The Office of Industrial Economics (OIE) recently alerted Thai industries that the implementation of the European Union’s new green reform policy, the Carbon Border Adjustment Mechanism (CBAM), may put certain industries at risk, particularly those involved with iron and aluminum. As a result, businesses in these sectors must rapidly adapt their production processes to avoid bearing the brunt of the carbon tax that could significantly impact their production costs.
Warawan Chitaroon, the Director General of the Office of Industrial Economics, explained that the CBAM is the EU’s attempt to prevent carbon leakage, as well as to reduce competitive disadvantages faced by foreign producers that are subject to less strict greenhouse gas emission regulations. Specifically, the CBAM will directly affect industries known for high carbon leakage, such as steel, aluminum, cement, fertilizer, plastic, and hydrogen, with Thailand’s plastic, steel, and aluminum industries facing the greatest risks.
In 2022, the total value of Thailand’s plastic exports amounted to 676 million US dollars, making up 2.4% of the country’s overall exports to the European Union. Steel exports were worth 201 million US dollars (0.7% of total exports), while aluminum exports reached 111 million US dollars (0.4% of total exports).
Apart from the European Union’s CBAM, the United States is also considering the implementation of the Clean Competition Act (CCA), aimed at regulating carbon pricing on products that generate higher greenhouse gas emissions. Expected to take effect on January 1st, 2027, this policy will primarily impact Thai industries exporting plastics and aluminum to America. In 2022, plastic exports to the US totaled 1.24 billion US dollars (2.1% of total exports), while aluminum exports reached 884 million US dollars (1.5% of total exports).
To maintain their existing customer base in both the EU and US markets, the OIE recommends Thai exporters abide by the CBAM measures and report the carbon emissions involved in their production processes. Additionally, Thai businesses should prepare for increased production costs by optimizing or altering their production methods, paying carbon tax fees, and obtaining CBAM certificates.
Adopting environmentally-friendly supply chains for raw materials, semi-finished goods, finished products, and transportation is also crucial for these industries to succeed. Furthermore, pursuing sustainable economic development models like the Bioeconomy, Circular Economy, and Green Economy (BCG) demonstrates the country’s commitment to eco-friendly production.
By focusing on sustainable and environmentally-friendly economic growth, Thai businesses can improve their competitiveness against other exporters who are slow to adapt to the CBAM measures. Plus, it also prepares them for similar measures anticipated in countries like China, Japan, Singapore, and South Korea. By taking a proactive approach, Thailand’s industries can stay ahead of the curve and reap the benefits of their green initiatives.