What You Need to Know as a Mega Electricity User

Introduction

Carbon tax is a form of tax imposed on producers who emit or generate greenhouse gases (“GHG”) into the environment. One may contribute to the emission of GHG when using electricity, particularly when the electricity is generated from non-renewable energy resources such as natural gas, fossil fuels, and coal. 

As of February 2025, Malaysia remains one of the few countries in the Asia region that has yet to implement carbon tax. In contrast, countries like Japan, Indonesia, and Singapore have already integrated carbon taxes into their respective taxation systems. However, in the 2025 Budget announcement, the Malaysian government outlined plans to introduce a carbon tax by 2026, focusing on industries such as iron, steel, and energy. This initiative aligns with global environmental, social, and governance (ESG) standards and demonstrates Malaysia’s commitment to cutting carbon emissions. 

Malaysia’s Initiative To Reduce Carbon Footprint

In recent years, the Malaysian government has demonstrated its commitment to reducing carbon emissions and promoting green energy by way of implementing Renewable Energy Act 2011, which regulates the generation and supply of electricity from renewable sources, including biogas, biomass, small hydropower, and solar photovoltaic systems. 

More recently, the Energy Efficiency and Conservation Act 2024 (“EECA”) came into effect on 1 January 2025. The EECA is designed to improve energy efficiency and reduce energy wastage. The EECA applies to three main categories: 

• energy consumer that exceeds a certain energy consumption threshold over 12 months (“Energy Consumers”); 

• buildings listed in the third schedule of the EECA, namely office building; and 

• energy-using products as outlined in EECA guidelines. 

For this article, we will focus on Energy Consumers under category (A). 

Energy Consumer Under EECA

The Energy Commission will determine whether a person qualifies as an energy consumer and issue a written notice accordingly. Pursuant to item 4.1 of Guidelines on Ascertaining Energy Consumer issued by Energy Commission (“Energy Consumer Guidelines”), the energy consumption is determined by (a) measuring the consumption of energy or energy resources received from a Supplier of Energy; or (b) by measuring energy generated from solar photovoltaic or solar thermal energy resources. Notably, the EECA extends its scope beyond conventional electricity consumption to include renewable energy such as solar energy. 

Under Energy Consumer Guidelines, a “Supplier of Energy” includes any person supplying energy (such as electricity, chilled water, steam, hot water) or energy resources (such as hard coal, coke or oven coke, gas coke, brown coal coke, pattern fuel briquettes, lignite or brown coal, peat, lignite briquettes, liquefied natural gas (LNG), butane, propane, natural gas, ethane, methane, solar photovoltaic, solar thermal, biogas, biodiesel, charcoal, empty fruit bunch (EFB), fuelwood, mesocarp fibre, palm kernel shell (PKS)) which include but not limited to (a) licensee under the Electricity Supply Act 1990 [Act 447] or (b) licensee under the Gas Supply Act 1993 [Act 501]. 

To qualify as an Energy Consumer under the EECA, a business must have an energy consumption of 21,600 gigajoules or more over 12 consecutive months. Businesses must convert their energy usage into gigajoules (GJ) using the conversion formula provided in Appendix A of the Energy Consumer Guidelines. Nonetheless, each consumer shall exclude its consumption of energy or energy resources which are acquired for onwards sale or distribution to other persons and energy resources used as feedstock. 

Key Requirements Under EECA

Once classified as an Energy Consumer, a business must comply with several key requirements under the EECA:- 

1. Appointing an Energy Manager 

Under EECA, Energy Consumer is required to appoint a registered energy manager (“Energy Manager”) to collect and analyse the data on energy consumption by the Energy Consumer. Energy Manager is also responsible for preparing an energy efficiency and conservation report containing the information set out in section 7(1) of the EECA. It is worth noting that any Energy Consumer who fails to appoint Energy Manager commits an offence and shall be liable to a fine not exceeding fifty thousand ringgit upon conviction. 

2. Energy Management System 

In addition, Energy Consumer is required to develop, implement and maintain an energy management system in accordance with the Guidelines on Energy Management System. 

3. Energy Auditor / Energy Audit 

The Energy Consumer is also required to appoint a registered energy auditor to conduct energy audit and submit energy audit reports to the Energy Commission. We wish to highlight that the Energy Commission may, upon application by the Energy Consumer who has submitted his first energy audit report, grant exemptions for submitting the subsequent energy audit reports if significant energy efficiency improvements are demonstrated by the Energy Consumer. 

Conclusion

With Malaysia’s proposed carbon tax set for implementation in 2026, affected industries must prepare for its potential impact. Companies that meet the Energy Consumer criteria under the EECA should also prepare for compliance requirements. Should you need legal advice on navigating these regulations, feel free to reach out to us.