Analyzing the Situation: An Examination of Thailand's Ability to Fund Its Climate Change Leadership Through Taxation Within the ASEAN Region
In a significant step towards sustainable development, Thailand is set to implement a carbon tax as part of its Climate Change Act. This economic instrument, aimed at internalizing environmental costs, is expected to foster a gradual shift away from fossil fuels while balancing economic competitiveness.
The carbon tax will initially apply to the oil and petroleum industry, with potential extensions to other hard-to-abate sectors such as petrochemicals. The Act also proposes an Emissions Trading Scheme (ETS) covering approximately 2,166 facilities across sectors like energy, construction, transportation, and agriculture.
Under the ETS, companies may offset up to 15% of their taxable emissions with carbon credits, a more lenient limit compared to Singapore's 5%. This competitive position in the regional carbon market could encourage multinational corporations operating across Southeast Asia to harmonize their climate compliance strategies.
Companies subject to the tax and ETS will face increased costs tied to their greenhouse gas emissions, incentivizing them to reduce emissions or buy carbon credits. However, concerns remain over the detailed operational rules, particularly the effects on business costs and lack of standardized guidelines, which may pose challenges for companies navigating these new requirements.
The carbon tax and related measures in the draft Act may also influence existing contracts, especially for long-term agreements linked to energy supply, purchasing, or investment projects in carbon-intensive sectors. The lack of detailed information on standardized procedures could complicate contract enforcement and future agreements.
Thailand's carbon tax and ETS efforts align with its broader climate ambitions, including a net-zero target possibly brought forward to 2050 and a nationally determined contribution aiming for a 60% emissions reduction by 2035. The approach is part of regional efforts to implement market-based mechanisms for decarbonization, as seen in Singapore, South Korea, Taiwan, and Vietnam, each with differing offset loopholes.
Thailand's carbon tax will apply to both domestically produced and imported goods. Legal implications for businesses may include changes to customs compliance procedures, enhanced environmental reporting requirements, and revised contractual obligations in international trade arrangements. An ASEAN-wide carbon market or carbon pricing provisions in regional trade agreements could potentially be a result of this regional harmonization.
The carbon tax will target industrial operators and importers of goods under Thai customs law. The draft act includes a provision allowing importers to apply for deductions if a carbon price has already been paid in the country of origin, potentially preventing double taxation for multinational corporations.
The carbon tax regime, expected to be finalized by 2026 and enforced starting 2027, has significant potential to influence corporate financials and strategic planning, driving businesses toward greener technologies and possibly reshaping the regional climate policy landscape.
- The Carbon Tax and the Emissions Trading Scheme (ETS) in Thailand's Climate Change Act will initially target the oil and petroleum industry, but may extend to other sectors such as petrochemicals.
- For companies subject to the tax and ETS, increases in costs tied to greenhouse gas emissions could incentivize them to reduce emissions or buy carbon credits, potentially driving a shift towards greener technologies.
- The carbon tax and related measures may have legal implications for businesses, including changes to customs compliance procedures, enhanced environmental reporting requirements, and revised contractual obligations in international trade arrangements.
- Thailand's carbon tax and ETS efforts align with its broader climate ambitions and are part of regional efforts to implement market-based mechanisms for decarbonization, with the potential to create an ASEAN-wide carbon market or carbon pricing provisions in regional trade agreements.
