Assessing carbon tax impacts on base electricity tariff in Malaysia: A system dynamics approach within an incentive-based regulation framework

This study explores the effects of a carbon tax policy on Malaysia's energy supply industry (MESI) via a System Dynamics (SD) modelling approach within the Incentive-Based Regulation (IBR) framework. The model addresses the dynamic interconnections among fuel mix transitions, generating cost frameworks, carbon emissions, and electricity tariffs over a 30-year horizon. Simulation findings indicate that the implementation of a carbon tax expedites the transition to greener energy sources, markedly diminishing reliance on coal and gas while enhancing the adoption of renewable energy. Significantly, despite initial cost constraints, the policy scenario yields a lower base electricity tariff than the no-tax scenario,attributable to the long-term advantages of decarbonised capacity expansion. The results indicate that an effectively structured carbon pricing system, when combined with conducive investment strategies, can yield both ecological and economic benefits. This report provides essential information for policymakers in formulating market-based instruments to facilitate Malaysia's low-carbon transition.