The Muamalat Newsletter Vol. 2 2023

53 FEM eNewsletter | Dec 2023 combustion of fossil fuels to which consumer price subsidies contribute (Flochel & Gooptu, 2017). According to the United Nations (2012), key benefits of energy subsidy reforms include the following: • Provides an excellent opportunity to correctmarketfailure :Theenvironmental fiscal reforms are redistributing subsidies from environmentally harmful activities and products (such as pollution, carbon emissions, resource inefficiency, and overreliance on non-renewable fossil fuels) to more environmentally friendly ones (such as renewable and other clean and efficient energy sources). • Creates significant resource efficiency gains : Removing subsidies for fossil fuels and electricity would significantly reduce their consumption, reduce carbon emissions, and provide additional incentives for investments in renewable energy infrastructure. Subsidies for fossil fuels lock nations into inefficient infrastructure development patterns for extended periods. In Indonesia, renewable solid energy subsidy programs can reduce carbon emissions by 3.4–3.5 Gt by 2035 compared to the average emission level in 2009, saving the world’s economy US$350 billion in fossil fuel import costs.. • Generates revenue to finance green growth : Subsidies harmful to the environment can be eliminated, which might save up the funds for green technology and other alternative and renewable energy projects. According to a recent study by the McKinsey Global Institute, the transition from a high-carbon to a low-carbon powered economy in Indonesia through renewable energies, expanded use of biofuels in road transport, and other carbon emission reduction measures would require annual funding of $260 to $360 billion (roughly 60 to 90 per cent of the current fossil fuel subsidies) over the next two decades. According to the same report, it would cost around $50 billion per year during the same period to ensure that everyone had access to at least 250 to 500-kilowatt hours of electricity, which accounts for almost half of global energy use. The World Bank recommends that energy subsidy reform, combined with the implementation of carbon pricing policies, should concentrate on four key areas that will be significantly affected: 1) fiscal, 2) household, 3) economic and environmental, and 4) firms and industries, as illustrated in Figure 1 (Flochel &Gooptu, 2017). The figure also underscores the pivotal role of the political economy in subsidy reform, supported by continuous communication with the public. Future Research In preparation for the prospective implementation of carbon pricing policies in Malaysia, addressing the critical issue of energy subsidy reformation is imperative. As a counterproductive policy, energy subsidies can undermine the environmental advantages of carbon pricing. Prior research in Malaysia has predominantly concentrated on energy subsidy reformation’s economic, social, and financial aspects. Future studies should aim to develop a comprehensive framework that encompasses these dimensions and evaluates the environmental impact and their implications for the successful implementation of carbon pricing policies in Malaysia. Researchers should commence with a systematic literature review to lay the foundation for this study. This review should scrutinise and analyse the strategies employed by countries that have effectively reformed their energy subsidies, drawing valuable insights from experiences in developing countries such as Indonesia, Iran, and Vietnam. Subsequently, a survey should be conducted to elicit perspectives and preferences from the public concerning energy subsidy reformation and the associated economic and social support mechanisms. To explore deeper into the complexities of this issue, focus group discussions should be arranged. These discussions should encompass a broad spectrum of stakeholders, including policymakers and experts from various areas such as energy, economy, carbon pricing, politics, and taxation. These deliberations will facilitate a thorough analysis of the challenges and strategies pertinent to energy subsidy reformation. Furthermore, researchers should employ an econometrics modelling strategy, for example, the computable general equilibrium modelling, to quantitatively assess the impact of energy subsidy reformation on the economy. This analysis will provide a data-driven understanding of the