Roundabout

Thailand’s sustainability policy: getting its act together

  • Climate change poses a big risk for Thailand, but the country’s current commitment to combat climate change at a global level remains modest. 
  • However, the sense of urgency to address climate risks has started to shape recent policy. The government announced more ambitious climate targets in November 2022. The Bio-Circular-Green (BCG) model has gained greater prominence. In the financial sector, policy is being redesigned to facilitate green finance. 
  • EIU expects these moves to create an ecosystem that steers the economy towards more sustainable practice in the medium term. We expect opportunities to concentrate in sectors such as electric vehicles and renewable energy in the near term. 

Climate change is a big risk for Thailand

According to the long-term climate risk index by Germanwatch, an independent development and environmental organisation, Thailand is highly vulnerable to the impact of climate change and is ranked the ninth country in the “extreme risk” category that is most vulnerable to future climate change impact over the next 30 years. The country faces rising sea levels, posing a threat to the capital, Bangkok, which has an average elevation of 1.5m above sea level. Thailand’s agricultural sector accounts for 6% of GDP and about 30% of total employment. Extreme and unpredictable weather patterns ranging from flooding and drought are therefore of great importance, particularly for the rural population.

Thailand’s greenhouse gas (GHG) emissions account for less than 1% of global emissions, per‑head emissions are lower than the world average, although air quality has become a bigger cause for concern in recent years. According to data from BP Statistical Review of World Energy 2022, Thailand’s carbon dioxide (CO2) emissions growth of 0.8% annually in 2011‑21 is higher than the global average of 0.6%, but still lower than the Asia‑Pacific average of 1.8%. CO2 emissions are projected to peak before 2030, according to data from the International Energy Agency. Thailand benefits from a high share of the service sector, which emits fewer emissions than industry. Nevertheless, power generation contributed 36% of Thailand’s CO2 emissions, followed by industry (30%) and transport (28%). This highlights Thailand’s need to diversify the energy source of its manufacturing industry by moving away from fossil fuel-based power, as well as expanding the fleet of low‑carbon transport. 

Thailand’s reliance on fossil fuels remains high. Data from the BP review indicated that the country’s energy consumption was heavily skewed toward oil and natural gas, which together accounted for 77% of total energy consumption in 2021. Coal accounts for 17% of total energy consumption, but this is low compared with Asia‑Pacific’s average of 47%, which was in turn driven by high usage in China (55%), India (57%) and Indonesia (39%). Renewable energy consumption made up only 6.3% of total—similar to its regional counterparts—although it grew rapidly at 18% per year on average between 2011 and 2021.

Thailand remains highly dependent on fossil fuels.

A sense of urgency is rising

Thailand does not have a strong record when it comes to climate change commitments and sustainability targets. According to the Climate Action Tracker, a research group that monitors government action to mitigate climate change, the country has a history of showing too little commitment despite its good intentions. More recently at the 2021 UN Climate Change Conference in Glasgow, the Thai government set a goal to reach carbon neutrality by 2050 and a net‑zero GHG emission target in 2065, placing it among laggards. It did not sign an agreement to end deforestation by 2030. 

However, there are signs that there is a growing sense of urgency. The surge in oil and gas prices as a result of the war in Ukraine, as well as political instability in Myanmar—Thailand’s key supplier of natural gas—add the need to increase renewable energy in the mix, in addition to the concern on the environment.

In 2022 there was a visible policy shift towards a more ambitious target and greater priority for the promotion of sustainable practice. In November 2022 Thailand announced its second updated nationally determined contribution, which showed a more ambitious target to reduce its greenhouse gas emissions by 30‑40% from the projected business-as-usual level by 2030. The government also announced a revised version of its Long-Term Low Greenhouse Gas Emissions Development Strategy, which proposed accelerated efforts to combat greenhouse emissions. 

The BCG model, in place since 2021, aims to show stronger public commitment on climate change risk and sustainability amid international criticism of Thailand’s lack of action. It received a more prominent place as a central economic policy plank during the Asia‑Pacific Economic Co‑operation summit in November 2022. In practice, the government’s efforts focus on four economic areas: food and agriculture; medical and wellness; energy, material, and biochemicals; and tourism and the “creative” economy. The BCG policy initiative combines Thailand’s sustainable push with investment promotion policy to attract more interest in the sectors where the country already has advantages. Another action that points to accelerated efforts for change is the Climate Change Act, which is currently in draft form.

The BCG economic model shows stronger public commitment to promote sustainability.

In the financial sector, regulators are also designing policies to support sustainable practices. The Bank of Thailand, the central bank, together with the Securities Exchange Commission, are in the process of drafting the Thailand Taxonomy; it includes standards intended to lay the common framework on a sustainable finance ecosystem, which will facilitate products and financial services in support of green finance.

New opportunities will be concentrated in the renewable energy and low-emission transport sectors

The pathway to carbon neutrality and net‑zero will be challenging and will require a strong political will to see it through. EIU sees the need for Thailand to prepare a energy transition plan for the energy and transport sectors in particular. In the long term, its power sector—the largest source of emissions—needs to move further away from natural gas (with coal’s role already reduced over the years) to renewables, especially solar and wind. New infrastructure, such as energy storage, efficiency improvement and grid management, needs to accommodate the transition. Thailand’s export-oriented manufacturing sectors and heavy industries will also need to improve energy efficiency and undergo electrification in the case of using fossil fuels for direct consumption. In the transport sector, Thailand will need to improve the efficiency of its public transport and promote electrification via both purchase incentives and infrastructure such as charging facilities. Over time, Thailand also needs to address emissions from the agriculture sector via offsetting strategies such as carbon sinks (for example, with reforestation) and carbon capture and storage. In the short to medium term, we expect new opportunities to concentrate on electric vehicles (EVs), which are currently receiving greater government support and attracting a strong flow of investment, as well as renewable energy.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, helping organisations identify prospective opportunities and potential risks.