Draft Climate Change Act (Thailand)

Key Mechanisms under the Draft Act

(1) Emission Trading Scheme (ETS)

The Emission Trading Scheme (ETS), also known as “Cap and Trade,” is established under the Draft Act as a mandatory carbon pricing mechanism intended to transition Thailand towards a low-carbon economy. This system works by the government setting an overall ceiling or “emission cap” on the maximum allowable GHG emissions for specific sectors, thereby ensuring that national reduction goals are met.

Under this cap, emission rights, which are legally considered assets, are allocated to designated Controlled Juristic Persons through either free grants or auctions. The core mechanism requires these controlled entities to surrender (return) emission rights equivalent to their verified GHG emissions, adhering to the “Polluter Pays Principle”. Entities that successfully reduce emissions below their allocation are incentivized to invest in clean technology and can sell their surplus rights on the market.

Furthermore, revenue generated from the auctioning of these rights and associated penalties provides a key funding source for the Climate Fund.

(2) Carbon Border Adjustment Mechanism (CBAM)

The Carbon Border Adjustment Mechanism (CBAM) is a key mandatory component of the Draft Act designed specifically to manage the problem of carbon leakage and maintain Thailand’s international competitiveness. This mechanism prevents (i) domestic production and associated emissions from relocating abroad, or (ii) imported products from replacing domestic goods, due to the increased manufacturing costs imposed by Thailand’s internal carbon pricing tools (i.e., ETS and Carbon Tax).

CBAM works by requiring importers of goods specified in a Ministerial Regulation to register and report the volume of GHG emissions associated with those imported products. Subsequently, importers must pay the price for a Carbon Adjustment Certificate (“Certificate”), where the cost is determined by the quantity of emissions, factoring in the average auction price of emission rights within the domestic ETS, while also considering the degree of free allocation of rights. However, the importer may request a price reduction if they can demonstrate that the carbon price has already been paid in the country where the goods were manufactured.

Registration is a mandatory condition for releasing goods from customs custody; however, to ease the initial implementation burden, the payment for the Certificate will be exempted for the first two years of the mechanism’s operation. The revenue generated from CBAM serves as a funding source for the Climate Fund.

(3) Climate Fund

The Climate Fund, established under Chapter 4 of the Draft Act, serves as a crucial financial mechanism intended to develop national competitiveness by supporting Thailand’s transition to a low-carbon economy. Its core function is to generate and manage financial resources to create an enabling environment for climate change management and to strengthen the country’s adaptive capacity.

The primary revenue streams for the Fund are derived from the mandatory carbon pricing mechanisms: the ETS and the CBAM. Additional income sources include government subsidies, donations, and investment income. Once funded, the money is allocated to support key activities such as GHG reduction, climate change adaptation, research and development (R&D), and the administration of the fund itself. The Fund’s operation is governed by the Climate Fund Committee, which is responsible for setting policies, spending criteria, and operational oversight.

(4) Carbon Tax

The Carbon Tax, as defined within the Draft Act, is a mandatory carbon pricing mechanism designed to control the release of GHGs by establishing a definitive cost for those emissions. This tax is levied on both (i) industrial operators and (ii) importers of goods that contribute to GHG emissions.

Operationally, the tax amount is determined by the volume of goods produced or imported and is applied according to rates set in a Ministerial Regulation, not exceeding the maximum rates listed in the tax schedule appended to the Draft Act. The purpose of the tax is to provide clarity and predictability regarding the cost of emissions, thereby incentivizing producers and importers to reduce their reliance on GHG-emitting activities to lower their costs. Unlike the revenue from the ETS and the CBAM, the revenue generated from the Carbon Tax must be remitted to the relevant authorities as state income and cannot be deposited into the Climate Fund due to laws governing public financial discipline. The collection and enforcement of this tax are primarily managed by the Excise Department and the Customs Department.

(5) Carbon Credit

The Carbon Credit mechanism, governed by Chapter 11 of the Draft Act, is designed to manage carbon credits efficiently while maintaining transparency and protecting national interests. Carbon credit is legally recognized as an asset and may be transferred, purchased, sold, or disposed of in whole or in part. For domestic purposes under this Draft Act, credits must originate from internal GHG reduction projects that have received legal certification. Any usage of credits in an international context must align with relevant international agreements and secure specific permission from the National Climate Change Policy Committee. Operationally, the scheme mandates a registry system to track the transfer and usage of credits and requires adjustments to the national GHG inventory to prevent double-counting. To ensure market integrity and prevent fraud, the purchase, sale, or transfer of carbon credits is strictly regulated and must be conducted through approved channels, such as authorized trading centers or direct inter-personal transfers, with the transfer becoming complete only upon registration with the Thailand Greenhouse Gas Management Organization (the “TGO”). Furthermore, entities seeking to conduct carbon credit business must register with the TGO Committee, and failure to do so is subject to administrative fines.

Penalties under the Draft Act

Violations of the Draft Act are subject to penalties, including regulatory fines and criminal penalties. They could be categorized as follows:

1. Violations of notifying provisions: for example, notifying false GHG emission report as required under the Draft Act or concealing the information that must be reported, will be subject to regulatory fine up to THB 5,000,000 or three times the benefits gained from such a violation, whichever is higher.
2. Violations of ETS provisions: for example, not returning the emission rights, or not returning it in full, will result in regulatory fines up to three times the average price of emission rights allocated through auctioning for the operating year, based on the number of emission rights that are either not returned or not fully returned.
3. Violations of CBAM provisions: for example, failing to pay the price for the Certificate will result in regulatory fines up to THB 5,000,000 or three times the benefits gained from such action, whichever is higher.
4. Violations of Carbon Tax provisions: for example, destroying, removing, concealing, or transferring to another person any property or claim that has been seized or attached for the purpose of enforcing payment of an outstanding Carbon Tax will be subject to imprisonment for a term not exceeding three years, along with a fine up to THB 400,000.
5. Violations of Carbon Credit provisions: for example, operating carbon credit businesses without registration with TGO Committee will be liable for a fine of THB 10,000 to 100,000, and a daily fine up to THB 1,000 until compliance is achieved.

Where the offender is a juristic person, liability may extend to directors, managers, or other responsible persons if the offense is committed under their instruction, action, or neglect of duty.

Governing Authorities

Implementation of the Draft Act falls under the authority of Ministry of Natural Resources and Environment and Ministry of Finance. These ministries will act as the main agencies overseeing the provisions of the Draft Act, including the appointment of officials and the creation of sub-regulations to fulfill its objectives.

Furthermore, given that the Draft Act includes a number of mechanisms, several authorities are involved in examining, ensuring compliance, and assisting with the Draft Act’s implementation.

The relevant authorities include the National Climate Change Policy Committee, Climate Fund Committee, and TGO. The Excise Department and Customs Department serve as the primary agencies responsible for tax collection, assessment, and the determination of penalties and surcharges under the Draft Act.

Summary

To reach the objective of prevention and lessen the severity of global climate change, Thailand is working towards carbon neutrality and net-zero greenhouse gas emissions by implementing a range of laws, including this Draft Act. A variety of mechanisms, such as ETS, CBAM, Climate Fund, Carbon Tax, and Carbon Credit, are outlined to regulate emissions. A number of governing bodies and committees are also engaged to guarantee adherence to the obligations outlined in the Draft Act.

Going forward, close attention should be paid to the legislative process and the issuance of subordinate regulations including the Ministerial Regulation determining the rate of carbon tax and the details on the report of GHG emissions, which will clarify the detailed obligations for relevant parties accordingly.