The two primary policies to reduce greenhouse gas (GHG) emissions are carbon tax and cap-and-trade. By incurring a cost to emit carbon dioxide emissions, these two policies will induce firms to emit less. As Malaysia pledges to meet emissions targets in achieving net zero, which carbon pricing policy works best at achieving sustainability goals while at the same time minimizing the cost to Malaysians? This brief aims to present the economic theory that underpins the logic of carbon pricing – how these mechanisms reduce carbon emissions in the firm’s production process and the expected outcomes for the firm’s profitability as well as social welfare. Further, by analyzing different expectations of carbon demands in Malaysia, this brief hopes to clarify the positive and negative implications of adopting one carbon pricing mechanism over the other through considering several distinct constraints that exist in Malaysia.