Abstract
Thailand is both highly vulnerable to climate change and a relatively important producer of global emissions. The country has framed policies to adapt to and mitigate climate change and intends to reduce its greenhouse gas (GHG) emissions by 20 percent by 2030, achieve carbon neutrality in 2050, and net zero emissions in or before 2065. Like for most countries, the urgency to decarbonize weighs on important economic decisions, including for growth and investment. Identifying and managing the transition risks and building resilience to natural disasters is key for a stronger economy and improving people’s lives.
Priorities for A Balanced Climate Transition Strategy1
Thailand is both highly vulnerable to climate change and a relatively important producer of global emissions. The country has framed policies to adapt to and mitigate climate change and intends to reduce its greenhouse gas (GHG) emissions by 20 percent by 2030, achieve carbon neutrality in 2050, and net zero emissions in or before 2065. Like for most countries, the urgency to decarbonize weighs on important economic decisions, including for growth and investment. Identifying and managing the transition risks and building resilience to natural disasters is key for a stronger economy and improving people’s lives.
A. Introduction
1. Thailand is both highly vulnerable to climate change and a relatively important producer of global emissions. Thailand is ranked as the ninth country in the world most impacted by extreme weather events in the last two decades. The 2011 flooding (Thailand’s worst in half a century) was the world’s fourth costliest disaster as of 2011; and the 2016 drought was the most extreme for the country in over a decade. Thailand accounts for about 0.8 percent of global emissions (but only 0.5 percent of global GDP). The country also faces looming challenges in energy security, an important area considering that decisions on energy security will impact GHG emissions.
2. The government acknowledges the intrinsic importance of climate change for sustainable development in both the Paris Agreement and Thailand’s long-term low GHG emissions development strategy (LT-EDS). The strategy implies achieving carbon neutrality in 2050, and net zero emissions in or before 2065. In line with these commitments, Thailand is aiming for renewable energy sources to account for half of its power generation capacity by 2050 and for electric vehicles to account for about 70 percent of new vehicles in the market by 2035. It also intends to have removed 120 million tons of CO2e in tandem with reducing biomass burning and regenerating natural forested areas by 2037.
3. While Thailand is committed to climate action, significant challenges stand on the path to decarbonization.2 First, Thailand must invest in climate adaptation to increase resilience to climate-induced disasters. Second, like for most countries, transitioning from cheaper high carbon options will weigh on growth and investment decisions. This chapter uses the Carbon Pricing Assessment Tool (CPAT) developed by the IMF’s Fiscal Affairs Department to analyze the costs and benefits of various transition paths to lower net carbon emissions and derive policy recommendations.
B. Thailand’s Climate Adaptation Challenge
4. Costs associated with natural disasters have been high. Thailand is highly exposed to flooding, tropical cyclones and their associated hazards and drought. Flooding accounts for nearly 100 percent of average annual losses associated with hazards. In 2011, a record-breaking flood caused widespread destruction and served as an example of the country’s vulnerability to climate-related disasters. The flood, the result of an exceptionally-heavy monsoon season and the landfall of Tropical Storm Nock-ten, caused 815 deaths, affected 13.6 million people and damaged 20,000 km2 of farmland. Economic damages reached US$45 billion.
Thailand: Impact of National Disasters
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: Impact of National Disasters
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: Impact of National Disasters
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
5. Financing large adaptation costs will challenge Thailand’s fiscal space. It is therefore imperative to prepare and plan for adapting to the effects of climate change through well-articulated strategies with financing arrangements in place. IMF staff estimate that Thailand needs about 0.4 percent of GDP and 0.7 percent of GDP annually in investments for public and private infrastructure resilience respectively. Investing in climate-resilient infrastructure will require enhancing domestic revenue mobilization, reprioritizing investment plans or other spending, and enlisting the support of the donor community, or a combination of all these sources (Cevik and Nanda 2020; IMF 2019;). Strengthening public financial management is essential to ensure effective progress on adaptation. To keep adaptation investment affordable, it is crucial to monitor asset conditions and ensure efficient selection, execution and maintenance of investment projects. As the impact of climate change affects women and men differently, the design of adaptation programs should integrate gender sensitivity.
