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More countries are passing trade barriers that assess the amount of carbon dioxide produced from certain import products.
Thailand is racing against time to meet its international commitments to reduce global warming, cutting carbon emissions by one-third within six years.
While the goal aims to support the Thai and global environment, it also poses an economic challenge because of the connection between economic conditions and environmental preservation.
Global warming, the increase of the Earth’s average temperature through the greenhouse effect, is primarily caused by humans increasing carbon dioxide emissions through activities such as burning fuel, transport and industrial production.
Why does Thailand need to speed up its carbon reduction process?
There are up to 18,000 international trade barriers, including those related to environmental concerns.
In 2026, the EU is slated to implement the Carbon Border Adjustment Mechanism (CBAM). CBAM is a carbon pricing measure for certain imports to limit the entry of items produced via methods with high greenhouse gas emissions.
The first five high-risk carbon leakage product categories comprise steel, cement, electricity, fertilisers and aluminium.
The implementation of CBAM for these products in the initial phase may affect Thailand’s exports to the EU, valued at up to 28.6 billion baht.
In the future, more products may be added to the CBAM list, such as refinery products, organic chemicals, hydrogen, ammonia and plastic polymers.
Only 7% of Thailand’s exports are environmentally friendly.
In terms of energy usage, which is a crucial factor for production, Thailand’s use of clean energy accounts for only 13-14% of total energy consumption. In contrast, Vietnam’s clean energy accounts for 19% of its total energy consumption.
Moreover, Thailand is ranked among the top countries in the world that will face severe impacts from climate variability. According to the Global Climate Risk Index 2021 by Germanwatch, which studied extreme weather impacts such as storms, floods and heat waves from 2000-2019, Thailand ranked ninth, with Puerto Rico first and Myanmar second.
What has Thailand done to address global warming?
Thailand has implemented several measures to address climate change. One initiative promotes the use of electric vehicles (EVs) in the country through the EV 3.0 and EV 3.5 schemes.
EV 3.0 reduces the excise tax on EVs from 8% to 2%, lowers import taxes to 20-40%, and provides subsidies for EV buyers ranging from 70,000 to 150,000 baht per vehicle, depending on battery size, for vehicles priced less than 2 million baht.
Pickup purchases receive a subsidy of 150,000 baht, while motorcycles are entitled to up to 18,000 baht per unit.
Under the EV 3.5 scheme, the excise tax on EVs is again reduced from 8% to 2%, with import taxes capped at 40%. This measure applies to cars priced at a ceiling of 2 million baht.
The subsidies were lowered to between 50,000 and 100,000 baht per EV, while the subsidy for pickups is 100,000 baht per unit, and 10,000 baht for electric motorcycles.
A total of 24 car manufacturers participated in the EV 3.0 measures, while eight joined EV 3.5. As a result, EV registrations in 2023 surged by 685% year-on-year, the highest rate in Southeast Asia.
This momentum has prompted investments worth 80.7 billion baht in EVs and related industries in Thailand. With 132,383 registered EVs in Thailand, this amount is estimated to reduce carbon dioxide emissions by 344,196 tonnes per year.
Thailand emits a total of 373 million tonnes of CO2 into the atmosphere annually. Of this amount, 70% or 261 million tonnes are from the energy and transport sectors.
The agricultural sector follows with 56.8 million tonnes, accounting for 15.2%, industry 38.3 million tonnes or 10.3%, and emissions from waste total 16.9 million tonnes, making up 4.53%.
Emissions from oil and oil products total 96.1 million tonnes, representing 37% of the carbon emitted by the energy and transport sectors.
Use of natural gas at power plants emits 53.6 million tonnes of carbon, or 21% of the sector’s tally. The general use of natural gas contributes 35.7 million tonnes, 14%, while coal use in power plants emits 23.3 million tonnes, or 9%.
Thailand set a goal to reduce greenhouse gas (GHG) emissions, in line with its international commitments, aiming to cut carbon emissions by 30-40% by 2030 from the base emission level in 2019 of 372 million tonnes.
By 2050, Thailand wants to achieve carbon neutrality, meaning carbon emissions and absorption will be equal.
By 2065, the nation aims to reach net-zero emissions, where no more carbon is released than is absorbed.
Thailand is drafting the Climate Change Act and expects it to be implemented by 2025. This legislation is meant to support the country’s goal of achieving net-zero emissions by 2065.
The key element of this legislation is shifting from voluntary GHG measurement, which is published in the annual reports of publicly listed companies, to granting government agencies the authority to request GHG emission data from specific industries to assess their carbon footprint.
The draft law also proposes establishing a Climate Change Fund to provide financial support for projects aimed at reducing GHG emissions, including carbon pricing mechanisms such as the Emission Trading System and a carbon tax.
Kasikorn Research Center estimates industries affected by enforcement of the draft law contribute 6.5 trillion baht of Thailand’s GDP, roughly 37%.
According to the Finance Ministry, enforcement would be divided into three phases.
Phase 1 would start in 2026, covering high GHG-emitting industries as well as those monitored by CBAM, including transport, utilities, metals and non-metals, valued at 1.71 trillion baht, or 10% of GDP.
Phase 2 covers industries in CBAM’s phase 2, such as petroleum products, rubber and plastics, petroleum drilling, chemicals, coal mining, and paper and pulp, valued at 1.77 trillion baht, or 10% of GDP.
Phase 3 deals with other industries that emit high levels of GHG, including agriculture and livestock, food and beverages, computers and electronics, and electrical equipment, valued at 3.02 trillion baht or 17% of GDP.
What is a carbon tax and how does it help reduce emissions?
A carbon tax is based on the amount of GHG emissions assessed from a product’s life cycle. It can be applied to both domestically produced and imported goods, similar to CBAM.
Thailand has a tax based on CO2 emissions for its excise tax on automobiles.
The Excise Department is responsible for collecting taxes on oil products, which are considered to have higher carbon emissions than other goods.
The department is slated to collect the carbon tax for oil products in the draft legislation. This collection should not affect the public, as the overall tax burden on oil remains unchanged.
Oil producers also face the same excise tax burden. However, if they reduce carbon emissions for their products, their tax burden will decrease, providing an incentive to adjust their production processes.
How will the carbon tax be collected?
For carbon tax collection, the department plans to calculate the tax based on the GHG emissions factor of each energy product (emission factor), multiplied by a set carbon price, which is expected to be 200 baht per tonne of CO2 equivalent.
For example, diesel has an emission factor of 0.0026987. When multiplied by 200, the resulting carbon tax is 0.54 baht per litre.
The current excise tax on diesel is 6.44 baht per litre.
The Finance Ministry is expected to propose the carbon tax to the cabinet soon, aiming for implementation this year.
Following enforcement, the excise tax rate on diesel would be set at 5.90 baht per litre, with a carbon tax of 0.54 baht per litre, leaving the total levy unchanged at 6.44 baht per litre.
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