Background
Thailand is a tropical country characterized by a central plain, the Khorat Plateau in the east and mountains, and monsoon seasons. Thailand’s power generation mix is predominantly based on gas (67,5% as of 2012), with renewables accounting for 1.5% of the total share as of 2012. Although high economic growth rates (2.9% in 2013) have provided Thailand with low unemployment (0.7% in 2013 which later increased to 0.9% in 2014) there have been adverse impacts on the environment. Rapid urbanization, at a rate of 1.6% per annum, and industrialization, contribute to air and water pollution, deforestation and soil erosion. The costs caused by air and water pollution alone are estimated at about 1.6% to 2.6% of Thailand’s GDP.
Overall Fiscal Profile
Despite experiencing devastating floods in 2012, Thailand’s economy grew by 6.5 per cent in 2013. This was partially due to reconstruction expenditures, and a government spending on a food subsidy for rice. Additionally, in response to the disaster, the government reduced the corporate income tax rate from 30 per cent to 20 per cent in 2013; resulting in a weakened fiscal balance. As reported by the IMF, the Thai government is looking to diversify growth strategies; including building a strong export sector and boosting domestic consumption. The government intends to balance the budget by 2017 through a variety of fiscal measures including the reversal of diesel excise tax cuts, reducing unproductive spending, revising excises and strengthening tax collection. These revisions offer an opportunity to align with green fiscal policy measures.
Policy and Legal Framework for Green Economy
The current 11th National and Social Development Plan (2012 – 2016) emphasizes the importance of inclusive green growth within the context of Thailand’s “Sufficiency Economy” development framework and as part of the movement towards Vision 2027. The Plan integrates several development strategies covering human development, agriculture, food and energy security, as well as restructuring the economy for quality growth and sustainability. Some Green Economy related targets include increasing the ratio of renewable and alternative energy consumption to total energy consumption to at least 19 per cent, and reducing total energy consumption by 2 per cent by 2016. Additionally, a strategy is presented for managing natural resources and the environment to ensure sustainability. For example, forest reserves are to expand by up to 40 per cent and irrigation areas are to be expanded by 200,000 rai (a Thai unit of area equivalent to 32,000 hectares)per year to enhance food security (NESDB, 2013).
The Thai government also passed a 15 year Renewable Energy Development Plan (2008-2022) that aims to derive 20.3% of energy from renewable energy. This target of renewables was later raised to 25% by 2021 with the adoption of the 10-year Alternative Energy Development Plan (EDP) (2012-2021). While most investments in renewable energy are expected to come from the private sector, investments from state enterprises are expected to contribute to meeting the funding needs. Financial mechanisms, to be managed by the Department of Energy, will also to be developed to enhance venture capital, equity investments and credit guarantee facilities. Based on government estimates, achieving the targets outlined in the EDP by enhancing capacity of solar (2,000 MW), wind (1,200MW), biomass (3,630MW), hydro (324 MW), biogas (600MW),and municipal solid waste (160MW), the country could avoid US$19 billion in energy import costs, encourage US$15 billion in private investment, avoid 76 million tonnes of GHG, generate 40,000 new jobs and enhance income and employment opportunity (CDKN, 2013).
The EDP also integrates fiscal dimensions through the potential adjustment of the existing solar Adder to be a feed in tariff system. The Adder is a feed in premium paid on top of the regular electricity tariff to small and very small producers of renewable energy, and is technology specific. Additionally, the EDP supports the development of eco-cars by reducing excise taxes to car makers. Since 2007, an eco-car programme was launched which provided incentives such as duty-free import of machinery, and reduced excise taxes (17% compared with 30% for conventional cars). More recently, the government has implemented as second phase offering a eight year corporation tax holiday, duty-free import on relevant machinery, and lowering the excise tax rate to 14%.
Fiscal Measures for a Green Economy
As air pollution is one of the most pressing problems in urban areas, the government of Thailand decided in 1991 to phase out the use of leaded gasoline by setting its price above the price of unleaded gasoline. This resulted in the deregulation of oil prices and the removal of restrictions for private sector investments in the refinery sector to stimulate reductions in lead emissions. The plan was successfully carried out over a period of 4.5 years.
The government adopted the “Strong Thailand Program” 2009-2012, a fiscal stimulus package in response to the global financial crisis. The program offered non-budgetary public expenditure aimed at boosting Thailand’s economic recovery. The three priorities of the Program were creating job and enhancing quality of life, developing public services, and enhancing food and energy security. For example, in 2010, THB 38,218 million (US$ 1173 million) was allocated to water resource management in order to enhance food and energy security in the country.
