Malaysia has announced its budget for 2026 and confirmed it will introduce a carbon tax. The 470bn ringgit ($111bn) budget also continues to support renewable energy initiatives under the national energy transition roadmap (NETR).
Malaysia has set its 2026 budget at 470bn ringgit, up from 452bn ringgit for 2025. The country recorded a growth of 4.4pc in the first half of this year, and has revised its GDP projection for 2025 to 4-4.8pc, "even as the economy faces headwinds from the US tariff war", said prime minister Anwar Ibrahim in his budget speech on 10 October. Malaysia's economy is projected to grow at a moderate pace of 4-4.5pc in 2026, weighed down by global uncertainties resulting from geopolitical tensions, said Anwar.
The country will introduce a carbon tax next year, with an initial focus on the iron, steel and energy sectors. The tax amount was not disclosed, but its mechanism will be aligned with the national carbon market policy and upcoming climate change bill, Anwar said.
The country aims to achieve net zero emissions by 2050, with the NETR setting a target of 70pc renewable energy generation capacity by that year, and the roadmap is supported by the 150mn ringgit national energy transition fund. The country's current renewable energy capacity is at 5.1GW, according to Malaysia's energy transition and water transformation ministry.
Government-linked investment firms and companies are mobilising investments worth 16.5bn ringgit for 2026, on projects such solar farms and the expansion of electric vehicle charging facilities. Malaysia also has a green technology financing scheme that is open until 31 December 2026, under which the government guarantees an incentive of up to 60pc for green technology in the energy, transport and manufacturing sectors.
Renewable expansion
Malaysia plans to increase renewable energy sources from biogas, biomass and small hydropower through an additional 300MW quota under the feed-in-tariff (FiT) programme, with operations expected to begin as early as 2028. Applications for the FiT scheme are already open, with bidding set for February-March 2026, according to the country's Sustainable Energy Development Authority (Seda).
Feed-in tariff rates beyond 2025 have not been published by Seda. Currently, biogas prices start from 278.60 ringgit/MWh ($66/MWh) and are higher for smaller projects and those that meet stricter technical requirements. Biomass prices start from 268.70 ringgit/MWh, while small hydro starts from 240 ringgit/MWh.
Additionally, the country's corporate renewable energy scheme is expected to generate investments totalling about 3.5bn ringgit, by registering companies that can generate 500MW of energy.
The next round under Malaysia's large-scale solar procurement initiative LSS6 will have a total capacity of "almost 2GW" and an estimated private investment of 6bn ringgit, said Anwar. The recent LSS5 and LSS5+ rounds in 2024 and 2025 were both capped at 2GW and were almost fully subscribed.
State-owned utility Tenaga Nasional and state-owned energy firm Petronas are also collaborating with partners in southeast Asia to accelerate the Vietnam-Malaysia-Singapore project, which will allow for the transmission of renewable energy from southern Vietnam to Malaysia and Singapore.
