This study investigates the synthesize of activated carbon for carbon dioxide adsorption using palm kernel shell (PKS), a by-product of oil palm industry. The adsorbent synthesis involved a simple two-step carbonization method. Firstly, PKS was activated with potassium oxide (KOH), followed by functionalization with magnesium oxide (MgO). Surface analysis revealed that KOH activated PKS has resulted in a high specific surface area of 1086 m2/g compared to untreated PKS (435 m2/g). However, impregnation of MgO resulted in the reduction of surface area due to blockage of pores by MgO. Thermogravimetric analysis (TGA) demonstrated that PKS-based adsorbents exhibited minimal weight loss of less than 30% up to 500 °C, indicating their suitability for high-temperature applications. CO2 adsorption experiments revealed that PKS-AC-MgO has achieved a higher adsorption capacity of 155.35 mg/g compared to PKS-AC (149.63 mg/g) at 25 °C and 5 bars. The adsorption behaviour of PKS-AC-MgO was well fitted by both the Sips and Langmuir isotherms, suggesting a combination of both heterogeneous and homogeneous adsorption and indicating a chemical reaction between MgO and CO2. Thermodynamic analysis indicated a spontaneous and thermodynamically favourable process for CO2 capture by PKS-AC-MgO, with negative change in enthalpy (− 0.21 kJ/mol), positive change in entropy (2.44 kJ/mol), and negative change in Gibbs free energy (− 729.61 J/mol, − 790.79 J/mol, and − 851.98 J/mol) across tested temperature. Economic assessment revealed that the cost of PKS-AC-MgO is 21% lower than the current market price of commercial activated carbon, indicating its potential for industrial application. Environmental assessment shows a significant reduction in greenhouse gas emissions (381.9 tCO2) through the utilization of PKS-AC-MgO, underscoring its environmental benefits. In summary, the use of activated carbon produced from PKS and functionalised with MgO shows great potential for absorbing CO2. This aligns with the ideas of a circular economy and sustainable development. [ABSTRACT FROM AUTHOR]