The idea of trading greenhouse gas emissions has become an important tool to tackle the problem of global climate change. Malaysia has started to strive towards a low carbon economy through various policies and initiatives. The main objective of this article is to document the exiting policy developed by the Malaysian government and review some of the current practices pertaining to the Clean Development Mechanism (CDM). The objective of such analysis is to understand what initiatives have been taken by the Malaysian government. Challenges and barriers will be documented for further research to provide a solution. In addition, it will also provide insight into the current CDM practices in Malaysia. It aims to provide a useful reference that could act as a foundation for future study to explore these issues further, particularly in the Malaysian context. It could also be an important reference for practitioners starting a CDM project. Although a review of the existing policy indicates that Malaysia has undertaken several initiatives, much more can be done. More research is now being carried out in order to provide support to the government. Stakeholder engagement is one way of acquiring input for the government to formulate a new policy. The main stakeholders – industry and the bankers – need to be engaged and made to understand to ensure smooth implementation and easy acceptance. Malaysia can also look to the advanced countries if necessary and modify what it learns for the Malaysian context. Copyright © 2012 John Wiley & Sons, Ltd and ERP Environment.