C. Emissions Trends and Mitigation Pledges and Policies
6. Thailand’s GHG emissions have grown considerably. Emissions, estimated at 159.7 Mt in 1990 increased to 368.7 Mt in 2019 driven by population, economic (income) growth, growth in emissions-intensive economic sectors (structure), and the increased use of emissions-intensive technology (fuel mix). CO2 emissions per capita of Thailand increased from 0.48 tons of CO2 per capita in 1971 to 3.68 tons of CO2 per capita in 2020 growing at an average annual rate of 4.44 percent with a global share of 0.85 percent. Emissions are expected to increase further over the current decade as the economy continues to grow.
Thailand: Historical and Projected Emissions
(In MtCO2e)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: Carbon Pricing Assessment Tool.Notes: Dotted line indicates projections.Thailand: Historical and Projected Emissions
(In MtCO2e)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: Carbon Pricing Assessment Tool.Notes: Dotted line indicates projections.Thailand: Historical and Projected Emissions
(In MtCO2e)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: Carbon Pricing Assessment Tool.Notes: Dotted line indicates projections.
Thailand: Breakdown of GHG Emissions
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: Breakdown of GHG Emissions
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: Breakdown of GHG Emissions
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
7. One of the key challenges for Thailand is transforming the electricity generation mix. Thailand’s power generation is driven by fossil fuels and accounted for 35 percent of fossil fuel CO2 emissions in 2019. By fuel type, oil accounted for 48 percent of fossil fuel emissions in 2019, coal 26 percent, and natural gas 26 percent. And in the power sector, fossil fuels account for 79 percent of the share of electricity generation (including coal-powered plants), hydro and solar at 3 percent each, and 15 percent from renewables including imported hydropower and domestic biomass which account for more than half of the country’s renewable generation. This requires accelerating improvements in fuel mix and energy efficiency to contribute to curtailing CO2 emissions.
Thailand: Mitigation Measures Under Thailand’s NDC Roadmap (2021-2030)
Thailand: Mitigation Measures Under Thailand’s NDC Roadmap (2021-2030)
| Sector | Mitigation Measure | Targeted Reduction (MtC02e) |
|---|---|---|
| Energy | Energy Generation (1) Increase power generation efficiency (2) Renewable energy generation Energy Consumption in Households (3) Increasing efficiency in household energy consumption (4) Using renewable energy in household Energy Consumption in Buildings (Commercial and Public) (5) Increasing building energy use efficiency |
72 |
| Transportation | (1) Avoid/Reduce traveling Transportation (2) Shift/maintain travel modes (3) Improve energy efficiency in transport |
41 |
| Waste management | (1) Reducing the amount of waste (e.g. reducing disposal rates, increasing recycling and waste utilization etc.) (2) Increasing biogas production from industrial wastewater through reutilization of methane (3) Industrial and municipal wastewater management |
2 |
| Industrial processes and product applications (IPPU) | (1) Clinker replacement (2) Refrigerant replacement/modification |
0.6 |
| Total | 115.6 |
Thailand: Mitigation Measures Under Thailand’s NDC Roadmap (2021-2030)
| Sector | Mitigation Measure | Targeted Reduction (MtC02e) |
|---|---|---|
| Energy | Energy Generation (1) Increase power generation efficiency (2) Renewable energy generation Energy Consumption in Households (3) Increasing efficiency in household energy consumption (4) Using renewable energy in household Energy Consumption in Buildings (Commercial and Public) (5) Increasing building energy use efficiency |
72 |
| Transportation | (1) Avoid/Reduce traveling Transportation (2) Shift/maintain travel modes (3) Improve energy efficiency in transport |
41 |
| Waste management | (1) Reducing the amount of waste (e.g. reducing disposal rates, increasing recycling and waste utilization etc.) (2) Increasing biogas production from industrial wastewater through reutilization of methane (3) Industrial and municipal wastewater management |
2 |
| Industrial processes and product applications (IPPU) | (1) Clinker replacement (2) Refrigerant replacement/modification |
0.6 |
| Total | 115.6 |
8. The LT-LEDS sets out targets and measures to achieve net zero GHG emissions. Thailand aims to reach its peak GHG emissions in 2030 at approximately 370 MtCO2eq and net greenhouse gas emissions of approximately 200 MtCO2eq in 2050, which is consistent with the global 2degree pathway. Beyond 2050 emissions will follow the IPCC 2degree pathways, with Thailand aiming to achieve carbon neutrality—a balance between GHG emissions by sources and removals by sinks—by 2065. Measures to be implemented to aid the transition include increasing the share of renewable electricity generation by at least 50 percent of new power generation capacity by 2050 and increasing the share of electric vehicles to at least 69 percent of all new vehicles by 2035.
