A regional comparison of ESG regulations: Thailand

    By Peerapan Tungsuwan, Varutt Kittichungchit, Muanjit Chamsilpa, and Dhiranantha Rithmanee, Baker McKenzie
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    INDIA

    INDONESIA

    JAPAN

    SINGAPORE

    SOUTH KOREA

    TAIWAN

    THAILAND

    Thailand is no exception to the trend of environmental, social and governance (ESG) topping corporate boardroom agendas worldwide in recent years. With the heightened focus on climate change, the climate-related regulatory landscape has shifted significantly, in particular with ESG regulatory developments. This article focuses on Thailand’s recent environmental-related regulatory developments.

    CLIMATE COMMITMENT

    Peerapan Tungsuwan
    Partner and Head of the Sustainability Group, and Healthcare and Life Sciences Industry Group
    Baker McKenzie
    Bangkok
    Email: peerapan.tungsuwan@bakermckenzie.com

    Thailand’s climate commitment has seen some key developments, notably with its second updated Nationally Determined Contribution (NDC), submitted to the UN Framework Convention on Climate Change (UNFCCC) Secretariat in November 2022.

    With the updated NDC, Thailand raises its ambition to reduce greenhouse gas emissions from 20-25% to 30%, based on projected business as usual in 2030. With adequate technical and financial support, the contribution could be increased to 40%.

    The NDC Sectoral Action Plans identify greenhouse gas emissions reduction targets, measures and responsibilities of relevant agencies in five main sectors, namely energy, transport, industry, waste and agriculture.

    KEY PLAYERS

    Achieving each goal under the NDC requires collaborative efforts and comprehensive measures for greenhouse gas emission reduction. These goals require the involvement of various government agencies including the Ministry of Natural Resources and Environment (MONRE), Ministry of Industry (MOI), Ministry of Energy (MOE), and Ministry of Transportation (MOT).

    Many other public organisations and the private sector also have an important role to play and have taken significant steps in driving the country towards a low-carbon society. The main bodies responsible for current climate change-related activities include:

    Varutt Kittichungchit
    Varutt Kittichungchit
    Associate
    Baker McKenzie
    Bangkok
    Email: varutt.kittichungchit@bakermckenzie.com
    • Policy level. The Office of Natural Resources and Environmental Policy and Planning (ONEP), under the MONRE, is the national focal point for climate change policy, with the authority to propose and formulate policies and strategies to tackle national climate change issues and to conduct studies, research and development on climate change. The MONRE is establishing a new department with a specific mission on climate change, merging the Department of Environmental Quality Promotion and some sections of the ONEP under the name Department of Climate Change and Environment.
    • Industrial sector. The MOI is the main agency overseeing industrial activity. Specifically, the Department of Industrial Works, under the MOI, is the main body regulating the activities of factories, including emission monitoring and waste management. Pollution control is the responsibility of the Department of Pollution Control, within the MONRE.
    • Energy sector. The MOE is the main agency overseeing energy-related businesses, including the petroleum industry and power plants. The MOE also regulates the activities of major state-owned enterprises such as the Electric Generation Authority of Thailand, which is authorised to certify renewable energy production.
    • Transportation sector. While the MOT plays a vital role in setting out a plan for emission reduction in the transport sector, the Ministry of Finance has also played a crucial role in revising tax schemes for vehicles. Future excise tax rates for internal combustion engine vehicles, now based on the amount of CO2 emissions, will become higher than zero-emission vehicles (ZEVs).
    • Forestry and agricultural sector. Forest-related activities are overseen by three agencies in the MONRE: the Royal Forest Department; the Department of National Parks, Wildlife and Plant Conservation; and the Department of Marine and Coastal Resources. Land registration and the allocation and management of certain agricultural land plots are overseen by the Ministry of Interior and the Agricultural Land Reform Office, respectively.
    • Domestic carbon credits scheme. The Thailand Voluntary Emissions Reduction Programme (T-VER) – developed by a public organisation, the Thailand Greenhouse Gas Management Organisation (TGO) – aims to promote and support all sectors to participate in the reduction of greenhouse gas emissions and trade carbon credits in domestic markets voluntarily. The TGO developed T-VER based on the Clean Development Mechanism experience, and in line with ISO14064-2 and ISO14064-3. In this regard, the TGO has set down rules and procedures for project development, greenhouse gas emission reduction methodology, project registration and certification of carbon credits.

