The impact of global warming has received much international attention in recent decades. To meet climate-change mitigation targets, environmental policy instruments have been designed to transform the way goods and services are produced as well as alter consumption patterns. The government of Malaysia is strongly committed to reducing CO2gas emissions as a proportion of GDP by 40% from 2005 levels by the year 2020. This study evaluates the economy-wide impacts of implementing two different types of CO2emission abatement policies in Malaysia using market-based (imposing a carbon tax) and command-and-control mechanism (sectoral emission standards). The policy simulations conducted involve the removal of the subsidy on petroleum products by the government. A carbon emission tax in conjunction with the revenue neutrality assumption is seen to be more effective than a command-and-control policy as it provides a double dividend. This is apparent as changes in consumption patterns lead to welfare enhancements while contributing to reductions in CO2emissions. The simulation results show that the production of renewable energies is stepped up when the imposition of carbon tax and removal of the subsidy is augmented by revenue recycling. This study provides an economy-wide assessment that compares two important tools for assisting environment policy makers evaluate carbon emission abatement initiatives in Malaysia.
In pursuing the goals of sustainable development and transiting from fossil fuel-dependent electricity generation to renewable and sustainable alternatives as endorsed by COP28, Malaysia set a 31 % target for renewable-energy in the power generation mix by 2025. This underlines Malaysia's commitment to combat climate change, mainly by reducing its economy-wide GDP carbon intensity by 45 % from the 2005 levels by 2030. To better understand the effects of renewable energy expansion on the economy, environment, electricity output and input-mix, a computable general equilibrium model is applied using an updated benchmark. The simulation results show that increasing the share of coal and gas in the power generation mix compromises emission reduction targets. Further, there is a trade-off between subsidized natural gas supplies and power generation and exports. The results also show that a larger proportion of renewable energy leads to improved welfare. As the share of gas and coal in renewable energy generation is not very high, its impact on carbon emissions is limited. However, if renewable energy expansion is complemented by subsidy rationalizations, the positive impacts are more pronounced. In terms of policy implications, the findings suggest that Malaysia must step up its emission reduction efforts by augmenting the generation of renewable rather than non-renewable resources. Complementary initiatives such as emission abatement policies and consumption subsidies for refined oil products and fossil-fuel power generation should be rationalized to expand renewable resources, improve energy security, and attain emission reductions.