9. A transition to a climate-neutral economy will require a strategy that balances a deep reduction in emissions and minimizes the impact on output and on businesses and households. An assessment of macroeconomic output costs and risks will aid in designing climate consistent and growth-enhancing policies. While Thailand has made progress in creating voluntary carbon markets and is currently considering a national emission trading system (ETS), there has been little progress on implementing a broad-based carbon tax (see Box 1). The pilot ETS, as currently set up, does not fully exploit the fiscal opportunities from carbon pricing, which in turn can imply higher overall costs for the economy. The free allowance allocations reduce potential revenue and thus divert revenues away from the government budget. These revenues could be used to boost growth and employment.
Thailand: Experience with Carbon Pricing
The government established the Thailand Greenhouse Gas Management Organization (TGO) to implement and manage GHG emissions projects.
In 2013, TGO launched the Thailand Voluntary Emission Reduction program and the Thailand Carbon Offsetting Program for public and private organizations and projects to reduce emissions annually and to calculate their carbon footprint and buy carbon credits to offset their unavoidable emissions. By 2020, there were 91 registered projects on the platform committed to reducing emissions by 5.28 metric tons of carbon dioxide equivalents (Mt CO2eq).
In 2015, TGO launched the Thailand Voluntary Emission Trading Scheme as a pilot, setting up the infrastructure to develop a national emission trading system and identify gaps and opportunities.
The Climate Change Act is expected to facilitate the development of economic instruments that enhance GHG emissions reduction by private sector, with a cabinet decision expected in 2022.
D. Impact Assessment of Carbon Pricing
10. The analysis uses the CPAT to consider Thailand’s transition policies under three medium-term scenarios. The scenarios consider three different transition paths up to 2030: the business-as-usual (BAU) scenario, the US$50 carbon tax scenario, and the subsidy phase out scenario. The scenarios present estimate the transition’s effects on growth, fiscal revenues, the environment such as air pollution mortality, and economic welfare. The scenarios show that a US$50 carbon price by 2030 would be consistent with Thailand’s intermediate emissions objectives, in the absence of other mitigation measures. The carbon price could raise substantial government revenues (about 3 percent of GDP), while imposing relatively modest economic efficiency costs, and generating substantial domestic environmental co-benefits. Recycling the revenues in high impact spending could generate a positive growth impact, estimated at 1 percent of GDP above the baseline. Additionally, the policy would have significant impacts on energy prices, facilitating a transition to greener options. Complementing the carbon tax with a phasing out of energy subsidies generates additional benefits with the growth impact estimated at 2 percent above baseline over the long term.
The Baseline Scenario (BAU)
11. Without significant mitigation policies, emissions are projected to continue growing beyond 2030, diverging from the net zero emissions pathway. Economic growth projections determine the expected growth of emissions, and therefore the effort needed to reduce emissions. The business-as-usual projections (baseline) shows that current policies cannot offset the forces of population and economic growth that are driving emissions. While projections are inherently uncertain, both the business as usual and the 2030 path do not match the ambitions of the net zero pathway.3 More stringent carbon pricing or other mitigation policies may be required to attain long term goals. The war in Ukraine compounds the challenges to Thailand’s near-term mitigation goals.4
NDC Targets Carbon Price Scenario
12. Projections suggest that a carbon price of at least US$50 per ton by 2030 is needed to meet Thailand’s NDC target for 2030, in the absence of new measures or tightening of existing ones. The latest NDC for Thailand translates into a limit of 444 MTC02 by 2030 excluding LULUCF. Overall, different policy mixes are likely needed including reinforcing sectoral instruments (given differences in price elasticities across sectors). However, the analysis focuses on a unilateral carbon tax beginning at US$20 per ton in FY2022 and gradually rising to US$50 by 2030.5 The carbon tax alone in this scenario is sufficient to achieve Thailand’s mitigation targets. The policy achieves 23.8 percent reduction on the BAU and about 3.3 percent of GDP in revenues by 2030 (Figure 3). However, without revenue recycling policies, a carbon tax on its own would entail a negative growth impact throughout the period peaking at -1.8 percent of GDP in 2027. Recycling the revenue from the carbon tax through high-impact spending, with an assumed split of 50 percent in investment spending and 50 percent in transfers could boost growth to slightly 1 percent above baseline over the medium term.
