Rethinking Malaysia’s Path to Net Zero

As Malaysia prepares to table its long-awaited Climate Change Bill and National Carbon Market Policy in Parliament, the country stands at an important inflection point. For the first time, climate ambition is being translated into a formal legal and institutional framework. This is a necessary and overdue step. Yet, legislation alone will not determine whether Malaysia’s transition to net zero succeeds. Without the proper use of carbon markets, this ambition would fail.

Malaysia’s latest net-zero goal under the Nationally Determined Contribution (NDC 3.0) was submitted to the United Nations Framework Convention on Climate Change in October 2025. It seeks to shift from a focus on carbon intensity to absolute emissions reductions. The country aims to hit peak greenhouse gas emissions between 2029 and 2034 (with a target to peak around 2030) and then reduce emissions by 15–30 million tonnes of CO₂-equivalent from that peak by 2035.

In parallel, interest in carbon markets has accelerated rapidly, from voluntary carbon trading with the establishment of the Bursa Carbon Exchange (BCX) to discussions around national registries, domestic projects and cross-border cooperation. Carbon credits are increasingly framed as a mechanism to attract investment, monetise the preservation of nature and support the transition towards net zero. But as the Climate Change Bill comes into focus, a more fundamental question must be confronted: are carbon credits being positioned as a bridge toward decarbonisation, or as a substitute for it?

Net zero is often confused with carbon neutral and misunderstood as an accounting exercise, a balancing of emissions and offsets that allows business as usual to continue under a “greener” label. In reality, net zero is a physical condition rooted in climate science. It requires absolute emissions reductions across various applications by physically taking carbon dioxide out of the atmosphere. This typically involves restoring forests, improving soils, or using engineered carbon capture technologies to deal with residual emissions that genuinely cannot be eliminated. If Malaysia’s climate architecture blurs this distinction, it risks creating a system that looks credible on paper while failing to deliver the reduction or negation of real-world emissions.

This risk is not theoretical. Globally, carbon markets have faced sustained scrutiny over integrity. Concerns around inflated baselines, weak additionality ( “additional” projects deliver tangible social or environmental benefits), permanence risks and limited transparency have undermined confidence in many credits. For countries rich in natural capital, including Malaysia (one of the 17th most megadiverse countries in the world), these challenges are particularly sensitive. Forests, mangroves and peatlands are invaluable climate assets, but they are also living ecosystems subject to fires, floods and competing land-use pressures.

Yet dismissing carbon credits entirely would be equally misguided. Malaysia’s transition will require significant capital not only to decarbonise power generation and industry, but also to support adaptation, community resilience and nature conservation. Public finance alone will not be sufficient. High-integrity carbon markets, if properly governed, can help channel private capital toward outcomes that might otherwise remain underfunded. The challenge is ensuring that such finance is truly additional, transparent and aligned with national climate priorities.

… net zero is a physical condition rooted in climate science. It requires absolute emissions reductions across various applications by physically taking carbon dioxide out of the atmosphere.

This is where the Climate Change Bill becomes pivotal. It would establish federal authority over climate policy and set the rules for how the system works in practice. It will align carbon pricing, carbon credits, corporate disclosures, and sectoral transition pathways so they reinforce real emissions reductions rather than operate in silos. Ultimately, it determines whether these instruments collectively drive credible, economy-wide decarbonisation.

Without clarity, fragmentation risks emerge. Carbon credits could be used inconsistently across jurisdictions, counted multiple times, or deployed in ways that dilute incentives for direct emissions reductions. A credible framework must therefore draw clear boundaries. Carbon credits should not replace the responsibility of major emitters to decarbonise. Instead, they should complement robust transition plans, science-based targets and measurable emissions trajectories. Their role should be carefully defined: supporting early-stage technologies, financing nature protection, and addressing residual emissions not masking structural inertia.

Another challenge lies in expectations. Carbon markets are often presented as a near-term economic opportunity, capable of generating revenue, attracting investment and positioning Malaysia as a regional hub. While there is genuine potential, overstating short-term gains risks repeating mistakes seen elsewhere. Carbon markets mature slowly. They require strong institutions, credible data systems, independent verification and consistent enforcement. Carbon markets could fail when governance is weak. In Malaysia, risks are practical and familiar: inconsistent enforcement, regulatory overlap between federal and state authorities (especially on land and forests), political turnover that shifts policy direction and capacity gaps in measurement, reporting and verification (MRV). There have been challenges to governance in natural resource management and concession awards. Similarly, environmental enforcement and carbon markets are not immune to those same pressures.

Globally, there are lessons. The early phases of the European Union Emissions Trading System suffered from over-allocation and price collapse due to weak data and political compromise, but reforms strengthened it. Fragmented voluntary markets in parts of Latin America and Africa have struggled where land tenure is unclear and registries are poorly coordinated. By contrast, jurisdictions like California show that robust MRV, enforcement authority and transparent registries can build credibility over time.

Without these foundations, rapid scale can undermine integrity and once trust is lost, it is difficult to recover. Equally important is the question of equity. Many carbon projects are located in rural or indigenous territories, where land rights, benefit-sharing and consent are critical. For Malaysia’s transition to be just, carbon finance must deliver tangible local benefits, not merely serve as a compliance instrument for distant emitters.

Ultimately, Malaysia’s Climate Change Bill should be judged not by how many mechanisms it entails, but by whether it drives real emissions reductions over time (and this has to be monitored, verified and reported). Success will not be measured by the number of credits issued or traded, but by whether Malaysia’s emissions peak, decline and align with a credible pathway to net zero. That requires coherence between law and implementation, between markets and regulation, and between ambition and accountability.

Malaysia has an opportunity to get this right by ensuring the bill is tightly anchored to real-economy decarbonisation. A well-designed carbon market policy can provide certainty for investors, clarity for companies and confidence for the public that climate action is more than symbolic. Carbon credits have a role to play only if it is disciplined, transparent and grounded in integrity.

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