Green business in Thailand:Navigating legal frameworks and implementing ESG for a sustainable future

Suchaya Tangsiri and Arunrat Rattanaarun

NAVIGATING THE LEGAL ASPECTS FOR GREEN BUSINESS IN THAILAND

Thailand is demonstrating its commitment to becoming a low-carbon society by encouraging the growth of its renewable energy market. However, green businesses in Thailand face challenges such as a lack of understanding of the green economy, regulations, and incentive schemes.

The key legal frameworks governing renewable energy in Thailand are:

(i) The Energy Industry Act B.E. 2550 (2007) (the “Energy Industry Act”), the regulatory authority responsible for overseeing renewable energy in Thailand is the Energy Regulatory Commission (ERC). The ERC’s mandate is to promote competition and encourage investment in the energy sector and to ensure that the public has access to reliable, safe, and affordable energy. The ERC also set feed-in tariff rates for electricity generated from renewable energy sources. Feed-in tariffs are a mechanism used by governments to provide financial incentives and to purchase renewable energy producers by setting a premium price for the energy they produce.

(ii) The Energy Conservation Promotion Act B.E. 2535 (1992) (the “ECP Act”) provides a legal framework for energy efficiency and conservation initiatives. The ECP Act requires energyintensive industries to develop and implement energy management plans and provides tax incentives for companies that invest in energy-efficient technologies and practices. It also prohibits the sale or import of certain types of energy-inefficient products, thereby incentivising manufacturers and importers to produce and sell more energy-efficient products.

(iii) The Board of Investment Act (the “BOI Act”) of Thailand offers substantial tax breaks and ex-emptions. For example, the production of electricity from renewable energy sources such as so-lar energy, wind energy, biomass or biogas, etc. (other than from garbage or refuse-derived fuel) is eligible for corporate income tax exemptions for a maximum of eight years, depending on the size of the investment, as well as import duty exemptions on machinery. In addition, non-tax incentives include the ability to hire foreign expatriates and remit funds from Thailand to abroad.

IMPLEMENTING ESG IN THAILAND

Although there are no specific regulations directly related to ESG implementation, Thailand is establishing the legal infrastructure to guide the country towards an ESG framework. The SET ESG Index was established in 2018, and then the ESG Metrics manuals and One Report were announced in 2022 to provide guidance to the business sector in disclosing sustainability information. The Thailand ESG Fund was also established in 2023 to provide tax incentives to investors.

KEY PROVISIONS OF THE DRAFT CLIMATE CHANGE ACT

The draft of the Climate Change Act (the “Draft Climate Change Act”) provides for three measures to accelerate GHG emissions reduction in all sectors, including carbon credits, a carbon tax and a domestic emissions trading system (ETS).

The domestic ETS sets the emissions cap for each industry, while the carbon tax imposes a tax on the life cycle of specific products to prevent carbon leakage across borders. Carbon credits are earned by implementing emission reduction and removal projects and are traded on domestic and international markets.

The draft Climate Change Act contains several key provisions, including:

• Climate Change Fund: Established to support local government agencies, state-owned enterprises, and private business operators involved in climate change initiatives in Thailand.

• Climate Change Master Plan: The Master Plan outlines the implementation period, the situation in Thailand, the targets for the reduction of greenhouse gases in the country, and the monitoring and evaluation of the results after the end of the period to assess the impact of climate change.

• GHG Database: The GHG database contains comprehensive information on GHG emissions, GHG stored by human activities and natural processes, and net GHG reductions achieved for the public to access information. For the purpose of establishing the GHG database, the designated authorities have the authority to request specific data from other government and private agencies.

• GHG Mandatory Reporting: Business operators with high levels of GHG emissions or those in industries that contribute significantly to GHG emissions are required to measure and report the amount of GHG emissions or removals resulting from their business activities, operations, and products.

• GHG Emissions Trading System: Established to provide a registration and accounting system to manage data related to GHG emissions. GHG emissions trading rights are considered assets that can be transferred, bought, sold, or otherwise disposed of in whole or in part.

• Tax System: A carbon credit and tax system that targets the GHG emissions of controlled business operators is one of the most prominent ways to minimise GHG emissions. Carbon credits can be traded on carbon markets, allowing business operators to buy and sell them.

To remain competitive in domestic and international markets, businesses in Thailand must continuously analyse their carbon footprint, reduce their use of fossil fuels, and invest in renewable energy sources. GHG reduction is the new standard in business operations.

Suchaya Tangsiri

Senior Associate, Luther Law Firm (Thailand)

Contact details: Arunrat Rattanaarun

Senior Associate

Luther Law Firm (Thailand) Co., Ltd. +66 2 210 0036 arunrat.rattanaarun@luther-lawfirm.com www.luther-services.com