Since the start of this year, Thai steel and aluminum sold to Europe have carried a new cost. Under the European Union’s carbon border levy, importers must now account for the emissions embedded in these goods, and from 2027 they must pay for them. The only question is who collects the money, Bangkok or Brussels.
That question makes Thailand’s Climate Change Act timely. Approved by the cabinet late last year and now in its final rounds of public hearings. The law will give Thailand its first tools to put a price on greenhouse gas emissions. It will impose a carbon tax, which is a fee on each ton of carbon released, and an emissions trading system, which is a market where big emitters buy and sell a limited number of permits to pollute.
As enforcement approaches, one central question dominates the national dialogue: will putting a price on carbon derail the Thai economy?
Fortunately, we no longer need to guess. European countries conducted this experiment for more than two decades. The World Bank now counts 80 carbon pricing schemes worldwide, covering about 28% of global emissions and raising more than US$100 billion (3.2 trillion baht) for public budgets in 2024.
The Europe findings are consistent. Well-designed carbon pricing cut emissions substantially, roughly 10 – 20%, with no measurable damage to growth, jobs, profits or competitiveness. Since 1990 the EU economy has grown 71% while its emissions fell 37%, proving that economic growth and carbon emission can be successfully decoupled.
Europe made costly mistakes and repeatedly fixed its system. That is precisely Thailand’s opportunity. Arriving late, we can skip the errors and copy only what works.
Fears that never came true
Every argument currently raised in Bangkok against carbon pricing was voiced in Brussels 20 years ago, and few came true.
Consider businesses. Antoine Dechezleprêtre of the London School of Economics and his colleagues compared thousands of firms inside the European system with similar firms outside it. Regulated firms cut emissions by about 10% with no loss of profits, jobs, revenue or assets. If anything, their revenues rose, because the carbon price pushed them to invest more productively.
What about factories fleeing abroad? Helene Naegele of the German Institute for Economic Research and her colleague went looking for the exodus and found none. For 95% of manufacturing sectors, carbon costs came to less than 0.65% of material costs, far too small to justify moving a factory. Dire forecasts kept overstating the pain because they ignored innovation and the ability of firms to adapt.
Then there is the “greenflation” narrative, the worry that carbon prices will push up the cost of living. Maximilian Konradt of the Geneva Graduate Institute and his colleague examined 18 carbon taxes across Europe and Canada over three decades and found the effect on inflation was close to zero. The greenflation is found smallest in countries that returned the revenue to taxpayers.
Sweden shows what the long game looks like. The country introduced a 23-euros-per-tonne carbon tax in 1991 and raised it step by step, with each increase announced years in advance. Today, the price is about 138 euros, among the world’s highest. Meanwhile, Swedish emissions fell by roughly a quarter while the economy grew by nearly 80%. Six governments across the political spectrum kept raising the tax for three decades without a revolt, because households and firms had time to adjust.
Swedish carbon price is about 138 euros, among the world’s highest. Meanwhile, Swedish emissions fell by roughly a quarter while the economy grew by nearly 80%.
I do not want to oversell the evidence. Diego Känzig of Northwestern University finds that sudden, unexpected jumps in carbon prices do hurt output and jobs in the short run, and the pain falls hardest on poorer households. But the damage comes from surprise, not from the price itself. It disappears when the price rises gradually and predictably, and when the money comes back to people. In volatile energy markets, Thai policymakers must keep this waring in mind.
Getting the design right
The evidence points to five design principles. They also shaped our suggestions in the latest public hearing on the draft law.
First, the law should focus on a clear, legally mandated trajectory rather than a high starting price. Today’s carbon price of 200 baht per ton will not change behavior, and it does not need to. What changes investment decisions is a clear schedule of future increases that companies can trust. Put that schedule in the law itself, so each step happens automatically instead of becoming an annual political fight. In addition, applied first to the energy sector, which accounts for nearly 70 percent of Thailand’s emissions.
Second, return carbon tax revenues to the public. As the price rises, tax revenue will reach tens of billions of baht a year. Here Thailand holds a distinct advantage through its State Welfare Card system, which already reaches more than 10 million lower-income citizens. Pay a visible carbon dividend through it, invest in public transport, and help workers in fossil-fuel industries and small businesses adjust to the transition.
Third, stop subsidizing the fossil fuels it intends to tax. No design matters if the state’s left hand cancels its right. Universal fuel subsidies cost 178 billion baht in lost excise revenue between 2022 and 2024, and the Oil Fund’s deficit once passed 130 billion baht. Worse, these subsidies mostly benefit wealthier households, simply because they consume more fuel. Phase down the blanket price caps slowly and redirect the savings to targeted support for poorer households.
Fourth, remember where this article began. Thai exporters must pay carbon price in Thailand instead of the EU bill, so every baht we collect at home is a baht that stays in Thailand instead of flowing to the EU treasury. Delay does not avoid the cost. It donates the revenue to Europe.
Finally, accurate measurement must come before full-scale carbon trading. Before trading begins, Thailand needs reliable measurement of who emits how much. Set a minimum and a maximum price from day one, to prevent both the price collapse and the price shocks that Europe suffered. Keep the rules for handing out permits transparent, so that no industry group can game the system.
Fear that carbon pricing will hurt Thai economy is understandable and, on the European evidence, overstated. Thailand’s differences in industrial structure and weaker social protections are reasons to design carefully, not to wait. The real risk is a badly designed system or delay while neighbors set the region’s standards and Brussels collect that could have stayed home.
With appropriate design, the Climate Change Act will not slow Thailand down. It will serve as a quiet engine of economic modernization, proving that the nation can grow richer and cleaner at the same time.
