Environmental regulation is a key driver for the growth of environmental goods and services (EGS), while trade facilitates the diffusion of these goods and services. There has been no shortage of initiatives to develop the EGS sector in Malaysia. However, some policy (non-market) failures are already observed in the governance of this sector. This paper identifies the inadequacies in the regulatory framework (environmental institutions and laws) for creating an enabling environment for the EGS sector. The paper also reviews the trade direction for EGS and delineates concerns related to the sectoral approach of policy making for the sector. The findings from the documentary analyses suggest that the laws and policies related to the EGS are fragmented as they come under the purview of different agencies. As a result of this regulatory incoherence, the coordination and enforcement are weak leading to low uptake of EGS. The absence of a national policy for EGS also obscures the trade direction for this sector. The policy priority and generous support accorded to the renewable energy segment, more specifically, are also a concern given the limited and uncertain role that this segment is expected to play in global energy use.