In more detail

Thailand CBAM

Significant revisions under the Bill include the insertion of provisions on the Thailand Carbon Border Adjustment Mechanism (Thailand CBAM), which will have important implications for Thai importers.

The Thailand CBAM is likely to apply important principles and provisions from the EU CBAM. Similar to its European counterpart, the Thailand CBAM will put a carbon price on certain imported goods for emissions exceeding the specified limit. This creates a level playing field with domestic producers who will be subjected to mandatory carbon pricing mechanisms, namely, ETS and carbon tax. The Thailand CBAM disincentivizes domestic producers from moving their production base outside of Thailand with lax carbon standards, thereby preventing "carbon leakage".

Under the Thailand CBAM provisions of the Bill, designated importers must register and report their greenhouse gas emissions embedded in the goods to be specified by the ministerial regulation and pay a carbon adjustment certificate corresponding to the greenhouse gas emissions of imported goods. This payment is based on the average price of emission allowances allocated by auction during the operational year and the extent to which these allowances are freely allocated within the ETS. Importers may request a price deduction if the carbon price has already been paid in the country where the goods were produced.

ETS and Carbon Tax

The Bill also introduces some adjustments to the ETS and carbon tax provisions. First, the carbon tax will be used to "deduct" the emission trading allowance, instead of being used to "offset", as previously stated in the first draft of the Bill. By deducting instead of offsetting, the carbon tax will reduce the price of emission trading allowance at the point where the allowance is auctioned. Second, a Schedule of Carbon Tax Rates has been added to the revised draft. This schedule makes clear the types of fossil fuels, including oil, gas and coal, that will be subject to the carbon tax and what their maximum rates will be.

Under the Bill, covered ETS sectors are categorized into three broad groups: (1) Controlled Entities, which must participate in the ETS as required by law; (2) Voluntary Controlled Entities, which can apply for the ETS on a voluntary basis; and (3) New Controlled Entities, which will become a new ETS participant during the operational year. At this stage, it remains unclear which sectors will be covered by the ETS, which was one of the issues raised during the public hearing. It is expected that the issue of sectors to be covered by the ETS will be specified in the subordinate legislation, following the data collection period to take place during 2026-2028. In the meantime, business sectors covered by the EU ETS, assuming the Thailand ETS adopts similar provisions, should assess business risks and opportunities from the ETS and start preparing for the pilot ETS in 2029.

Actions for business operators

The enactment of Thailand CBAM will help level the playing field between foreign and domestic producers. It is important for Thai importers to closely monitor this topic as it will have a significant impact on their business. Additionally, the revisions to ETS and carbon tax provisions will also have important implications for affected businesses.

Regarding the timeline, it is expected that the Bill will enter the Cabinet for approval in principle by January 2025. Once approved by the Cabinet, the Bill will proceed to the legislative process of the Council of State before being submitted to Parliament for consideration and approval.

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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