Thailand: US$50 Carbon Price Transition Scenario
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: US$50 Carbon Price Transition Scenario
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: US$50 Carbon Price Transition Scenario
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
13. The carbon price would induce increases in fuel prices, thus providing a powerful incentive for energy efficiency. Carbon pricing reduces emissions by raising the relative price of high-carbon energy relative to low-carbon energy, leading to a reallocation of investment. However, the responsiveness of emissions to carbon prices differs greatly across sectors. The impact of carbon pricing on sectoral emissions depends on how carbon pricing affects future energy prices and assumptions about the price responsiveness of the use of fuel and electricity in each sector. In terms of energy use adjustment, the industrial sector adjusts the most with possible implications on employment.
Energy Price Changes Induced by Policy
(Baseline= 100)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: The Carbon Pricing Assessment Tool (CPAT)Energy Price Changes Induced by Policy
(Baseline= 100)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: The Carbon Pricing Assessment Tool (CPAT)Energy Price Changes Induced by Policy
(Baseline= 100)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: The Carbon Pricing Assessment Tool (CPAT)14. In terms of welfare, a US$50 carbon price would impose an economic efficiency cost of 0.3 percent of GDP in 2030. However, this would be more-than-fully offset by environmental benefits, leading to net welfare gains of 2.2 percent of GDP in 2030. The economic efficiency impact reflects the value of foregone consumption to fossil fuel users, less savings in fuel supply costs, and is a standard approach to measuring the costs of environmental and broader policies. However, the policy also reduces local air pollution-related losses worth about 0.4 percent of GDP by 2030. It also reduces expected future climate damages from cuts in emissions, worth about 1.1 percent of GDP by 2030.6
Thailand: Total Monetized Welfare Benefits for US$50 Carbon Tax p/t CO2e
(In percent of GDP)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: The Carbon Pricing Assessment Tool (CPAT).Thailand: Total Monetized Welfare Benefits for US$50 Carbon Tax p/t CO2e
(In percent of GDP)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: The Carbon Pricing Assessment Tool (CPAT).Thailand: Total Monetized Welfare Benefits for US$50 Carbon Tax p/t CO2e
(In percent of GDP)
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Source: The Carbon Pricing Assessment Tool (CPAT).Energy Subsidy Phase-Out Scenario
15. Reinforcing the carbon tax with an energy subsidy phaseout generates higher and more positive impacts. Assuming a phasing out of about 2 percent of GDP in energy-related subsidies over a five-year period beginning in 2022 and a targeted recycling of both the carbon tax and subsidy resources would increase growth to about 4.7 percent of GDP in 2035 relative to the baseline of about 3.0 percent. Both policies contribute to reducing the carbon intensity of energy, and increasing energy efficiency, delivering rapid and substantial emission reductions. Recycling revenue towards green investments and redirecting/targeting subsidies to green transfers as well transfers to vulnerable households increases aggregate demand. Over time, green investments boost productivity of low carbon sectors and incentivize more private investments in low-carbon sectors (Figure 4).
Thailand: Subsidy Phase Out and US$50 Carbon Tax
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: Subsidy Phase Out and US$50 Carbon Tax
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
Thailand: Subsidy Phase Out and US$50 Carbon Tax
Citation: IMF Staff Country Reports 2022, 301; 10.5089/9798400221316.002.A001
E. Conclusion and Transition Priorities
15. Action on climate change can generate inclusive economic growth in the short term, in addition to securing longer-term growth and well-being for all citizens. Results suggest that a well-designed transition can boost long-run output by about 2 percentage points compared to the baseline trajectory by introducing a US$50 carbon price, phasing out broad-based subsidies and recycling revenues in high-impact spending and targeted subsidies. Thailand can not only build strong growth but also avoid future economic damage from climate change with a decisive transition strategy toward a low carbon economy. The modelled growth effect is driven by a combination of investment in low-emission, climate-resilient infrastructure; additional fiscal initiative to fund climate-consistent non-energy infrastructure; pro-growth reform policies to improve resource allocation and shield vulnerable households.
