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The Carbon Border Adjustment Mechanism (CBAM), introduced by the European Union (EU), is expected to significantly impact several carbon-intensive industries in Thailand. With the mechanism set to affect industries heavily reliant on exports to the EU, key sectors like iron and steel, aluminum, cement, and fertilizer are preparing for the potential challenges that lie ahead. This article explores the industries most affected by CBAM and the implications for Thai businesses.
1. Iron and Steel Industry
The iron and steel industry in Thailand is anticipated to face the most severe consequences from CBAM. As one of the most carbon-intensive sectors, it generates substantial greenhouse gas emissions per unit produced, making it highly vulnerable to CBAM regulations.
Impact: In 2022, Thai exports of iron and steel to the EU were valued at approximately $201 million, accounting for about 6.3% of total sales in this sector. The iron and steel industry will need to comply with CBAM’s emissions reporting requirements and, starting in 2026, purchase CBAM certificates, driving up costs.
Outlook: To maintain competitiveness, companies in this industry may need to invest in cleaner technologies to reduce their carbon footprint and mitigate compliance costs.
2. Aluminum Industry
The aluminum industry will also be significantly impacted by CBAM, though not as severely as the iron and steel sector.
Impact: In 2022, Thailand’s aluminum exports to the EU were valued at around $111 million. While the EU market is less critical for aluminum compared to iron and steel, the industry remains carbon-intensive, meaning compliance costs could still be considerable.
Outlook: Like iron and steel, the aluminum sector will need to adapt to new regulations by improving energy efficiency and reducing emissions to offset potential cost increases.
3. Cement Industry
The cement industry in Thailand is another sector that will feel the effects of CBAM, though to a lesser degree than iron, steel, or aluminum.
Impact: Despite the smaller proportion of Thai cement exports to the EU, the cement industry’s high carbon intensity means it will face increased costs related to emissions reporting and future CBAM certificate purchases.
Outlook: Companies in this sector should consider adopting sustainable production methods to reduce emissions and stay compliant with the new regulations.
4. Fertilizer Industry
Although the fertilizer industry is less dependent on EU markets than other sectors, it will still be affected by CBAM regulations.
Impact:Fertilizer exports to the EU are relatively modest compared to iron and steel, yet the industry’s carbon emissions still make it subject to the mechanism’s requirements.
Outlook:The fertilizer industry may face moderate challenges, but its lower reliance on EU exports could mitigate the overall impact. However, emissions reductions will still be important for future growth.
5. Plastics Industry
Although the plastics industry is not included in the initial scope of CBAM, future expansions could bring it under the mechanism’s purview.
Impact: Thailand has significant plastic exports, and if plastics are added as a target category under future CBAM phases, the industry could face compliance challenges similar to other carbon-intensive sectors.
Outlook: Thai plastic exporters should monitor developments in CBAM closely and prepare for potential inclusion by improving sustainability practices.
Summary: Preparing for CBAM in Thailand
The iron and steel and aluminum industries are expected to be the most affected by CBAM due to their high carbon intensity and significant export volumes to the EU. The cement and fertilizer sectors will also face challenges, but their exposure to EU markets is lower, somewhat mitigating the impact. Plastics, although not currently included, remain a concern for future expansions of the CBAM mechanism. To stay competitive and comply with the new regulations, Thai industries must prioritize investing in cleaner technologies and processes. By doing so, they can reduce their carbon footprints, minimize compliance costs, and maintain access to vital EU markets.
Key takeaway: As Thailand’s industries prepare for the impact of CBAM, a focus on sustainability and emissions reductions will be essential to thriving in a rapidly evolving global trade environment.
Source
https://www.krungsri.com/en/research/research-intelligence/cbam-2023https://ph02.tci-thaijo.org/index.php/JSTNSRU/article/view/251278
https://www.oie.go.th/assets/portals/1/files/public_relation_news/OIE_Reports_BCG_Model.pdf
https://www.bangkokpost.com/business/general/2618021/what-carbon-tariffs-mean-for-thailandhttps://tdri.or.th/en/2024/04/making-exports-for-a-low-carbon-era/
https://www.kasikornresearch.com/en/analysis/k-econ/business/Pages/EU-CBAM-CIS3435-22-09-2023.aspx
https://mahanakornpartners.com/thailand-prepares-for-the-eus-cbam-tariff-with-expert-discussio