Smart Green Decoding…Sustainability Laws: Carbon Tax

Under the environmental and climate change policy framework, Thailand plans to implement a mandatory carbon tax through the integration of a carbon pricing mechanism into its excise tax structure. The tax will cover the following petroleum products: 1) gasoline and similar fuels, including various types of gasohol, such as gasohol E10, gasohol E20, and gasohol E85; 2) kerosene and similar lighting oils; 3) jet fuel; 4) diesel fuel and similar fuels, including various types of biodiesel-based diesel, such as B5 diesel, B7 diesel, and B10 diesel; 5) liquefied petroleum gas (LPG), propane, and similar gases; and 6) fuel oil and similar fuels.
 
In January 2025, the Cabinet approved in principle the draft Ministerial Regulation on Excise Tax Rates (No. …) B.E. … to establish a carbon pricing mechanism for excise tax rates. This will integrate the carbon pricing mechanism into the excise tax structure for oil and oil products, without changing the existing tax rates. However, the "GHG Emission Factor" will be added to the calculation formula to raise awareness among the public and industry about the environmental costs of greenhouse gas emissions.
 
Key Points of the Draft Ministerial Regulation:
• Establishes a carbon pricing mechanism in the excise tax structure levied on products under Part 1, oil and oil products, based on the emission factor of oil and oil products according to the excise tax rate in the specific excise tax rate list.
• Specifies that the carbon pricing for oil and oil products will be determined in accordance with the criteria and conditions announced by the Director-General. Initially, a carbon price will be set at 200 baht per tonne of carbon dioxide equivalent.
• The result will be displayed as a "carbon pricing mechanism (baht/liter)" included in the existing excise tax rate, without affecting retail prices or industrial costs.
• The principle of voluntary participation and awareness-raising will remain in place during the initial phase before the draft Climate Change Act takes effect.
• If the carbon price is adjusted to exceed 200 baht per tonne of carbon dioxide equivalent in the future, which would affect the excise tax rate on oil and oil products, a proposal must be submitted to the Cabinet for approval to amend the Ministerial Regulation.
 
Although a carbon tax will be added to the tax structure, it has been clarified that the total tax rate will remain unchanged to avoid impacting retail prices and industrial costs. or the cost of living for the people. In other words, the components of a "carbon tax" are a policy statement rather than an additional financial burden on consumers.
 
The issuance of this ministerial regulation is Thailand's first step in implementing a mandatory carbon tax policy through the existing tax structure. It paves the way for a concrete carbon price and is linked to national carbon reduction policies without causing short-term economic impacts.
 
At the same time, it raises awareness of the environmental impacts of fossil fuel use and the costs associated with greenhouse gas emissions. This paves the way for the enforcement of the Climate Change Act, which will expand the tax to other fuels such as coal and natural gas. It also prepares for new international trade measures, such as the Carbon Border Adjustment Mechanism (CBAM).
 
This action is consistent with the draft Climate Change Act, currently under consideration. The bill will establish a carbon pricing mechanism that covers other industries and supports the establishment of a Climate Fund for innovation in climate impact mitigation and adaptation.
 
In summary, a mandatory carbon tax in Thailand will not significantly increase the price of oil, but it has significant policy value in transforming the tax system and societal energy consumption behavior. Therefore, the carbon pricing mechanism should be viewed as "Strategic tools" that promote the development of the green economy and enhance the country's long-term competitiveness.
 
Dusadee Dusadeepanich
Expert in international trade, investment, and arbitration law.
 
Reference: Infoquest

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