Thailand's Draft Climate Change Act Would Introduce Carbon Pricing for Businesses before 2030

The Thai government is planning to introduce a comprehensive climate legislation that would mandate carbon pricing mechanisms from 2027 onwards to achieve carbon neutrality by 2050. This draft law will impact foreign companies in Thailand operating in energy-intensive sectors, such as manufacturing and international trading. These companies are urged to start assessing long-term compliance obligations, such as emissions measurement systems and supply chain adjustments to minimise operational costs.

Thailand's new framework would create domestic parity where companies competing in Thai markets will face equivalent carbon costs, and exporters will gain credibility by demonstrating that their Thai operations operate under legitimate carbon regulation.

Regulatory Background and Timeline of The Draft Climate Change Act

This draft law originated because Thailand ratified the Paris Agreement in September 2016, but operated primarily through voluntary climate initiatives until now. Thailand´s ambitious targets are to achieve carbon neutrality by 2050 and net-zero emissions by 2065. The Department of Climate Change and Environment has created the Draft Climate Change Act after extensive stakeholder consultation and a public hearing that received 1500+ participants. It is expected that the Draft Act would be submitted to the Cabinet for review before 2025. Once approved by the Cabinet, the Draft Act would need to go through the parliamentary process before its implementation, which is expected for 2027.

The Draft Act Introduces Four Core Carbon-Pricing Mechanisms

Mandatory Emission Trading Scheme (ETS): Set to begin in 2029 (pilot phase), covered sectors must participate in Thailand's cap-and-trade system. The government sets sector-wide emission caps that will decline annually. Companies would receive allowances and must surrender allowances matching their annual emissions. Those reducing emissions below allocations can sell surplus allowances for profit, and those exceeding allocations must purchase allowances or face penalties. A subsequent legislation to be introduced before 2029 will specify which sectors are covered. All energy-intensive industries such as manufacturing, power generation, refining, cement, steel, aluminium, and more are anticipated to be included.

Carbon Tax on Fossil Fuels: The Draft Act also establishes mandatory carbon taxation on coal, oil, natural gas, and other fossil fuels at rates of up to THB 120 per ton of CO₂ equivalent. Thailand already implemented a preliminary carbon tax of THB 200 per ton on oil and oil products in early 2025 under the Excise Tax Act. It is important to note that companies can deduct carbon tax payments against ETS allowance costs to prevent double taxation.

Carbon Border Adjustment Mechanism (CBAM): Importers of carbon-intensive goods would be mandated to register with customs and report embedded emissions in their imports. They must acquire carbon adjustment certificates that match the import emissions intensity. The first two years of the Draft Act´s implementation are expected to waive actual certificate payments while registration and reporting systems are established. This follows the EU CBAM model exactly. Importers who paid carbon prices in their product's origin country can claim deductions.

National Climate Change Fund: Revenue from the ETS auctions and CBAM certificate sales would fund this dedicated mechanism for supporting emissions-reduction projects, climate adaptation, and green R&D. The fund would be governed by a committee comprising government, private sector, and civil society representatives.  The Department of Climate Change and Environment mentioned that approximately THB 5 trillion in investments would be needed to achieve Thailand´s climate targets. This fund will only address a portion, with the private sector and international finance completing it.

What This Means for Foreign Businesses

Compliance obligations for designated sectors: Companies in energy-intensive industries will need to measure, report, and verify greenhouse gas emissions across Scope 1 (direct), Scope 2 (purchased electricity), and, where material, Scope 3 (supply chain) emissions. Measurement must comply with international standards (ISO 14064, Greenhouse Gas Protocol). Non-compliance would trigger regulatory penalties and potential exclusion from emissions auctions.

Rising operational costs: Carbon tax and ETS allowance costs will increase energy and material expenses for manufacturing, refining, power generation, and import operations. The first years of implementation costs are expected to be deliberately moderate. The preliminary carbon tax of THB 200/ton is deliberately low compared to Singapore's SGD 25/ton (USD 19) or Finland's USD 100/ton. However, the government has explicitly signaled that rates will escalate post-2030 as carbon neutrality targets tighten.

Investment opportunities in green technology: Companies reducing emissions below ETS allocations can monetize their surplus allowances. Those generating carbon credits through renewable energy or efficiency projects can sell domestically or internationally. Climate Fund financing at preferential rates supports early-stage low-carbon infrastructure. Also, there are many Board of Investment incentives for renewable energy, from corporate income tax exemptions up to eight years to import duty waivers that complement carbon pricing signals to attract foreign investment in clean technology.

Enhanced regulatory and market credibility: Foreign parent companies and international investors increasingly require subsidiaries to demonstrate carbon compliance and ESG governance. Thailand's mandatory framework would enhance investor confidence and supply-chain credibility. Companies perceived as climate laggards would increasingly face reputational costs and customer pressure, particularly from developed market buyers.

Regional Context: Thailand's Position in ASEAN

If implemented, Thailand´s approach would be more comprehensive than most ASEAN peers. Singapore implemented the world's first carbon tax in 2019 at SGD 5/ton, escalating to SGD 25/ton in 2024 with further increases planned to SGD 50–80 by 2030. Indonesia launched a limited mandatory ETS for coal power plants in 2021, but shelved plans for an economy-wide carbon tax. Vietnam is developing its own ETS for power and energy-intensive sectors, but hasn't implemented carbon taxation. Malaysia and the Philippines are still in policy development phases.

Implementation Risks and Uncertainties

Thailand's Draft Climate Change Act transitions the country from voluntary climate commitments to mandatory carbon pricing before 2030. Short-term compliance costs would be substantial for carbon-intensive operations, but early movers positioning themselves with renewable energy procurement and low-carbon operations will achieve competitive advantages as policies escalate post-2030.

Subordinate legislation finalizing sector coverage, allocation methods, and tax rates will not 

be complete until after cabinet approval. This means that there are risks of potentially compressing preparation timelines for both the private sector and the government. Measurement, reporting, and verification systems across thousands of companies require substantial technical capacity-building. It remains unclear whether future governments would still maintain this policy priority in a context where Thailand´s economy is facing slow growth and strong external pressures affecting trade and tourism. 

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