The Impact of Thailand's Climate Change Bill

Introduction

As Thailand strives towards carbon neutrality and net-zero greenhouse gas (GHG) emissions, in alignment with the goals outlined in the Paris Agreement, on February 14, 2024, the Department of Climate Change and Environment (DCCE) took a significant step by launching a public hearing on the draft of Climate Change Act (Climate Change Law). The primary objective of the Climate Change Law is to establish effective mechanisms for reducing GHG emissions.

Key information on the Climate Change Law?

In summary, the Climate Change Law introduces several key mechanisms to address environmental concerns in Thailand as further described below.

Thailand’s Climate Change Master Plan:  The National Committee on Climate Change Policy (NCCC)is required to issue a Climate Change Master Plan. This comprehensive plan outlines the strategies and actions that Thailand will take to mitigate and adapt to the effects of climate change. The plan would undergo periodic review every five years by the NCCC.

Climate Change Fund: The Climate Change Law establishes the Climate Change Fund, dedicated to supporting measures that promote climate change action. Additionally, the fund extends financial assistance in the form of loans and grants to business operators with legal obligations for climate change activities within Thailand.

GHG Mandatory Reporting: Business operators with specified characteristics outlined in the sub-regulation are required to report the quantity of GHG emissions or removals resulting from their operations to the DCCE. The criteria for assessing business operators subject to reporting are not yet finalized but the potential thresholds to be considered include factors such as energy consumption measured in Kiloton of Oil Equivalent (KTOE), business size, number of employees and other relevant characteristics.

Emission Trading Scheme (ETS): The Climate Change Law implements the ETS, a compulsory and market-driven carbon pricing approach to mitigating GHG emissions for business operators engaged in projects or activities resulting in the emission of GHG (Controlled Business Operators). Under the ETS framework, Controlled Business Operators are allocated allowances (emission trading rights), enabling them to transfer, receive, buy, sell, or purchase these allowances.

Carbon Credit: The Climate Change Law clearly defines carbon credits and outlines licensing requirements for carbon credit businesses, including carbon credit exchanges, carbon credit certification providers, and other businesses related to carbon credits as prescribed in the sub-regulation. In addition, the carbon credits registered or certified by the Thailand Greenhouse Gas Management Organization (TGO) can be converted into allowances under the ETS, on the condition that such carbon credits meet the criteria and qualifications prescribed by the NCCC.

Carbon Tax: The law introduces the Carbon Tax designed to impose taxes on products based on assessed GHG quantities at specific life cycle points. This taxation applies to industrial operators, manufacturers, or importers prescribed in the sub-regulation.

How this will affect businesses in Thailand

The implementation of the Climate Change Law will bring both challenges and opportunities for business operators. Whist obligations such as mandatory GHG reporting, potential inclusion in an ETS and the introduction of the Carbon Tax may increase operating costs, there are substantial opportunities for growth by the establishment of the Climate Change Fund offering access to financial assistance and loans for business operators engaged in climate change mitigation activities. Complying with this law not only ensures legal compliance but also positions business operators as proactive environmental stewards, aligning with global environmental standards, potentially reducing their carbon footprint, and gaining a competitive advantage in international trade. For instance, with the introduction of the European Union's Carbon Border Adjustment Mechanism (CBAM), business operators can benefit from the Climate Change Law as CBAM puts a carbon price at the EU border, requiring importers to pay unless the imported goods have already been explicitly priced based on carbon emissions through compulsory carbon pricing mechanisms (ETS/Carbon Tax) at the exporting countries.

Penalties

Failure to comply with the Climate Change Law could result in the regulatory fines ranging from THB 10,000 to THB 5,000,000, depending on the severity of the offence. Additionally, fines may be as high as three times the value of the benefits derived from committing the offence. Where an offender is a legal entity, directors, management, and/or responsible persons may also be jointly liable if the offence committed is a result of an order or action of such persons, or a failure to prevent the action if such persons have a duty to act.

Key Timeline

The Climate Change Law is expected to take 1-3 years to be implemented, with the timeline depending on the duration of public hearings and reviews at each stage. After a public hearing, the draft legislation would be reviewed by the Subcommittee on Climate Change Law, the NCCC, the Cabinet, the Council of State, and lastly the Parliament. The issuance of the sub-regulations is expected to proceed within a year following the enforcement of the law.

We would like to thank our trainee, Patcharapol Sudsakorn at NRF Bangkok office, for his contribution to this post.