    RECENT DEVELOPMENTS

    Muanjit Chamsilpa
    Muanjit Chamsilpa
    Environmental Specialist
    Baker McKenzie
    Bangkok
    Email: muanjit.chamsilpa@bakermckenzie.com

    The government has adopted a holistic approach, focusing on areas that can effectively contribute to emission reduction. Recent developments on key regulatory frameworks to achieve climate change goals include:

    • Climate Change Bill. The ONEP is pushing ahead with the second draft of the Climate Change Bill for more serious and comprehensive climate management. This will include: provisions on climate change impact or risk assessment of large-scale government projects; a central database on greenhouse gas emissions and area-based risk of climate change; and appropriate mechanisms to provide economic incentives for greenhouse gas reduction among the private sectors. The bill also imposes a reporting obligation on certain entities, such as government agencies, designated factories and buildings, and factory operators per the factory law, to report their emissions every year.
    • Forestation. Several pieces of legislation have been issued and amended to encourage forestation. These include regulations issued by forestry-related authorities to facilitate a carbon credit sharing mechanism under joint forestation projects between the private and public sectors, and more relaxed criteria of woody plant number per unit area, in which use of land under the Land and Building Tax Act, 2019 will be categorised as agriculture use, enjoying the lowest tax rate.
    • Waste management. The “polluter pays” principle will soon be introduced to the waste management regime under the Factory Act, 1992, imposing higher responsibility standards on waste generating factories in terms of waste management control and reporting obligations.
    • Electric vehicles (EVs). A number of governmental measures have been approved to promote the domestic use and production of EVs under the main “30@30” policy under the national EV roadmap, which aims to raise the proportion of ZEVs to 30% of all domestic vehicle production by 2030. The Thai government has already approved a package of incentives including exemption and reduction of import duty and excise tax on EVs, as well as conditional subsidies for EV manufacturing companies that can start domestic production in 2024 or 2025.
    • Thailand taxonomy. The Bank of Thailand has recently launched and has continued to develop a national taxonomy, a standardised classification for businesses when assessing the environmental impact of their activities, on a voluntary basis to promote and support the transition to environmentally friendlier economic activities for climate change mitigation purposes. Its first phase, announced in June, focuses on activities in the energy and transportation sectors, the largest greenhouse gas emitters.
    • Enhanced quality standard for carbon trading. The TGO is upgrading the standard of T-VER from the conventional standard T-VER to premium T-VER based on the core carbon principles for high-quality carbon credits, and applied rules and conditions from the article 6 mechanism under the Paris Agreement and Verified Carbon Standard administered by non-profit organisation Verra. Premium T-VER is another option for project developers to develop projects that meet the requirements of international standards and eligibility for international offsetting schemes, such as the Carbon Offsetting and Reduction Scheme for International Aviation.
    • FTI-X trading platform. The Federation of Thai Industries (FTI), in collaboration with the TGO, launched the renewable energy and carbon credit trading platform, FTI-X, earlier this year. The platform enables the trading of three assets, including carbon credits of T-VER, Verra and gold standard, electricity units generated from renewable energy, and an International Renewable Energy Certificate.

    PRESSURE ON BUSINESS

    Dhiranantha Rithmanee
    Dhiranantha Rithmanee
    Environmental Specialist
    Baker McKenzie
    Bangkok
    Email: dhiranantha.rithmanee@bakermckenzie.com

    Despite no direct carbon tax regime currently in place, with growing commercial pressure from investors, headquarters, customers and consumers – particularly those located in other jurisdictions with more mature and concrete ESG laws, such as the EU – many business operators will have to comply with the ESG requirements if they have not already voluntarily adopted ESG as a strategy to increase corporate competitiveness. Thai suppliers will do well to prepare themselves for developments to come.

    PRIVATE SECTOR’S ROLE

    Currently, demand for carbon credits for T-VER projects mostly comes from the Thailand Carbon Offsetting Programme, the domestic offset programme. Carbon credits are used to offset greenhouse gas emissions of organisations, products, events and individuals. However, T-VER credits can be sold internationally to organisations or companies, depending on their objectives and eligibility criteria.

    The private sector have been playing important roles, either as project developers implementing greenhouse gas reduction projects and generating carbon credits for sale in the market, or as credit buyers for compensation for their emissions.

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