The interest in the economics of climate change and the need to quantify a more accurate financial value of the damage caused by every additional metric tonne of greenhouse gas (GHG), known as the social cost of carbon (SCC), is growing. Governments and decision-makers have utilised SCC estimations for more than ten years in benefit-cost analysis, using insights from climate science, economics, demography, and other fields. Malaysia has committed to reduce 45% of its GHG emission intensity by Gross Domestic Product (GDP) by 2030 compared to the 2005 level and achieve net-zero as early as the year 2050. However, current estimations of SCC are high and may negatively impact the Malaysian economy and no longer align with the latest research. To achieve its objective of net-zero emissions, the government of Malaysia must capitalise on the country's potential as a carbon sink by increasing conservation efforts in protected areas and arresting deforestation. It will establish an ideal trajectory for the SCC that aligns with its environmental obligations while supporting sustainability in the face of climate change challenges. A price on GHG emissions can help mitigate and adapt to climate change. This study aims to determine the SCC in Malaysia, fill the gap in the downscaled Integrated Assessment Models (IAMs) and develop a new model called the Integrated Climate Model for Malaysia (ICLIM-2024R). The Nordhaus IAM model was downscaled using Malaysian data, including emissions from deforestation and an additional function for carbon sinks. With current policies, the SCC in the business-as-usual scenario (BAU) will be 64 USD/tCO2e in 2025 and 212 USD/tCO2e by 2050. The study recommended pathway is to increase the Totally Protected Area (TPA) of forests, which will yield a lower SCC of 23 USD/tCO2e in 2025 and 152 USD/tCO2e by 2050 compared to BAU, meeting commitments to the Convention of Biological Diversity (CBD) as well as the Paris Agreement. The Malaysian government should urgently leverage its carbon sink potential to set Malaysia's optimal SCC, achieve its net-zero goal, and grow the climate-friendly economy by marketing lower carbon-intensity products.Graphical
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