In more detail

Key features of the Draft Ministerial Regulation

The key features of the carbon tax mechanism under the Draft Ministerial Regulation are as follows:

• Carbon tax integration: The carbon tax rates are incorporated into the excise tax rates for oil and oil products, calculated based on each product’s emission factor. Examples of oil and oil products captured by the Draft Ministerial Regulation include gasoline, diesel, jet fuel and liquefied petroleum gas (LPG). Presently, the carbon price is set at THB 200 per ton of carbon dioxide equivalent and is embedded within the existing excise tax rates. This ensures no additional tax burden on businesses or consumers.
• Maintaining revenue neutrality: The Draft Ministerial Regulation ensures that the overall excise tax payable remains unchanged, with the carbon tax component simply reallocated within the current tax structure. For example:

• Alignment with other carbon pricing mechanisms: The regulation attempts to establish a recognized carbon pricing mechanism in the Thai domestic market, which may offset potential charges under carbon pricing mechanisms, such as the carbon price on goods exported to the European Union (EU) under the Carbon Border Adjustment Mechanism (CBAM). It also aims to raise awareness among businesses and the public about the environmental costs of greenhouse gas emissions.
• Future adjustments: The initial carbon price of THB 200 per ton of carbon dioxide equivalent may be revised with the Cabinet's approval. Any increase beyond this rate will require careful consultation with relevant government agencies, including the Ministry of Energy and the Ministry of Natural Resources and Environment.

Establishing a comprehensive carbon tax system

The Draft Ministerial Regulation is part of a long-term initiative to develop a more comprehensive carbon tax system under the Climate Change Bill. While the Thai Excise Department remains the governing authority of carbon tax under both laws, it is noteworthy that under the Climate Change Bill, the carbon tax covers a wider scope of products than in the Draft Ministerial Regulation. Under the latter, the carbon tax is placed on oil and oil products, whereas the former also covers other types of fossil fuels, namely coal and gas. Types of coal products covered include andesite, lignite and bituminous, while types of gas products covered include natural gas, liquefied natural gas and Gasohol E20. Moreover, under the Draft Ministerial Regulation, the carbon tax does not result in an increase in the price of the products covered, highlighting the law's main purpose of raising awareness about climate change. Nevertheless, it remains to be seen whether the price of covered products under the Draft Ministerial Regulation will increase in the future.

Importantly, the price paid as carbon tax under the Climate Change Bill can be utilized by corporations. First, it may be used to reduce the cost of emissions trading allowances under the Thailand Emissions Trading System (ETS) for controlled entities by lowering the auction price of these allowances. Second, if effectively recognized, it may be used to offset carbon prices to be paid overseas, for example, EU CBAM certificates, which are pricing instruments placed on goods with embedded emissions imported into the EU.

Next steps

The Draft Ministerial Regulation will take effect upon enactment. Currently, the carbon tax placed on products under the Draft Ministerial Regulation will not raise the price of covered goods. In the grand scheme, it represents the first step toward establishing a more comprehensive carbon tax system under the Climate Change Bill.

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The following have contributed to this legal update:

• Dhiranantha Rithmanee, Sustainability Specialist
• Muanjit Chamsilpa, Sustainability Specialist
• Chanata Kengradomying Chaivaivid, Sustainability Knowledge Management Lead