Climate Change Act to introduce mandatory carbon pricing and GHG emission quotas for industry

• Thailand's Climate Change Act will become the country's principal climate legislation, establishing mandatory carbon pricing through the Thailand Emissions Trading Scheme (TH ETS) and a carbon tax to accelerate greenhouse gas (GHG) reductions towards the 2050 Net Zero target. The Act is expected to be enacted around the third quarter of 2027, with mandatory carbon pricing likely to be implemented during 2029-2030.
• Energy-intensive and high-emitting industries will be affected first. Under the TH ETS, covered businesses will receive GHG emission allowances, while companies that exceed their allocated quotas will be required to purchase additional allowances on the market or through government auctions, thereby increasing production costs – particularly in construction materials, petrochemicals and chemicals, and energy and utilities sectors. At the same time, domestic carbon pricing will help reduce the costs of complying with overseas measures such as the EU Carbon Border Adjustment Mechanism (CBAM).
• Although implementation remains several years a​way, businesses should begin reducing their GHG emissions now. Companies need to proactively manage the transition risks arising from existing cross-border measures, particularly the EU CBAM, which is already in force and more stringent than Thailand's proposed framework. Without sufficient access to financing, technology, and expertise – especially among SMEs – higher carbon costs could be passed on to consumers, affecting living costs and competitiveness. Carbon pricing should therefore be accompanied by investment support, decarbonization incentives, and targeted relief for low-income households.

 
Climate Change Act to establish carbon-reduction mechanisms in Thailand

The Climate Change Act will support Thailand in achieving its net-zero greenhouse gas emissions target by 2050, following the revision of the country's Nationally Determined Contributions (NDCs), under which the target year has been brought forward by 15 years, from 2065 to 2050.

According to the Act, Thailand will implement mandatory carbon-pricing mechanisms, namely, (1) Carbon Tax and (2) Thailand Emission Trading Scheme (TH ETS). These mechanisms will increase costs for industries, particularly those with high greenhouse gas emissions. However, mandatory carbon pricing mechanisms can also help reduce compliance fees under Carbon Border Adjustment Mechanism (CBAM) regulations imposed by other countries.

The Act is expected to be enacted by the third quarter of 2027. Related legislation will then be considered and implemented to prepare for the launch of Thailand's mandatory carbon pricing mechanisms approximately two years after the Act comes into force (around 2029-2030).

Manufacturing sector to be subject to greenhouse gas emission quotas

TH ETS will primarily affect industries with high greenhouse gas emissions and high energy consumption, making them the first target sectors for greenhouse gas emission quotas. Once TH ETS enters the phase where it becomes mandatory for regulated entities (Phase 2), emission caps will be established through the TH ETS mechanism. Businesses that exceed their allocated emission quotas may need to purchase additional emission allowances from other entities that have reduced their emissions below their allocated limits. This mechanism is designed to reduce overall greenhouse gas emissions across covered industries.

However, TH ETS is expected to begin operating from 2029 onward. The system will gradually become more stringent through three phases: (1) Greenhouse gas emissions reporting phase; (2) Emission allowance allocation phase; (3) Progressive tightening of emission allowance allocations under TH ETS. Each phase is expected to be implemented for at least two years.
 

Energy-intensive and/or high-emitting industries will be targeted first
 
Based on the preliminary criteria for identifying industries that may be subject to TH ETS, two key indicators will be considered: (1) electricity consumption and (2) greenhouse gas emissions. Industries most likely to be affected include construction materials, wholesale and retail trade, food and beverages, petrochemicals and chemicals, and energy and utilities. This is reflected by the high proportion of listed companies within these sectors that fall into the top 10% under both criteria. However, the final target industries will be determined after the Climate Change Act comes into effect.
 
Consumers will also be affected by the carbon tax
 
On the consumption side, the Act introduces another carbon pricing mechanism, which is the carbon tax. Currently, the carbon tax is embedded within excise taxes and does not increase consumers' tax burden. However, once the Act takes effect, the carbon tax will become an additional cost component for fuel and petroleum products, as well as other designated carbon dioxide (CO2) emitting products, resulting in higher prices.

Under the assumption that Thailand sets a carbon tax rate of THB200/ ton of carbon dioxide equivalent (tCO2e), prices of fuel and petroleum products would immediately increase by approximately THB0.069–0.623 per liter. Higher prices resulting from the carbon tax are expected to influence consumer fuel consumption behavior. Furthermore, the Act also allows for the application of carbon taxes to other carbon dioxide emitting products. Consequently, products associated with carbon dioxide emissions are likely to become more expensive, encouraging both consumers and producers to shift toward lower-carbon alternatives that may eventually become more cost-competitive. Carbon tax collection is expected to begin from 2029 onward.

From an economic incentive perspective, however, a carbon tax rate of THB 200/tCO2e may still be relatively low. At the initial stage, such rate could be appropriate as a starting price to facilitate the transition while minimizing impacts on household living costs. It would also provide businesses with time to adapt and allow the authority to gradually increase carbon prices over time.

Advantages of implementing a mandatory carbon pricing mechanism

In addition to encouraging changes in production and consumption behavior toward low CO2 emitting products, mandatory carbon pricing mechanisms can help businesses avoid carbon-related fees imposed by trading partners. For example, under the European Union's Carbon Border Adjustment Mechanism (CBAM), carbon costs paid domestically can help reduce the compliance costs payable to importing countries. This can lessen the loss of competitiveness for exports to countries with strict environmental requirements. Moreover, carbon-related costs collected domestically can be utilized through climate funds to further support greenhouse gas emissions reduction efforts in Thailand.

What Thai businesses must do under TH ETS?
 
Businesses will be responsible for managing their greenhouse gas emissions within their allocated emission allowances. If emissions exceed allocated quotas, businesses may purchase emission allowances from other companies or participate in government auctions to obtain additional allowances to offset the excess emissions. Allowances prices in the international ETS market currently range from approximately USD0.7–99.3 per tCO2e (around THB24–3,270 per tCO2e), depending on the stringency of each country's emissions-control policies. Thailand's specific approach remains subject to future government policy decisions.

The problem is that consumers may bear significant costs if producers are unprepared.

During the transition period, a number of Thai businesses, particularly SMEs, may face constraints in financing, technology, and expertise required for carbon reduction. If businesses are unable to adapt and reduce their emissions, these additional costs may be passed on to consumers through higher prices of goods and services. As a result, consumers could become the group most affected by measures aimed at transitioning toward a low-carbon economy. The impact may vary across product groups, with energy-intensive or carbon-intensive products tending to face greater cost pressures. Therefore, the challenge for the government is not only to establish carbon-pricing mechanisms but also to design an appropriate transition framework. This includes giving businesses time to adapt, supporting investment in carbon-reduction technologies, and mitigating the impact on households, especially low-income groups.

If the measures are well-designed, carbon pricing will incentivize both producers and consumers to change their behavior. However, if adaptation costs are too high or occur too quickly, they may put pressure on the cost of living and the competitiveness of the business sector.

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