As I am writing this in early August, climate finance is becoming a trendier topic in Thailand’s financial and business sector. I suspect this is partly due to two recent developments: the upcoming Climate Change Act (the draft of which is making the rounds via public hearing sessions), and the Excise Department’s announcement in June 2024 that Thailand aims to become the second country in Asean, after Singapore, to collect carbon tax, which is slated to start at 200 baht per metric ton of CO₂ equivalent (tCO₂e).
In the initial phase, the Excise Department aims to incorporate carbon tax into the existing oil tax structure so as not to impact consumers. For example, currently, diesel oil is taxed at 6.44 baht per litre. Since 1L of diesel is estimated to emit 0.0027 tCO₂e, the Department will collect 0.0027 tCO₂e x 200 Baht/tCO₂e = 0.54 baht carbon tax per litre. Total tax rate remains the same at 6.44 baht per litre, except now this tax will comprise 0.54 baht carbon tax, and the remaining 6.44 – 0.54 = 5.9 baht as excise tax.
The Excise Department hopes that this scheme will help alleviate the burden of Thailand’s business operators that have to comply with the European Union’s Carbon Border Adjustment Mechanism (CBAM), which will take effect in 2026. For example, steel plant operators that already paid Thailand’s carbon tax for its use of diesel oil in production will hopefully be able to deduct this amount from their CBAM bill.
Since it can be implemented without any need to issue new laws, this initial carbon tax scheme will likely go into effect before Thailand’s historical Climate Change Act passes parliament. It remains to be seen whether the scheme can qualify for CBAM deductions and whether the scheme will really provide impetus for businesses to reduce their carbon footprint as Thailand transitions towards a low-carbon economy. (For the latter case to be true, though, the carbon tax rate will have to climb upward significantly instead of being just a mere replacement of an existing tax).
Government initiatives such as carbon tax and the draft Climate Change Act doubtless raise concerns from business operators about additional costs and reporting requirements, as well as expectations that the government will assist them during the transition. Meanwhile, Thailand was ranked as the world’s 9th most affected country by climate change between 2000-2019 by the Global Climate Risk Index in 2021, making the country’s need for climate adaptation finance no less urgent than climate mitigation finance, although financing for climate adaptation still accounts for a negligible share of total climate finance.
In the bigger picture, I believe Thailand faces two significant hurdles that are not mainly about finance. These obstacles need to be tackled before we can unlock and unleash climate finance at the speed and scale that is commensurate with the challenges that we face today on the long road to a low-carbon future.
The first and foremost obstacle, in my view, is that Thailand’s net-zero goals remain extremely unambitious, even after updating its Nationally Determined Contribution (NDC) in 2022. The country’s official net-zero goal is 2065, lagging 15 years behind most countries’ 2050 goals and even lagging five years behind the 2060 goals announced by China and Indonesia, two of the world’s largest coal producers (which, therefore, make them face many more challenges in the energy transition than Thailand). In addition, as I made observations in an earlier article titled “no sign of a ‘just’ energy transition” (July 2024), the draft Power Development Plan (PDP) 2024 does not specify any clear fossil phaseout date or milestones. On the contrary, it purports to lock Thailand with 7% coal and 41% natural gas in energy production in 2037, the last year of the plan, with 6,300MW of new natural gas power plants. There is still room to build these new gas plants even though the percentage of natural gas in electricity production declines from 59% in early 2024 to 41% in 2037 because PDP projects that we will need an inexplicably high reserve margin of 106% — a total of 112,391MW installed capacity in 2037 vs 54,546MW peak demand.
An unambitious net zero goal and no clear fossil phaseout plan for a sector that contributes over two-thirds of Thailand’s greenhouse gas emissions means that there will be no strong incentive for a timely decarbonisation of the energy sector, which then becomes an obstacle for a timely decarbonisation of other business sectors, all of which are energy consumers.
So long as this situation persists, it will not be easy for Thailand’s financial institutions to persuade their clients to formulate and execute a robust decarbonisation/transition plan although transition finance is much more necessary than greenfield “green finance” — since we need to transition from brown (such as high-carbon activities) to green, not from zero to green.
A credible net zero goal and a clear fossil phaseout plan will not only help catalyse the necessary ‘transition finance’ in climate finance; it will also help enhance Thailand’s competitiveness in an era in which climate change crisis and biodiversity crisis are increasingly becoming key factors in trade negotiations. Many multinational corporations that the Thai government is courting to invest in the country have announced net zero goals that are far more ambitious than Thailand, and Thai exporters will face increasing climate change requirements from their customers abroad.
The second major obstacle to reaching a meaningful scale of climate finance, in my view, is the risk that any new government initiatives designed to help us transition will be either captured or delayed by powerful incumbents in high-carbon industries. Given how favourable draft PDP2024 is to fossil giants, this risk is clearly not insignificant. Imagine a scenario in which any carbon tax imposed on the electricity sector will easily be passed through directly to consumers in the current centralised system. On the other hand, the carbon tax rate may be too small to provide a real impetus for businesses to decarbonise. There is also no guarantee that the National Climate Change Fund, a new mechanism to be set up under the Climate Change Act, will focus on assisting SMEs and the vulnerable groups with climate adaptation more than giving “corporate welfare” — handouts to high-carbon emitters that clamour for government assistance.
How can we tackle these two obstacles? It should start with financiers and the public calling for a more ambitious government and becoming more vigilant in watching for signs of state capture in climate and energy policies.
First Published on the Bangkok Post
