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Thai exports prepare for the European Carbon Tax or CBAM measures to be enforced on October 1, 2023.
The European Union (EU) will impose a carbon tax on incoming goods from outside the region, which will be subject to higher emissions if their production processes are high.
Carbon tax measures
The European Union (EU) is Thailand’s fourth largest trading partner, after China, the United States, and Japan. According to the Ministry of Commerce, in 2022, Thailand’s trade with the EU was worth 41,038 million dollars, with Thailand exporting to the EU worth 22,794 million dollars, or about 813,000 million baht.
Important products such as computers and equipment, automobiles and equipment, air conditioners and equipment, rubber products, gems, jewelry, and processed chicken, etc., reflect Thailand’s heavy reliance on the European market.
Previously, Thai products exported to the European market only required quality products to be exported to the European market. However, “quality” may not be enough anymore as the European Parliament (MEPs) reached an agreement on the Carbon Border Adjustment Mechanism (CBAM). In summary,
The European Union (EU) will impose a “ carbon tax ” on incoming non-regional products, which, if they have a production process that emits high greenhouse gases, will be subject to a high tax or even be unable to enter the European market. This will inevitably affect Thai products, effective from October 1, 2023 onwards.
For the carbon tax measure, which the EU will enforce from October 1, 2023 onwards, it will be piloted with 6 types of products that emit high greenhouse gases first: steel, aluminum, cement, fertilizer, electricity and hydrogen.
By 2026-2027, this measure may cover chemical and polymer products, and by 2030, it may apply to all types of products. Therefore, it can directly affect Thai exports because every product produced can emit greenhouse gases, whether it is the petrochemical industry, steel production, shrimp farming, rice farming, or livestock production for meat.
Therefore, doing business from now on will no longer only focus on product quality, but must also take into account “environmental costs”. Thai traders should quickly prepare to cope by adjusting the production process to emit less greenhouse gases in order to maintain their competitive position in the European market.
The Kasikorn Research Center recently released an assessment report that the overall Thai steel export industry to the EU will have an initial CBAM Certificate cost of at least 1.5-1.7% of the total value of steel exports from Thailand to the EU. As a result, Thai steel exporters to the EU may have to pay a CBAM Certificate cost of approximately 1,338-1,545 baht/ton of steel.
Reasons why Europe (EU) is rushing to enact CBAM regulations
The current global warming situation is getting worse with more frequent and severe storms, floods, and unusual seasonal changes. Therefore, the European Union has set a target to reduce net greenhouse gas emissions by at least 55% by 2030 compared to the amount of greenhouse gases in 1990 and to reduce to net zero by 2050 in order to keep global temperatures from rising more than 1.5-2.0 degrees Celsius.
As agreed by world leaders in the Paris Agreement, European governments have set limits on the amount of greenhouse gases each industry can emit, known as “carbon credits.” Exceeding these limits carries steep fines.
As many businesses are unable to adapt immediately, the government is opening up the opportunity to create an emissions trading market (EU Emissions Trading System). If a company needs to emit more greenhouse gases than it has available credits to, it can buy more credits from other companies that still have credits or from companies that reforest. However, as each year passes,
Greenhouse gas emission credits are also capped, so costs for companies are rising and many companies are moving their production out of Europe. Huge amounts of capital are flowing out to settle in less restrictive countries, which can lower costs and allow them to be sold back on the European market at lower prices.
This makes products made in Europe and complying with environmental regulations uncompetitive with products from outside the region. Therefore, the EU has introduced CBAM measures to collect taxes on a par with European products. If a particular non-European product does not meet environmental standards, or has a production process that emits high greenhouse gases, it may be subject to high taxes or even be denied access to the European market.
Preparation for Thai exporters
At present, the world trend is moving more towards green. Many countries have turned to support clean energy, whether it be electric vehicles (EVs), solar panels, wind turbines, using cloth bags instead of plastic bags, etc. Thai exporters should therefore quickly adapt to this change by improving the production process to reduce greenhouse gas emissions and having standard waste disposal measures. Of course,
Such improvements will result in higher costs and production costs, but will help increase opportunities for Thai products to remain competitive in the global market, especially for Asian competitors such as Japan, China, Singapore, and South Korea, whose green economies are more advanced than Thailand’s and may take over the country’s business share if Thai companies do not adapt quickly.
Aromman Sapphawitham, Director-General of the Department of International Trade Negotiations, commented that “Currently, Thailand’s major trading partners are preparing to increase their carbon tax measures, which will inevitably affect Thailand, a country that exports goods.” “Therefore, Thai manufacturers should be prepared to cope with such measures.
By accelerating the adjustment of the production process, reducing carbon emissions throughout the supply chain, and preparing carbon emission data as evidence for exports.” It is not only the European market that has implemented this measure. The United States is also considering similar measures, namely the US Clean Competition Act, and may start collecting carbon taxes by 2026. Currently, the United States is considered a large market for Thai exports of seafood, canned food, seasonings, rice, ready-made clothing, electrical circuit boards, etc.
Therefore, if Thai entrepreneurs adjust their businesses to be in line with green trends, it will help support this future trend and maintain Thailand’s competitive potential on the international stage. Moreover,
The carbon tax regulations in foreign markets are also “new opportunities for green businesses” such as paper straws, sugarcane bagasse boxes instead of foam, biodegradable dishwashing liquids, plant-based meat and fried insects that reduce greenhouse gases instead of traditional livestock farming, which Thailand can also export to the European and US markets.
Source of information: bangkokbiznews.com
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