Impacts of Carbon Tax Policy on Trade and Environment: This study deals with the economic dimensions of carbon tax and its impacts for imposing taxation policies in the Malaysian economy. It provides an integrated assessment of carbon tax policy and operational tools for dealing with its impacts and from an economic perspective. Doing so we have developed an environmental applied computable general equilibrium model (MYCGE) and investigated changes in factors of production, industry output, consumer demand, trade, private consumption, public consumption and other macroeconomic variables resulting from economic and environmental policy changes. Seven simulations are carried out using a Malaysian Social Accounting Matrix (SAM) and GAMS programming. We provide virtual carbon tax policies and their relative quantitative merits for imposing each policy change. Finally we point out policy challenges and recommendations at the macro level.