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7 Sep 2022

Econ Digest

Are Thai exporters ready for the upcoming U.S. Clean Competition Act?


        The U.S. Senate has introduced the Clean Competition Act, comprising a carbon pricing mechanism (Carbon Pricing) for U.S-made products and a carbon border adjustment mechanism (US-CBAM) for imported products. The target industries include petroleum production and refining, petrochemicals, fertilizer, hydrogen, adipic acid, cement, iron and steel, glass, pulp and paper, and ethanol. By 2024, producers in the targeted U.S. industries with a carbon intensity above the industry’s applicable carbon intensity baseline must pay a tax on the above-baseline carbon intensity.

       Starting from 2026, goods imported into the U.S. that will be subjected to this Act are 1. Products in target industries, and 2. Finished goods containing materials from the target industries exceeding the prescribed threshold. These imported products are subjected to the same carbon tax rates as products made in the U.S.

        As Thailand is not on the list of Least Developed Countries (LDCs), it is not exempted from such tax, resulting in higher costs for Thai exporters to the U.S. in the target industries. In 2021, the U.S. was Thailand’s largest export market, with the value of THB1.3 trillion, the exports of products in the target industries was worth THB119.631 billion or 9.05% of total exports to the U.S., mostly from the iron and steel industry, followed by petrochemical and aluminum products. The export of products containing materials from the target industries will mainly be affected, due to the high export value of THB689.78 billion, accounting for 52.2% of the total exports to the U.S., most of which are machinery and electronic equipment.

        In the short-term, Thai exporters in the target industries should collect information on greenhouse gas emissions for use in periodic reporting for the EU-CBAM that will come into force in 2023 and the US-CBAM that is under consideration. In the medium and long-term, business operators should accelerate the adjustment of production processes to be environmentally friendly and reduce greenhouse gas emissions. Otherwise, business operators will have to face higher export costs, which will affect their competitiveness.

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Econ Digest