By Jaturong Kobkaew -December 5, 2021
Global climate change is an urgent matter of global importance. Leading to business operations that take into account the environment, society and corporate governance (Environmental, Social, and Governance: ESG), with each country focusing on reducing its carbon emissions within a set time frame.
The European Union, or the EU, is the main driving force before anyone else. Until recently, the European Green Deal was announced, aiming to reduce carbon emissions by 55 percent by 2030 and to carbon neutral, or net zero carbon emissions by 2050.
Many of these programs are primarily affecting businesses within the EU, while the Carbon Border Adjustment Mechanism (CBAM) measures to be introduced in 2023 are a major turning point in the introduction of a carbon tax on goods of the partner country for the first time
Although such measures will have a direct impact on Thai exports in the next 2-3 years, but the indirect impact It is expected that this should begin to be seen from the year 2022 onwards, which will gradually arise from the strict control of trading partners in the selection of products to meet the production process that takes into account environmental impacts. This means that anyone who has not started to adjust from now may have problems selling products to foreign countries or contract to produce products for foreign partners
Kasikorn Research Center believes that in the period 1-2 years, even the reduction of the EU’s plastic use under the CBAM measure will affect Thai exports relatively little. Only 0.9% of Thai exports go to the world market. But if the nations using the same measures will make Thai products more competitive. In the next step , environmental measures will expand the scope to other products. whether food, agricultural and industrial products It will be an even more obstacle to Thai exports. Therefore, at this time, Thai businesses need to start adjusting the production process along the chain to take into account the environment. Reduce carbon emissions and can be traced so that Thai products meet the needs of ESG trends.
Products with a high-carbon production process were first targeted. This group of products will have to prepare to deal with the EU’s CBAM roadmap that will be implemented in the next one year with five pilot products comprising cement, electricity, fertilizer, steel and aluminum. Initially, there is a three-year transition period in which the EU will not collect a carbon tax. But the operators involved must report to the EU on both direct and indirect carbon emissions. After that, it will start considering the carbon tax in 2026, and it is likely that the scope of related products may be expanded further.
In addition to the EU, the United States is also proposing a similar program which is likely to be implemented in 2024. Since the United States is one of the EU’s main trading partners, it is likely that a carbon tax would be required. Added to that, the price of goods is at a minimum of about 65 USD/ton, which is the carbon rate that EU operators must pay under domestic measures. And that rate could be applied to CBAM, with countries most affected by Russia, the United States and China, the EU’s main import sources. It is therefore a matter that Thai entrepreneurs must prepare to face in other market and may expand the scope to other products that have a greater impact on Thailand.
Plastic products and raw materials for plastic production started to be restricted starting from packaging and single-use plastics (SUPs), Thai entrepreneurs who use plastic as an element of their packaging should turn to alternative materials, with the EU starting to implement measures to ban SUPs. Since July 3, 2021 consists of 10 types of plastics, namely
- cotton swabs to wipe the ears
- Balloons and balloon skewers
- food container
- drink cup
- beverage container
- cigarette butts
- plastic bag
- packets and wrappers
- Wet wipes and hygiene products
In practice, the EU has given its member states the rights to enforce differently. For example, France has increased the ban on plastic wraps for fruits and vegetables, tea bags, plastic wrap for toys, etc.
The United States is also preparing to adopt this plan. There is also a plan to impose a tariff on the producer side to limit the use of plastic and plastic pellet imports as inputs for SUPs at a rate of 10 cents/pound in 2022, up to 15 and 20 cents/pound in 2023 and 2024 after that it will increase again in accordance with the inflation rate.
Kasikorn Research Center sees that this indirectly affects Thai exports by modifying packaging in accordance with the policy to reduce the use of plastic. Especially processed food packaging Ready-to-eat food that Thailand has potential for export must turn to plastic substitutes Or use more recycled packaging to reduce the incremental cost of trade barriers or potential tariffs.
While in the future, the plastic resin industry of Thailand be prepared to deal with import tariffs on raw materials for the production of SUPs, as well as the potential drop in demand not only in the West that drives the program. But the trend of reducing the use of plastic may spread to countries in Asia that may affect Thailand, the sixth largest plastic resin exporter in Asia (after China, South Korea, Japan, Taiwan and Singapore, respectively).
The more worrying thing is that Carbon taxation on food products is controversial as it relates to a wide range of consumers and producers. For Thailand, which is a food exporter, both raw and processed food, it is imperative to prepare for agricultural production chains by taking into account the environmental impact and reducing carbon emissions in all channels.
Even at present, the EU has not yet collected tariffs on imported food products. But the UK has recently prepared a carbon tax plan and will require carbon labeling for imported meat and dairy products whose farming processes are carbon emissions. In addition, many EU countries currently impose a higher value-added tax (VAT) on meat products that emit higher carbon emissions from farming than vegetables, fruits, healthy and environmentally conscious foods. In the past, the EU has always given importance to hygiene and environment for imported products, such as the strict control of IUU fishing measures in the fishing industry. Therefore, there is a chance that carbon tax measures from food imports will be implemented in the future.
Even though the food production process in Thailand is already recognized for its quality But measures to reduce carbon emissions are still new. Products that may have to adjust in the near term are meat, poultry and seafood, which are the top exports of Thailand. Thai entrepreneurs must prepare to monitor carbon emissions in the production system. Carbon wise for the products to be exported and closely monitor the movement of various measures.
Programs for the EU, US and many other countries Pushing the world towards a reduction in carbon production and consumption in the future is a matter that Thai exports will face sooner or later. Kasikorn Research Center believes that in the period 1-2 years, Thailand must accelerate to prepare for challenging problems from the EU and the US. It is a product that is mainly in the CBAM plan and the plastic group. If in the next phase both the EU and the US expand measures to control carbon emissions covering food products, agricultural products and other industrial products This totaled US$52.8 billion, or 23.7 percent of Thailand’s total exports to the world market. It has a broad impact on Thailand, especially the exports of food and goods directly linked to the production chain in the Thai agricultural sector that need to be prepared to expedite.
Global Warming Solution both measures to control carbon emissions and reduce the use of products that affect the environment. It has become a new issue that challenges the competitiveness of Thai products. Although it will not affect Thai exports in 2022, the indirect impact will gradually arise from the tightening control of trading partners in the selection of products that meet the needs of production that takes into account the environmental impact. Thai businesses need to expedite preparations throughout the production chain to take care of the environment. Reduce carbon emissions, Reduce the use of plastic, Carbon labeling including monitoring throughout the production process so that Thai products can meet the ESG trend.