The National Carbon Market Policy establishes a credible, transparent, and robust national framework for carbon market operations. It is designed to operationalise the Paris Agreement at a domestic level, helping Malaysia transition toward a low-carbon economy while achieving its climate targets. It provides policy guidance for the buyers and sellers of carbon credits generated from Malaysian carbon projects for three main compliance usage, i.e, NDC achievement, other international mitigation purposes (OIMP), and offset use for domestic compliance.
Key pillars of the policy:
The framework is structured around four core pillars:
Pillar 1: Implementation of a high-integrity carbon market - Focuses on generating verifiable, high-quality offsets and steering international participation under Article 6 of the Paris Agreement to safeguard national interests and prevent double counting.
Pillar 2: Driving a conducive carbon market ecosystem and infrastructure - Outlines the digital, technical, and regulatory infrastructure required, including the establishment of an integrated National Carbon Registry and a standardized Monitoring, Reporting, and Verification (MRV) framework.
Pillar 3: Catalysing and accelerating carbon credit trading - Aims to reduce market entry friction by streamlining trading processes, improving project bankability, mobilizing public/private finance, and launching targeted incentive schemes.
Pillar 4: Complementing sectoral decarbonisation actions at domestic and international levels - Focuses on integrating carbon markets with potential Carbon Pricing Instruments (CPIs) (such as a future carbon tax or emissions trading scheme), ensuring sub-national readiness, and aligning with global trading measures.
Key core mechanisms
Paris Agreement Article 6 Alignment - Malaysia aligns its international trading with the rules of the Paris Agreement.
1. Article 6.2 and 6.4: Direct policy guidance is established for utilizing cooperative approaches and the centralized Paris Agreement Crediting Mechanism (PACM) to achieve carbon market obligations securely.
2. Corresponding adjustments (CA): Mandatory accounting rules are put in place to add or subtract mitigation outcomes between seller and buyer countries to avoid double counting.
3. Other International Mitigation Purposes (OIMP): The policy sets up authorization mechanisms for sector-specific international schemes, most notably CORSIA for international aviation, which becomes mandatory in 2027.
The Marginal Abatement Cost (MAC) Curve -The policy utilizes a National MAC Curve as an evidence-based tool to prioritize climate action.
1. Abatement potential: Assesses an overall emission-reduction potential of 56 MtCO2e in 2030 across more than 120 measures in six key sectors.
2. Domestic vs. international split: Approximately 70% (39 MtCO2e) consists of negative or low-cost options (e.g., energy efficiency, solar) reserved for domestic mitigation targets. The remaining 30% (17 MtCO2e) comprises high-cost, hard-to-abate measures (e.g., CCUS, hydrogen) that are deemed most suitable for international finance via Article 6.
Government crediting programmes - The operational market mechanism starts with a focus on forestry-based carbon credits through the Forest Carbon Offset (FCO) framework, reflecting Malaysia's distinct state-level land jurisdictions. Future sector expansions (e.g., waste, energy, transport) will be evaluated over time based on infrastructure readiness.
Policy enablers and delivery - To ensure institutional readiness, the policy lays out five cross-cutting enablers.
1. Legislation: Anchored by the upcoming National Climate Change Act to provide overriding legal authority.
2. Governance: Positioned under NRES as the Designated National Authority (DNA) and the Jawatankuasa Dekarbonisasi Kebangsaan (JDK) to bridge federal-state coordination.
3. Human Capital: Specialized capacity building, certification streams, and upskilling for project developers and frontline communities.
4. Strategic Resource Mobilization: Fulfilling the international share-of-proceeds obligations and evaluating funding structures for digital registries.
5. CEPA Framework: A Communication, Education, and Public Awareness framework aimed at reducing public misinformation, promoting youth climate leadership, and maintaining culturally sensitive dialogue with Indigenous communities regarding benefit-sharing.
Validation and Verification Body
The policy states that the government will maintain a public list of accredited VVBs authorised to operate within the national carbon market, and will provide clear information on the applicable accreditation frameworks and recognised standards required for validation and verification activities.
Recognition of methodologies by regulation
The policy explicitly recognizes and integrates independent international standards like Gold Standard, Verra, PACM, and JCM into its market architecture.
Registration of the PD or project with the national registry for VCM and Article 6
For VCM, registration is highly encouraged, but conditionally mandatory depending on the developer's intent, but is mandatory if it intends to seek Article 6 authorisation. While for Article projects, it is mandatory.
Approval for listing, issuance, trade, authorisation and corresponding adjustment
The regulation mandates government approval for listing, issuance, trade, and authorization.
Transfer of credits to registry after issuance and CA
Credits need to be admitted or reflected in the national registry immediately after issuance. Once a standard operator successfully processes a request for issuance, the resulting units are structurally recorded within the Transaction Registry to enable secure tracking, price discovery, and visibility across approved sales channels. The credits must interface directly with the national registry for a corresponding adjustment to occur.
