Making exports for a low-carbon era
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Making exports for a low-carbon era

Policy Focus

Thai exporters need to make their supply chain green and low-carbon to meet the European government's carbon border adjustment mechanism (CBAM) imposed on high-carbon goods. (Photo: 123RF)
Thai exporters need to make their supply chain green and low-carbon to meet the European government's carbon border adjustment mechanism (CBAM) imposed on high-carbon goods. (Photo: 123RF)

Exports have been Thailand's important growth engine for many decades. A number of Thailand's export destinations have shown increasing interest in and support for low-carbon products. Failure to meet global demand for low-carbon products risks Thailand's competitiveness in international trade.

The options are clear: either adapt to the low-carbon market by reducing the amount of carbon emissions embedded in the export products or risk falling behind.

With global warming causing increasing natural disasters, Thailand's agricultural, manufacturing, and service sectors must transform by transitioning to low-carbon production.

Multinational companies increasingly seek low-carbon products, and European governments impose a carbon border adjustment mechanism (CBAM) on high-carbon goods, such as cement, iron and steel, fertiliser, aluminium, electricity, etc.

Over time, the EU also has plans to expand the coverage to include more industries.

CBAM entered into force on May 17, 2023, and, as a regulation, is directly applicable in all EU member states. CBAM's transitional phase started on Oct 1, 2023. Affected companies now have the duty to collect the information necessary for upcoming periodic reports on imports and emissions. CBAM certificate trading will gradually start in 2026.

The United States, Canada, and Australia are also under consideration of putting in place measures similar to the EU CBAM, and goods that are likely to be affected include petrochemicals, ceramics, paper, glass, and consumer goods.

Even though the value of Thai exports of CBAM goods to the EU is not that high currently, the impacts might increase in the future as more goods fall under the scope of CBAM. To stay competitive, Thai companies that export goods abroad must prioritise low-carbon strategies to address buyers' environmental concerns.

A forward-looking policy is vital. For instance, even though agricultural products, such as chicken meat, are not yet within the scope of EU CBAM, Thai agribusinesses have already started producing low-carbon agricultural products and foods and exporting them abroad.

This strategy applies not only to large agricultural companies but also to small suppliers. Being low-carbon benefits businesses, as many global companies that set carbon neutrality or net zero targets prefer low-carbon suppliers to reduce carbon emissions across the supply chain.

With regards to the state of greenhouse gas emissions in Thailand, as of 2018, Thailand produced 373 million tonnes of greenhouse gases annually, with the energy sector being the largest emitter (257 million tonnes), followed by the agricultural sector (58 million tonnes) and the industrial process and product use (40 million tonnes).

While these sectors must reduce greenhouse gas emissions to maintain competitiveness, they can increase productivity by using resources, especially energy and water, more efficiently. For the industrial process and product use sector, promoting energy efficiency will lead to cost savings and environmental benefits. Similarly, given that the agricultural sector currently uses water wastefully and inefficiently, switching to some greenhouse gas mitigation strategies, such as the alternate wetting and drying technique, not only helps reduce greenhouse gas emissions but also helps reduce water usage in the rice production process.

Low-carbon or greenhouse gas mitigation technologies can be largely categorised into three main categories: quick-win technologies, medium-term technologies, and long-term technologies. Examples of quick-win technologies are switching to renewable energy, improving energy efficiency, and improving waste and wastewater management.

For medium-term technologies, examples are the production of hydraulic cement, the transition to electric trucks, switching to sustainable aviation fuels, etc. Though the costs of these medium-term technologies are still high at present, they are expected to decline rapidly in the near future. For long-term technologies, examples include carbon capture and storage, green hydrogen technologies, hydrogen aircraft, etc.

