Equity, pillar of carbon tax implementation

In a world where clean air is increasingly treated as a luxury, Malaysia is taking a bold step forward by considering the introduction of a carbon tax.

This move, aimed at reducing carbon dioxide (CO2) emissions, goes beyond mere regulation; it is a crucial effort to ensure that the basic right to clean air is preserved for our children and future generations.

Picture yourself in a bustling pasar malam (night market), where the savoury scents of cooking fill the air. Now, imagine the government stepping in and saying, “For every bit of smoke your stall produces, you need to pay a small fee.” This fee isn’t just about revenue; it’s about incentivising stall owners to adopt cleaner cooking methods, and ensuring that the market remains a vibrant, enjoyable space with cleaner air and a healthier environment.

That’s the essence of a carbon tax. It’s akin to putting a price tag on emissions – like smoke – from factories, vehicles, and other sources. These emissions, primarily CO2, though invisible, wield a significant impact on our climate, contributing to rising temperatures and extreme weather patterns.

At its core, carbon pricing is about assigning a cost to each kilogramme of CO2 emitted – much like paying for each extra scoop of rice at a buffet. The idea is simple: if there’s a price attached to emitting CO2, individuals and businesses might think twice about their carbon footprint, opting for cleaner alternatives, or finding ways to reduce emissions altogether.

Carbon trading adds another dimension. It allows entities that have successfully reduced their emissions to trade their surplus “clean air” with those struggling to cut down. This system ensures that overall emissions stay within the limits set by authorities while providing a transition period for all stakeholders.

But why does all this matter? It’s not just about generating revenue; it’s about fostering a mindset shift among businesses, drivers and policymakers. By internalising the cost of emissions, we’re compelled to explore cleaner energy sources and invest in technologies that minimise pollution – ultimately steering towards a more sustainable future.

Embracing the carbon tax serves a dual purpose. It’s a new revenue stream for the government, crucial for funding public amenities like schools and hospitals. Equally significant, it’s a proactive measure against greenhouse gas emissions, a critical step in combating global warming and climate change.

Malaysia is charting a course towards a greener future, with ambitions to achieve net-zero greenhouse gas emissions by 2050 – a vision supported by the 2023 budget, emphasising sustainability and responsible governance. Yet, this journey is just beginning, with the groundwork still underway.

Implementing a carbon tax isn’t without its challenges. Political debates, economic uncertainties, and public apprehension mark the road ahead. Nevertheless, Malaysia remains resolute, bolstering its efforts with incentives for green investments and international collaboration on climate action.

The implications of a carbon tax reverberate across society – from the government to businesses and consumers alike. While it promises additional funds for public services, it also signals a shift in traditional revenue streams as the economy pivots towards greener alternatives. For businesses, especially microenterprises and SMEs, higher operational costs may pose challenges to competitiveness, particularly against larger, international counterparts with greater financial capacity for sustainability measures.

Consumers may feel the pinch as well, with the potential for increased living costs as businesses pass on tax burdens. However, this will also catalyse societal change, driving us towards more sustainable choices like electric vehicles, for instance.

The imperative of this transition hinges on its equity. While the carbon tax is indispensable, its impact could be uneven, particularly for lower-income households that allocate a greater portion of their earnings to energy and essential commodities. These families confront a stark dilemma: either absorb the heightened costs, or make sacrifices in basic necessities.

Consider two neighbours, Pak Ali and Tan, who live in the same community. Pak Ali, constrained by financial limitations, relies on older, energy-intensive appliances, an outdated vehicle, and inefficient air conditioning systems. In contrast, Tan has invested in cutting-edge, energy-efficient technologies, including solar panels that significantly reduce his reliance on the grid for cooling, and he owns a newer, fuel-efficient vehicle.

With the implementation of the carbon tax, the costs of using outdated technologies and fuels will surge, placing a disproportionate burden on Pak Ali compared to Tan. This disparity arises not from a desire to pollute, but from the financial barriers that prevent Pak Ali from upgrading to greener alternatives.

The starkly different realities of Pak Ali and Tan highlight the critical need for equity in carbon tax implementation. Without careful consideration, such disparities can deepen societal divides, potentially perpetuating a cycle of poverty that undermines both the economic stability and wellbeing of those less able to afford the transition to cleaner technologies.

It is imperative to ensure that the burden of a carbon tax does not disproportionately fall on the shoulders of the most vulnerable in society or on microenterprises and small, and medium enterprises across Malaysia. As we stride towards a greener future, maintaining equity must be a primary focus of our efforts.

By developing and enforcing inclusive policies and supporting equitable transitions, we can lessen the adverse effects on lower-income households and small businesses. Improving public transportation in Malaysia, for example, can provide affordable, eco-friendly travel options, reducing both emissions and commuting costs for all. This initiative ensures that everyone can participate in, and benefit from our move towards a sustainable and thriving Malaysia.

Our journey to carbon neutrality demands both environmental awareness and a deep commitment to social responsibility, ensuring no one is left behind.
 
Syed Iskandar Zulkarnain is a postgraduate student at the Arshad Ayub Graduate Business School, Universiti Teknologi Mara, while Dr Ezlika Mohd Ghazali is an Associate Professor at the Faculty of Business and Economics, Universiti Malaya.

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