16. Carbon pricing is a critical element of a policy package to net-zero emissions. Carbon pricing has several environmental, fiscal, economic, and administrative advantages over other mitigation instruments. Carbon pricing provides across-the-board incentives for firms and households to reduce energy consumption and shift to cleaner fuels without favoring any specific energy matrix, other than discriminating by its carbon content (by reflecting the cost of carbon emissions in the prices of fuels, electricity, and other intermediate and final goods). It also automatically minimizes mitigation costs by equalizing the cost of the last ton reduced across fuels and sectors (“marginal abatement cost”), mobilizes valuable revenues, and generates domestic environmental benefits (e.g., reductions in local air pollution mortality). Furthermore, carbon pricing is administratively straightforward, at least for countries with mature institutional capacity. However, some sectors face structural issues and are characterized by a low responsiveness of emissions to carbon prices. In these cases, carbon prices would need to be complemented by other policies.
17. For the industrial transition, the policy challenge is to minimize the impact on workers and poorer households. Economic growth and the low-carbon transition will both depend on the development and diffusion of new technologies and efficient reallocation of resources towards both low-carbon and high-productivity economic activity. To this end, the low-carbon transition highlights the need for a mix of policy instruments. These include instruments that support scaling technology deployment and green innovation and policies that improve access to new economic opportunities (education, vocational training) and provide an adequate social safety net to workers.
18. Energy subsidy reform is warranted, particularly with regard to getting prices right in energy and transportation systems to reflect market and environmental costs. Subsidies tend to encourage over-consumption and inefficient use of energy. Investment decisions may also be altered by changes in relative prices, thereby discouraging energy diversification and creating disincentives for building necessary energy infrastructure. Thailand could consider replacing the energy subsidies with targeted green spending in the short term to lift aggregate demand, boost productivity in low carbon sectors, increase profitability and trigger more significant private investment in these sectors. This policy would also create more employment in low-carbon sectors, supporting the employment transition out of high-carbon sectors. Adverse impacts of the removal of subsidies on low-income households could be mitigated by an expansion of well-targeted safety nets.
19. The transition will not succeed unless the low-carbon economy is inclusive. The authorities should aim for transparency and work with relevant stakeholders, sectors and communities to develop economically-sustainable alternatives and gain political and social support for policy measures. To make pro-climate growth policies politically feasible, their implications for both households and businesses need to be taken into account. Beyond a well-functioning tax and welfare system, targeted measures can compensate for any potentially regressive impacts of climate policies on poor households.
20. Finally, investing in climate-resilient and sustainable infrastructure is critical for both adaptation and mitigation. This however requires resources and a reprioritization of investment plans or other spending. Thus, boosting domestic revenue mobilization is a priority as well as the availability of green and sustainable financing.
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Prepared by Stella Kaendera, in collaboration with Karlygash Zhunussova (FAD).
According to the Climate Action Tracker, Thailand’s current policies fall short of its climate commitments, and the emissions targets are not consistent with the Paris Agreement.
The 2030 path refers to the targeted pathway to reduce emissions by 20 percent relative to the baseline (BAU).
The country’s recent shift in power sector planning from a dependency on coal to natural gas over the next two decades lowers overall emission pathways but nevertheless exacerbates fossil-fuel (gas) lock-in, and delays meaningful decarbonization efforts.
A cap-and-trade system with auctioned permits is similar to a carbon tax from the perspective of regulated firms. Similarly, a carbon tax system with tradable tax exemptions for a specified quantity of emissions (the tax is levied only on emissions above a threshold), can mimic a cap-and-trade system with freely allocated permits.
The valuation of climate benefits is based on a globally target-consistent social cost of carbon (SCC) estimate of about $60 in 2020, rising to $75 by 2030. These accord to the midpoint of the global carbon price needed to achieve 2C in 2020 ($40-80) and 2030 ($50-100) according to the High-Level Commission on Carbon Pricing – refer to Stiglitz and others (2017). Welfare implications should not be confused with GDP impacts.
