Carbon tax in Thailand: legal challenges and economic impact for business

What is the legal basis for Thailand’s carbon tax policy?

Thailand’s carbon tax policy is grounded in a broader legislative framework aimed at environmental protection and climate change mitigation. A critical legal foundation for carbon taxation is the Energy Industry Act B.E. 2550 (2007), which provides the legal basis for regulating carbon emissions in energy production. Additionally, the National Environmental Quality Act B.E. 2535 (1992) plays a central role, focusing on sustainable development and pollution control.

In the international context, Thailand is a signatory to the Paris Agreement and has committed to reducing its greenhouse gas emissions by 20% by 2030. These commitments form the backbone of domestic regulations, which focus on controlling emissions and promoting green energy. The carbon tax is one of the tools used to meet Thailand’s commitments to reduce carbon emissions and its Nationally Determined Contribution (NDC) targets.

While there is no specific carbon tax law enacted at this point, Thailand has developed various environmental taxes and fees that function in a similar capacity. For instance, environmental levies on fuel consumption and excise taxes on energy-intensive products already serve as precursors to a more formal carbon tax.

What is the scope of carbon tax implementation in Thailand?

The carbon tax policy in Thailand targets industries and sectors that contribute the most to greenhouse gas emissions. This includes energy production, manufacturing, and transportation, which are the primary sources of carbon emissions in the country. The concept is straightforward: businesses pay taxes based on the carbon content of their emissions or the carbon intensity of their products.

Under the Excise Tax Act B.E. 2560 (2017), the excise tax system incorporates environmental objectives. For instance, taxes on vehicles and fuels have been adjusted based on their emission levels. This regulatory approach provides a model for future carbon taxation, allowing the government to fine-tune taxes in proportion to carbon intensity.

Moreover, the Pollution Control Department (PCD) and Ministry of Energy have been instrumental in developing carbon-related levies, with the possibility of an official carbon tax on emissions being discussed under the Draft Climate Change Act, which is set to formalize Thailand’s climate commitments. If enacted, this law could provide a more structured system for carbon pricing in Thailand, laying the groundwork for future regulatory mechanisms.

How does carbon tax impact businesses?

• Financial implications

A carbon tax directly impacts the cost structure of businesses, especially those involved in energy-intensive operations. Companies that rely on fossil fuels or produce high levels of carbon emissions face increased operating costs due to the additional tax burdens. This could potentially reduce profit margins unless businesses adapt by investing in cleaner technologies.

The carbon tax incentivizes industries to adopt energy-efficient processes and shift to renewable energy sources. Companies that invest in solar power, wind energy, or biomass can mitigate their tax liabilities and benefit from government incentives under the Investment Promotion Act B.E. 2520 (1977), which provides tax reliefs and deductions for businesses adopting eco-friendly technologies.

• Compliance and reporting requirements

Under the current regulatory framework, businesses are required to report their carbon emissions to the relevant authorities. Compliance with the Energy Conservation Promotion Act B.E. 2535 (1992) means that large energy consumers must regularly submit energy consumption reports. A formalized carbon tax system would likely extend these reporting obligations, requiring businesses to monitor and disclose their greenhouse gas emissions accurately.

The government Is expected to impose penalties for non-compliance, particularly for businesses that fail to meet their reporting obligations or evade carbon tax payments. The implementation of MRV (Measurement, Reporting, and Verification) systems will be crucial to ensure the accuracy of emissions data and the proper enforcement of the carbon tax.

What are the benefits of this tax?

• Environmental benefits

The primary aim of a carbon tax is to reduce carbon emissions and combat climate change. By making polluting activities more expensive, the tax creates a financial incentive for businesses to invest in cleaner energy and adopt sustainable practices. In the long run, a well-implemented carbon tax can help Thailand achieve its NDC targets under the Paris Agreement, contributing to the global effort to limit global warming to 1.5°C.

• Revenue generation for green initiatives

Revenue from carbon taxes can be reinvested in sustainable development projects. For example, the Thai government could channel these funds into improving public transport, expanding renewable energy infrastructure, or funding research into carbon capture technologies. The policy also supports the government’s Bio-Circular-Green (BCG) economy model, which emphasizes sustainability and resource efficiency as key drivers of future economic growth.

How are businesses preparing for the future of carbon taxation in Thailand?

Many businesses in Thailand are already preparing for the possibility of stricter carbon regulations. Companies in energy-intensive sectors, such as cement, steel, and petrochemicals, are exploring ways to reduce their carbon footprints by investing in cleaner production processes and renewable energy sources.

One strategy is the participation in carbon credit trading, where businesses can purchase credits to offset their emissions. The Thai government is expected to develop a carbon trading scheme alongside the carbon tax policy, allowing companies that reduce their emissions to sell surplus credits to other businesses. This system is currently being studied by the Thailand Greenhouse Gas Management Organization (TGO), which oversees the country’s Voluntary Emission Reduction Program (T-VER).

Additionally, companies are increasingly looking to Environmental, Social, and Governance (ESG) frameworks to integrate sustainability into their business models. Thailand’s Securities and Exchange Commission (SEC) has encouraged businesses listed on the stock exchange to adopt ESG reporting, which often includes disclosing carbon emissions and other environmental impacts. Businesses that embrace ESG principles are better positioned to comply with future carbon regulations and appeal to environmentally conscious investors.

What are the challenges in implementing a carbon tax in Thailand?

• Economic concerns

One of the primary challenges of implementing a carbon tax is the potential negative impact on economic growth. High carbon taxes may increase costs for businesses, particularly small and medium-sized enterprises (SMEs), which may struggle to bear the additional financial burden. Policymakers must balance the need to reduce emissions with maintaining a competitive business environment.

To mitigate these concerns, the Thai government could introduce subsidies or incentives for businesses to invest in energy-efficient technologies. Tax breaks under the BOI (Board of Investment) scheme, for example, could help companies offset the costs associated with transitioning to cleaner energy sources.

• Lack of infrastructure and expertise

Another challenge is the lack of infrastructure to support the widespread adoption of low-carbon technologies. For example, Thailand’s renewable energy sector still requires significant investment in grid infrastructure and storage solutions. Furthermore, businesses may lack the expertise to accurately measure and report carbon emissions, which could hinder compliance with the new tax regulations.

Conclusion

Thailand’s carbon tax policy represents a critical step toward fulfilling its international climate commitments and transitioning to a more sustainable economy. While the formal enactment of a carbon tax law is still pending, the existing environmental taxes and regulatory frameworks already push businesses to reduce their carbon emissions.

As Thailand continues to develop its carbon tax policy, businesses will need to adapt to the new regulatory environment by investing in cleaner technologies and improving their emissions reporting systems. Companies that proactively reduce their carbon footprints and embrace sustainability will not only avoid hefty tax burdens but also position themselves as leaders in Thailand’s green economy transition.