Malaysia has made a pledge to reduce its 2005 GDP emission intensity levels by up to 40% by 2020 as its contribution to combat climate change. One of the proposed policies to achieve this goal is carbon taxation. We used a computable general equilibrium model to analyse the results of three scenarios-the impact of an oil price shock, the implementing of the climate policy on the Malaysian economy and the oil price rise when the Malaysian climate policy is implemented. We also attempt to assess how these scenarios contribute to the mitigation of rebound effect. The Malaysian climate policy implies a gain on the Malaysian economy of around 0.8% of GDP. The oil price shock in the presence of the Malaysian climate policy implied an additional gain on it of 0.2% of GDP (making a total gain of 1% of GDP), but this is equal to the 1% of GDP that Malaysia would lose from the oil price rise in the absence of the climate policy. This is implying that the climate policy is a potential economic protection for Malaysia. The climate policy and oil price shock would lead to mitigation of rebound effect in Malaysian economy.
