by integrating an upstream tax on fuels for power generation, administered by the Royal Malaysian Customs Department (JKDM), with a downstream tax on industrial emissions, managed by the Inland Revenue Board (LHDN). To ensure the highest standards of transparency and international credibility, the entire framework will be anchored by a world-class digital Monitoring, Reporting, and Verification (MRV) system overseen by the Ministry of Natural Resources and Environmental Sustainability (NRES). The policy introduces a predictable carbon price, starting at RM40/tCO₂e, to give industries the certainty needed for green technology investments. It is carefully designed to protect economic stability through mechanisms that prevent double taxation and support trade-exposed industries. Critically, 100% of the revenue will be reinvested directly into the economy. This will be achieved through a "Carbon Dividend," providing cash assistance to households, and a "Green Growth" fund to empower industrial innovation. This ensures a just transition that accelerates Malaysia’s decarbonization, enhances national competitiveness, and directly benefits all communities.