‘No brainer’: Thailand to become second in Southeast Asia to tax carbon emissions
In time, Thailand's strategy could give its industries a competitive edge while reducing greenhouse gas emissions, experts say. Singapore was the first in the region to introduce a carbon tax in 2019.
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BANGKOK: Thailand is set to be Southeast Asia’s second country after Singapore to tax carbon emissions, a move that experts say will give the region greater impetus to adopt clean technologies that help slow global warming.
Its carbon tax, expected to be introduced by next year, is not likely to make a dent on domestic or regional emissions initially. But it sends an important signal to energy producers and the private sector that reducing their carbon footprint is a government priority, they say.
The kingdom’s experience, together with Singapore’s, could help get more of their neighbours on board and take carbon pricing to a scale that would move the needle on the region’s emissions, according to an expert.
For countries that are still heavily reliant on fossil fuels – 85 per cent of Thailand’s energy mix is oil, natural gas or coal – introducing a carbon tax is a “no brainer”, said Dr Vinod Thomas, a visiting senior fellow at ISEAS-Yusof Ishak Institute and the former director general of the Asian Development Bank.
“The air is free, and so people pollute. And when the pollution is carbon dioxide, the air warms up, causes floods and storms of extreme proportions and then heatwaves and fires, which are already wreaking havoc in Southeast Asia. So, in that context, the question would be, why don't we then price the air?” he said.
It is just like putting a tax on cigarettes. As it becomes more expensive, people may think twice before smoking.”
Singapore rolled out a carbon tax in 2019 that covers about 80 per cent of its emissions. The tax was S$5 (US$3.70) per tonne of carbon-dioxide-equivalent (tCO2e) for the first five years and increased to S$25/tCO2e this year. It could reach S$50 to S$80 per tonne by 2030.
Thailand will follow suit, with the government announcing in June it would levy 200 baht (US$5.60) per tonne of CO2e on oil products such as diesel and gasoline.
Existing taxes on oil products will be converted to a carbon tax, meaning no additional revenue will be collected and thus, no costs should be passed onto consumers. It also means no new laws need to be passed.
“At those rates, you don't see any effect, really. People would rather pay that and not cut carbon. And just to be clear, the objective is not to raise money. Your objective is to cut emissions,” Dr Thomas said.
“But one cannot ignore the importance of even a US$5 tax, because it's a signalling,” he said, comparing it to Singapore’s five-cent levy on plastic bags at supermarkets aimed at cutting the use of disposables.
Like in Singapore, the tax rate and types of industries targeted in Thailand are expected to expand. For example, a higher tax could eventually be introduced to battery production and the transport or manufacturing sectors.
“As the time goes by, we will see an increase from 200 baht per tonne. How high, we don't know. There’s no ceiling,” said Associate Professor Wongkot Wongsapai, deputy director of the Multidisciplinary Research Institute at Chiang Mai University.
The tax will be part of a broader legislative package under the Thailand Climate Change Act, expected to take one to three years to implement and could include mandatory emissions reporting, a formal climate change fund and an emissions trading scheme where firms can buy and sell carbon credits.
Under such a scheme, the government would set a cap or a maximum amount of emissions allowed, and a firm that manages to reduce its emissions below that cap could sell its extra allowance to a high-polluting firm.
“That would allow those companies to have more flexibility … They can purchase carbon credits or they may install new technologies instead,” said Assoc Prof Nattapong Puttanapong from the Faculty of Economics at Thammasat University.
“Maybe the new technology might be too expensive, so you just trade the credits, or if you realise that the new technology is affordable enough, (you) can implement them,” he explained.
COULD MALAYSIA, INDONESIA BE NEXT?
Other countries in the region have also taken steps on carbon pricing.
Indonesia was supposed to introduce the tax in 2022 but postponed its implementation to 2025, saying it needs time to make sure the scheme would not clash with existing laws and regulations.
A Malaysian minister said this month the country will have to start implementing carbon pricing to facilitate carbon trading, and look into carbon taxing as its trade partner the European Union (EU) prepares to start its Carbon Border Adjustment Mechanism (CBAM) in 2026.
