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SATURDAY, June 10, 2023
EU sets Oct 1 as date to impose carbon tax

EU sets Oct 1 as date to impose carbon tax

THURSDAY, May 25, 2023

The Office of Industrial Economics (OIE) has revealed today that the European Union (EU) is preparing to enforce carbon tax measures as of October 1st of this year.

According to the OIE, the most affected Thai industries are those related to iron and aluminum. Hence, these industries should make appropriate adjustments to their production process to avoid having to bear the carbon tax which will raise their production costs.

Warawan Chitaroon, the Director General of the Office of Industrial Economics, stated that the carbon tax adjustment measures, known as the Carbon Border Adjustment Mechanism (CBAM), are part of the EU's green reform policy. The measures aim to prevent carbon leakage and reduce competitive disadvantages faced by foreign producers with less stringent greenhouse gas emission regulations compared to the EU.

These measures will take full effect on October 1 this year, and are expected to impact industries at high risk of carbon leakage in their production processes, such as steel, aluminum, cement, fertilizer, plastic, and hydrogen industries. Among the Thai goods at risk and affected by these measures are the plastic, steel, and aluminum industries, Warawan said.

In 2022, the total value of plastic exports amounted to 676 million US dollars, accounting for 2.4% of the total exports to the European Union. Steel exports amounted to 201 million US dollars, accounting for 0.7%, and aluminum exports amounted to 111 million US dollars, accounting for 0.4% of the total exports to the European Union.

In addition to the European Union (EU), the United States is also considering the Clean Competition Act (CCA) to regulate carbon pricing on products that generate higher greenhouse gas emissions, both domestically and through imports via CBAM. The CCA is expected to be enforced on January 1st, 2027.

The Thai industries most affected by the high-risk carbon leakage for exports to the United States via CBAM are plastics and aluminum. In 2022, plastic exports totaled 1.24 billion US dollars, accounting for 2.1%, while aluminum exports amounted to 884 million US dollars, accounting for 1.5% of the total exports to the United States.

Therefore, Thailand will be directly affected by the CBAM measures, even though the European Union and the United States are not currently the main markets for the aforementioned Thai exports. The OIE advises Thai exporters of these goods to the European Union and the United States to maintain their existing customer base by reporting the carbon emissions in their production processes according to the EU's Carbon Border Adjustment Mechanism (CBAM) measures, Warawan added.

(EU’s Carbon Border Adjustment Mechanism (CBAM) is a tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.)

Furthermore, Thai businesses should prepare for increased production costs by planning improvements or changes in their production processes, paying carbon tax fees, and obtaining CBAM certificates. They should also develop production systems to minimize carbon dioxide emissions and develop environmentally-friendly supply chains for raw materials, semi-finished products, finished products, and transportation, Warawan added.

Thailand attaches importance to environmentally-friendly production following sustainable economic development models such as the BCG (Bioeconomy, Circular Economy, and Green Economy). If businesses can further develop production and service processes that are environmentally-friendly, reduce carbon dioxide emissions, and strive for sustainable production, it will drive a sustainable and environmentally-friendly economy.

Moreover, it will enhance competitiveness against exporters from other countries that may not be able to promptly adjust to CBAM measures and prepare for future enforcement of similar measures in countries like China, Japan, Singapore, and South Korea.