Thailand has put in place many fiscal measures to shift the electric and energy power mix from fossil fuel energies, which account for 90% of Thailand’s electricity generation.. A feed-in tariff was introduced to attract investment into renewable energy. The “Adder” was introduced in 2006, was and offered a feed-in premium of 8-21 US cents per kWh to small (and very small) power producers using renewable energies over a range of 7 to 10 years to guarantee payment. It differs from a FIT as the premium is paid on top of the regular electricity tariff, which can fluctuate. The Adder is financed through a premium charged to electricity consumers (CDKN, 2013). In 2013, the National Energy Policy Commission adopted a new FIT scheme supporting rooftop and community ground-mounted solar installations. The rate on rooftops was set at 6.16-6.96 BHT/kWh, based on plant capacity for a 25 year period. In terms of community ground mounted solar, solar panels installed locally on the ground, the price is set to 4.5-9.75 BHT/kWh based on length of plant operation. The Department of Alternative Energy Development and Efficiency also set up a Solar Hot Water Hybrid promotion program. The program subsidized 3,972.52 m2 of solar PV installation area in 2008 and 3,000 m2 in 2009. Other complementary incentives include a corporate income tax break and exemption of import duties on relevant renewable energy equipment. Additionally, the government set up a fund to provide investment or venture capital up to 50 million Baht (US 1.521 million) for smaller renewable energy projects, as well as technical assistance and support for developing carbon credits.
In mid-2011 the Excise Department of Thailand introduced a green tax proposal. This proposal was to enforce the “polluter pays” principle. For example, excise taxes on cars would be based on emissions as opposed to engine size. Similarly, existing oil excise taxes could be reformed to be emissions based. Air conditioners would be taxed, and tax rates would be based on energy-efficiency performance. Additionally, products would be taxed including pesticides, tyres and packaging, and oil lubricants. The proposal suggests that revenues collected from the taxes will be allocated towards a newly established environmental fund. The process is currently under reform. These efforts are geared towards realizing the goals highlighted within the Energy Efficiency and Alternative Energy Development plans.
The importance of carbon markets as a potential mechanism to reduce greenhouse gas emissions was emphasised in the 12th National Economic and Development (2017-2021) and National Climate Change Master Plan (2015-2050). This has led to initial pilot projects with various market-based instruments. For example, the Voluntary Emissions Trading Scheme (Thailand V-ETS) was launched in 2013 as a pilot project for a potential national emissions trading system (ETS) (ICAP). The V-ETS programme is currently limited to two sectors (energy generation and petrochemicals) but further emissions-intensive sectors (cement, paper, pulp, iron, steel) are to be added in the coming years. The programme is voluntary and the focus so far has been on the measurement, reporting and verification (MRV) of emissions at the company level. In the period 2018 to 2022, companies will be given certificates which they will be able to trade.
Fossil Fuel Subsidy Reform
Thailand has subsidised LPG, natural gas for vehicles, diesel, electricity, and biofuel blends through various channels (GSI & IISD, 2014). The government budget subsidizes an excise tax exemption on biodiesel and diesel which amounted to THB 0.787 (US $0.02) and THB 108,231 (US $3300.5) million, respectively in 2012.It established an oil fund, after 1973, to stabilize prices of LPG, gasoline and diesel below certain thresholds. Additionally the fund supports energy-efficiency programs and encourages greater use of domestically produced energy resources. Though in theory the oil fund is revenue neutral through obtaining levies on petroleum products, in practice, the fund requires substantial financial injection. In 2005, the oil fund had been depleted and required government transfers of THB 92 (US$ 2.81) billion. The fund’s financial woes persisted even after the government’s cash injection. In 2011, the oil fund had an estimated deficit of THB 22,141 (US$675) million And subsidies allocated through outflows of the oil fund amounted to THB 62,099 (US $1893.7) million that same year (GSI, 2013).
In 2012, the government announced that the price of natural gas for vehicles (NGV) will be head at THB10.5 (US$ 0.321) per kilogram until further research on the price structure is conducted. In 2011, the cabinet approved lowering the excise tax for diesel from THB 5.31 (US$ 0.16) to THB 0.005 per litre. In terms of electricity subsidies, the government plans to gradually increase fuel tariffs by THB 0.655 (US$ 0.02) per kWh every four months until the price reaches true costing (GSI, 2013).
Additional Reading
CDKN, 2013.
Inside stories on climate compatible development. Retrieved from:
http://cdkn.org/wp-content/uploads/2013/05/Thailand-MIT_InsideStory.pdf
IISD, GSI, 2013.
A Citizens Guide to Energy Subsidies in Thailand. Retreieved from:
http://www.iisd.org/gsi/sites/default/files/ffs_thailand_czguide.pdf
Ministry of Energy.
10 Year Alternative Renewable Energy Plan. Retrieved from:
http://www.dede.go.th/dede/images/stories/dede_aedp_2012_2021.pdf
National Economic and Social Development Board, 2012.
The eleventh national economic and social development plan. Bangkok, Thailand. Retrieved from:
http://eng.nesdb.go.th/Portals/0/news/plan/eng/THE%20ELEVENTH%20NATIONAL%20ECONOMIC%20AND%20SOCIAL%20DEVELOPMENT%20PLAN(2012-2016).pdfUNESCAP, 2011. Low Carbon Green
Growth Roadmap for Asia and the Pacific: Case Study – Thailands Initiative on environmental tax reform:
http://www.unescap.org/sites/default/files/44.%20CS-Thailand-initiative-on-enviromental-tax-reform.pdf
ICAP (2018). Thailand. International Carbon Action Partnership.
https://icapcarbonaction.com/en/?option=com_etsmap&task=export&format=pdf&layout=list&systems[]=81