The CBAM puts a carbon emissions price in the form of a tariff on imported goods and aims to level competition, ensuring that EU-produced goods subject to a carbon tax do not lose out to imported goods without one imposed.
“Under CBAM, the export of steel and the other five listed items from Malaysia will be taxed by the EU, unless Malaysia collects the tax," said the country’s investment, trade and industry deputy minister Liew Chin Tong, as reported by news agency Bernama.
“Carbon pricing, trading, and taxing are crucial aspects of the decarbonisation agenda.”
With the CBAM, the Thai government will negotiate with the EU to ensure Thai exports are not penalised twice – once the carbon tax is active – and allow Thai products to be promoted as more climate-friendly.
THE CASE FOR REGIONAL CARBON PRICING
The true impacts of carbon pricing will only be realised when it starts to cascade across a regional scale, Dr Thomas said.
The Association of Southeast Asian Nations (ASEAN) has traditionally been “weak” on tackling climate change as a group, he noted. Even strategies for cross-border power sharing and generation have slowed in recent years or been hit by regulatory or infrastructure obstacles.
“For ASEAN or any group, the regional part is critical. The success of a carbon tax depends on how quickly you make available alternative ways of producing energy, right? The bottom line is that it cannot come all from Thailand. It has to be inter-regional,” he said.
“It's really the ASEAN context that will make this meaningful and certainly bring it to a scale that could possibly move the needle,” he said.
“There’s two ways of thinking; I need to pollute the air to stay competitive or over time I need to go clean so I can attract investments. And on both counts, it's best if ASEAN as a whole did it, rather than one at a time.”
Yet until more countries get on board, there remain economic risks for countries taking big steps too soon or going it alone in competitive regions or industries. Governments may feel like they are ceding competitive advantage to their neighbours, for example.
The International Monetary Fund has been a strong advocate for carbon to be priced much higher than it is now in Asia, to hasten a change in behaviour from heavy polluters. It aims to establish a cooperative framework for carbon pricing, setting tier-based floors for emissions.
For example, the minimum carbon price in a high-income earning country would be set at US$75 and US$25 for a low-income earning country.
The ability to trade carbon credits across the region could fast-track governments’ willingness to raise carbon prices higher, more quickly.
Given the obstacles around lacking legal frameworks or a common currency, that could take time. “We can do things together, but not sooner than within 10 years,” Assoc Prof Wongkot said.
While there may be risks for the early movers, there may also be advantages.
“In the world of carbon and border taxes, having your own advanced and mature tax system in place is a terrific place to be. And then compared to others in Asia, your competitive edge is having the tax, not the other way,” Dr Thomas said.
HOW SHOULD TAX REVENUE BE USED?
In an ideal world, governments would not be gaining significant revenue from carbon trade tariffs, nor from a carbon tax, because emitters would have reduced their carbon intensity sufficiently.
But until that point, the question about where the tax revenues flow is a crucial one, Assoc Prof Nattapong said, and the Thai government will need to weigh up short-term political windfalls with long-term systematic changes.
“Evidence shows that the effectiveness of the carbon tax depends on this process – how would you redistribute this income?”
Existing regulations would see the carbon tax inflows being absorbed into public revenue. That might be re-negotiated by the Department of Climate Change and Environment (DCCE), as part of the development of the Climate Change Act, Assoc Prof Wongkot confirmed.
“The DCCE is trying to see if it’s possible to make some shortcut or some way that they can deduct the revenue from the government and put it into the climate change fund that will be established. Otherwise, that climate change fund will have no power to assist with renewable energy or even forestry activity in Thailand,” he said.
That money could also be used as a safety net for low-income power users, to shield them from potentially rising power or petrol prices.
“That will give you the short-run effect,” Prof Nattapong said. “Actually, investment in new technology is the best option in the long run, because we need to substitute our fossil fuels with new technologies, we need the investment in research and development to lower the costs or to come up with totally new fuels.
“But don't use this revenue for other purposes.”