Many companies have started implementing low-carbon strategies. For instance, Betagro is using renewable energy in its animal feed plants and production of biogas from animals' manure. CPF uses technology to monitor crop residue burning in maize plantations, ensure traceability, and enhance automation. It also uses renewable energy and biofuels in factories, improves animal feed formulas, and stresses the need for low-carbon transition across its supply chains to achieve the net zero goal by 2050.

Research shows that rice farmers can save water by 28% and reduce methane emissions by 48% if they adopt the alternate wetting and drying technique. Besides saving on costs for seeds, chemical fertiliser, and water pumping, farmers can generate additional income from the sales of carbon credits that result from the reduction of greenhouse gas emissions.

If only 30% of farmers were to adopt this alternative wetting and drying technique, according to our estimations, greenhouse gases from rice farming would be reduced by 7.7%, while the estimated economic value of rice farming could increase by 1,622 million baht per year.

However, there are some limitations to the adoption of the wetting and drying technique. This farming technique is limited to irrigated land, requires laser land levelling, and requires more time and effort to monitor water levels in rice fields.

For the industrial process and product use sector, Siam Cement Group (SCG) aims to achieve net zero by 2050 by using green energy, producing hydraulic cement and low-carbon concrete, and considering using green hydrogen and carbon capture and utilisation technologies in the future.

Pandora, a leading jewellery-making company, is transitioning to green electricity, incorporating recycled materials as inputs in jewellery production, and ensuring its suppliers adopt low-carbon practices to achieve net zero by 2040.

Thai Wacoal is committed to reaching net zero by 2050 through the use of green energy and innovative technologies to produce low-carbon garments.

The Peach Hill Hotel and Resort, a pioneer in low-carbon hotels, employs solar energy, zero-waste practices, and architectural design to enhance natural ventilation, increase green space, and reduce air conditioning usage.

However, despite these efforts, many barriers hinder the transition to a low-carbon future. Solar energy and other renewable energy face challenges as Thailand's power market still operates under the enhanced single-buyer scheme, which does not allow peer-to-peer trading of clean energy.

In addition, Thailand lacks compulsory carbon pricing schemes, such as carbon tax or cap-and-trade systems, to incentivise businesses to go low-carbon. Lack of access to low-interest green finance also impedes the adoption of new technologies in production processes and management.

To achieve its net-zero goal by 2065, some policy interventions are necessary for Thailand.

The Thai government must reform its power market to allow for peer-to-peer trading of clean energy. In addition, putting in place the carbon pricing mechanism, such as a carbon tax or cap-and-trade scheme, is also crucial to reducing greenhouse gas emissions and maintaining Thai exports' competitiveness in international markets. The carbon tax revenue should not go into national coffers but should instead be directed to Green Transition and Adaptation Funds. These funds will aid those affected by climate change, assist small businesses in transitioning to the low-carbon economy and adapt, and invest in emission reduction technologies.

The voluntary carbon credit market is also crucial for incentivising low-carbon practices like the alternate wetting and drying technique in rice production and no-tillage. Unconditional subsidies should be replaced by conditional subsidies, which are tied to no burning of crop residues, which are among the contributors to PM2.5 emissions.

Finally, the government must offer financial support, knowledge and technical support for small businesses to transition to low-carbon practices. At the same time, large businesses and financial institutions must also play a role. Large businesses can, for instance, help facilitate their small and medium enterprise suppliers in accessing low-interest rate green credit from the commercial bank for them to be capable of investing in a low-carbon transition.

This policy commitment is essential for Thailand to achieve its net-zero goal and maintain Thai exports as the economy's lifeline.

Kannika Thampanishvong, PhD, is Section Head at Puey Ungphakorn Institute for Economic Research (PIER) and Nipon Poapongsakorn, PhD, is a Distinguished Fellow at the Thailand Development and Research Institute. The opinions expressed herein are those of the authors. They do not purport to reflect the opinions or views of the Bank of Thailand, PIER or its members. Policy analyses from the Thailand Development Research Institute (TDRI) appear in the Bangkok Post on alternate Wednesdays.

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