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What carbon tariffs mean for Thailand
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What carbon tariffs mean for Thailand

Exporters are preparing for the enforcement of the EU's Carbon Border Adjustment Mechanism

The Clean Competition Act is intended to deal with sources of carbon dioxide emissions and make US companies more competitive in the global market.
The Clean Competition Act is intended to deal with sources of carbon dioxide emissions and make US companies more competitive in the global market.

In about two months, exporters will see the enforcement of the European Union's (EU) Carbon Border Adjustment Mechanism (CBAM) during a transitional period. Perceived by entrepreneurs as a new non-tariff barrier, the CBAM is aimed at combatting global warming. A similar tool to help reduce carbon dioxide emissions is also planned by the US.

Today we will explore how Thai businesses will be affected and whether it is possible for them to avoid paying this additional expense.

Q: What is CBAM and its potential impact?

CBAM is a tariff on products which release a high level of carbon dioxide during the manufacturing process.

The transitional phase of CBAM, which starts on Oct 1, requires importers of iron and steel, aluminium, cement, fertiliser, electricity and hydrogen to report greenhouse gas emissions embedded in their imports without being subject to financial payments or adjustments, according to the EU.

Importers are scheduled to pay a levy for CBAM certificates from Jan 1, 2026.

CBAM is aimed to help the EU curb "carbon leakage" and ensure fair competition among manufacturers with different levels of carbon dioxide emission, said Warawan Chitaroon, director-general of the Office of Industrial Economics (OIE).

Carbon leakage occurs when EU-based companies move carbon-intensive production abroad to countries where less stringent climate policies are enforced, or when EU products are replaced by more carbon-intensive imports.

Thai manufacturers of steel and aluminium will be affected by CBAM if they do not adjust their production processes, said Mrs Warawan.

Last year, the value of Thai steel exports to the EU was US$201 million, or 0.7% of the total value of exports to the 27-country bloc, according to the OIE.

Thai aluminium exports were valued at $111 million, making up 0.4% of the total export value.

Nava Chantanasurakon, chairman of the Federation of Thai Industries' (FTI) Iron and Steel Industry Club, said the EU's CBAM will definitely affect exports, specifically production industries that use fossil fuel-based energy such as cement and steel.

He said these industries are speeding up studies on alternative energy sources, though investment in green energy is capital-intensive.

The FTI has already asked the government for financial support to reduce the private sector's financial burden.

Mr Kriengkrai said if factory operators adjust their manufacturing and make it more eco-friendly, they could avoid such new trade barriers as CBAM.

Q: Will the Clean Competition Act affect Thai manufacturers?

The bill was introduced by the US Senate in September last year. It will have a similar impact to that of CBAM as it covers a wide range of industries, said Mrs Warawan.

The Clean Competition Act is intended to deal with sources of carbon dioxide emissions and make US companies more competitive in the global market.

Industries targeted by the law include petroleum production and refining, petrochemicals, fertiliser, hydrogen, adipic acid, cement, iron and steel, glass, pulp and paper, and ethanol, according to the Kasikorn Research Center (KResearch).

Plastics, which are among petrochemical products, will be affected.

Last year, Thailand exported plastic products worth $1.2 million to the US, making up 2.1% of the total value of goods shipments, said Mrs Warawan.

According to KResearch, by 2024, producers in these industries in the US are required to pay a tax if carbon intensity in their production processes are above the industry's applicable carbon intensity baseline.

Starting from 2026, goods in these industries that are imported into the US will be subject to the same carbon tax rates as products made in the US.

Q: Can Thai manufacturers avoid the new levies?

Thailand can avoid the impact of CBAM and the Clean Competition Act by keeping the manufacturing sector in line with the bio, circular and green (BCG) economic development plan.

Declared as a national agenda item by the Prayut Chan-o-cha government, BCG encourages manufacturers to adopt technologies that can add value to their products and, at the same time, minimise impact on the environment.

If factory operators seriously adjust their manufacturing and make it more eco-friendly, they could avoid such new trade barriers as CBAM, Kriengkrai Thiennukul, chairman of the FTI, said in a previous forum.

In fact, the non-tariff barriers could be turned into a new business opportunity if the country promotes more renewable energy development and BCG, he said.

Mr Kriengkrai believes BCG will be a game changer for businesses in the coming decade.

The country has had many projects that share similar aims to BCG, but manufacturers tend to produce low-priced, commodity-grade products for export, he said. With the state's push for BCG, Mr Kriengkrai believes there will be more value-added products in various categories, including biodegradable plastic and biofertilisers.

The biodegradable plastic industry has the potential to grow as global manufacturers are seeking new production facilities in Thailand, he said.

Echoing Mr Kriengkrai, Kirana Limpaphayom, chief executive of SET-listed Banpu Power, said the campaign against greenhouse gas emissions could also provide new business opportunities for Thailand.

There are various businesses related to clean energy development and better energy management, he said.

They include technology-based businesses which encourage households and businesses to both produce and consume electricity.

Carbon credit trade can also be a new source of revenue, Mr Kirana said.

Carbon credits refer to the amount of carbon dioxide emissions reduced by environmental projects, including clean energy development. The amount can be sold to other companies to offset the carbon dioxide they release into the air.

SET-listed Siam Cement Group (SCG), Thailand's largest cement maker and industrial conglomerate, is aware of the need for greater care of the environment and aims to achieve a carbon neutrality target, a balance between carbon dioxide emissions and absorption, by 2050.

SCG president and chief executive Roongrote Rangsiyopash said earlier the company would not only focus on environmentally friendly petrochemical products but also other green products in packaging as well as cement and building material sectors.

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