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.

National Carbon Market Policy

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Justice is the ethical and political framework that addresses fairness, including issues of responsibility, rights, and structural inequity.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

People who are less able to respond to the effects of climate change due to having limited financial or physical assets

A tax advantage is a fiscal incentive where the government reduces or exempts selected activities, goods or actors from taxes.

A loan is a policy instrument where funds are provided to a borrower with the expectation of repaying the principal plus interest.

A subsidy is a direct or indirect payment to individuals or businesses, typically provided as a government cash payment or a specific tax reduction.

Direct investments by the governments using public funds. This can be to support climate initiatives or integrate climate into other projects.

Tradable permits are market-based tools that grant permission for specific activities, frequently used to regulate emissions. These permits can be issued within a trading system to manage environmental impacts.

A ban is a legal action that prevents the sale or supply of a product or service, or that recalls a product from the market. Examples are bans on SF6, greenwashing, fossil fuel advertisement or single-use plastics.

Financial actors and resources that are primarily directed towards climate change mitigation, adaptation and compensation.

Dedicated pool of financial resources for climate-related projects.

A target to reduce the prevalence of a greenhouse gas over a specific time frame

A commitment to balance GHG emissions with removal by a certain point in time, effectively reducing the net emissions to zero

Using laws and the legal system more broadly to protect vulnerable entities

Aligning the skills of the workforce with the requirements of the just transition.

Either money or something of monetary value is transferred between two or more organisations, people or countries.

Actions or measures to adapt terrestrial systems to climate change.

Actions or measures to adapt freshwater systems to climate change.

Coastal zone and marine-related actions and measures to adapt and increase resilience to climate change

Actions or measures to adapt freshwater, coastal and marine systems to climate change.

The release of heat-trapping gases, primarily from human activities such as burning fossil fuels, agriculture and industry.

A long-lived, colourless gas, chiefly emitted from fossil fuel combustion, deforestation and cement production.

Replacing technologies that burn fossil fuels directly with alternatives powered by electricity.

Actions to reduce emissions in energy generation and supply.

Investment in electricity transmission and distribution systems capable of integrating renewable energy, supporting electrification and strengthening energy system resilience.

Technologies that capture and hold energy in reserve for later use.

Extreme weather refers to events where a weather variable exceeds (or falls below) a threshold. Meaning it is significantly different from the average or usual weather pattern.

Terrestrial means "of the earth" and relates to the risks to ecological system that includes all living organisms and their interactions within land-based environments, such as forests, grasslands, and deserts.

Energy derived from biological compounds that are renewable due to their short life cycle within the carbon dioxide cycle.

Social inclusion is the process of improving the terms on which individuals and groups take part in society—improving the ability, opportunity, and dignity of those disadvantaged on the basis of their identity.

Heat extracted from the ground, usually in the form of hot water or steam and typically referred to as hydrothermal fluid.

Electrical energy generated from mechanical devices driven by flowing fresh water.

Production of electricity and heat from solar irradiation.

Oil is a combustible liquid fossil fuel composed mainly of hydrocarbons, occurring as crude oil and refined into petroleum products such as petrol, diesel and kerosene.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

People with different national or cultural traditions from the dominant population

Social and cultural groups that share collective ancestral ties to the lands and natural resources where they live, occupy or from which they have been displaced

Work that is productive and delivers a fair income, security in the workplace and social protection for all, better prospects for personal development and social integration, freedom for people to express their concerns, organize and participate in the decisions that affect their lives and equality of opportunity.

Jobs that contribute to preserving or restoring the environment. We include jobs which require a high amount of green skills or which spend much of their time on green activities, as well as jobs transforming polluting industries.

Any compulsory, unrequited payment to the government levied on corporations or individuals. This can be for environmental reasons, such as introducing a Carbon tax to set a price that emitters must pay for the greenhouse gases they emit.

Activities of industries that extract natural resources, such as mining, oil, and gas, for commercial use.

The activities of industries that transforms raw materials into finished goods through industrial processes.

The activities of industries involved in the production, distribution, and sale of energy, including electricity, gas, and renewables.

This sector involves managing waste treatment, sanitation, pollution control and environmental cleanup.

This sector involves the wholesale and retail selling of goods.

This sector involves activities to move goods and people, alongside the storage of products.

This sector involves activities that impart knowledge and skills to individuals, including formal schooling, vocational training and educational support.

Activities of government agencies and institutions that provide public services, enforce laws and manage public resources.

Activities of businesses and institutions that provide financial services and products to individuals and organisations.

Activities that involve the cultivation of crops and raising of livestock for food, fibre, and other products essential for human life and industry.

Activities that relate to the production of goods and services from forests.

the fair distribution of risks and opportunities of climate change and the transition to a regenerative economy, cognisant in particular of disproportionate impacts on vulnerable communities and the working class

Procedural justice means ensuring that decision making is safe, transparent and inclusive, emphasizing the agency and influence of vulnerable groups and those most impacted.

Any substance with chemical properties that can cause physical harm to people or damage the environment, including ammonia, carbon monoxide, phosphine, chlorine, arsenic, cadmium, mercury, pesticides, dioxins, microplastics, benzene, asbestos, aflatoxins, fluoride, methanol, and toxins from marine sources.

Climate change impacts our society by disrupting the natural, economic and social systems we depend on. Physical hazards and underlying vulnerabilities can lead to increased resource competition for food and water, which can heighten the risk of conflict.

Slow onset events evolve gradually from incremental changes over many years or from increased frequency or intensity of recurring events. As defined in the Cancun Adaptation Framework (2010), slow onset events include risks and impacts from rising temperatures, desertification, biodiversity loss, land and forest degradation, glacial retreat, ocean acidification, sea level rise, and salinization.