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publicationDecember 14, 2023

Thailand Economic Monitor December 2023: Thailand’s Path to Carbon Neutrality - The Role of Carbon Pricing

Park in Bangkok, Thailand

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Key Findings

  • In 2023, growth is projected to decelerate slightly from 2.6 percent in 2022 to 2.5 percent in 2023. The downward revision is attributed to a weak outcome in quarter three, driven by a substantial decline in stock accumulation and weaker-than-expected manufacturing production due to goods export contraction.
  • In 2024 and 2025, growth is anticipated to accelerate from an estimated 2.5 percent in 2023 to 3.2 percent and 3.1 percent, respectively. The recovery of the tourism sector and sustained private consumption are expected to be the major drivers of growth.
  • Exports of goods in 2024 are anticipated to rebound, driven by the projected improvement in global growth and the expected easing of global financial conditions, even in the face of a slowing Chinese economy.
  • The return of tourists, especially from China, has bolstered the tourism outlook, although the recovery is proceeding at a slower pace than initially projected. In 2024, tourist arrivals are anticipated to increase to 35.8 million, reaching 90 percent of the pre-pandemic 2019 level, up from an estimated 28.3 million in 2023.
  • If the Digital Wallet program (THB 500 billion, 2.7 percent of GDP), is rolled out in May 2024, growth is anticipated to surpass baseline projections by 0.5-1.0 percentage points over the two-year period and the fiscal deficit may increase to 4-5 percent of GDP, approaching the average level observed during the COVID-19 crisis in 2020 and 2022. Public debt may reach 65-66 percent to GDP. As of end-September 2023, public debt is 62.14 percent of GDP, 21 percentage points higher than the pre-pandemic period. Despite the increase, public debt remains sustainable due to lower external debt and prudent fiscal management.
  • Poverty is estimated to have declined in 2022 due to the labor market recovery. Per capita household consumption showed an 8.1 percent growth between 2021 and 2022 as the unemployment rate declined and average wages rose. With the rise in household income and consumption, it is anticipated that the poverty rate at the $6.85 line would have decreased to 11 percent in 2022 from 12.2 percent in 2021.
  • In the medium term, as the economy recovers, Thailand should focus on a more targeted social assistance and transfers, especially the Old Age Allowance to effectively address welfare and poverty alleviation. Thailand can also implement reforms to improve efficiency of public spending, particularly in healthcare and education. Lastly, Thailand has the room to raise tax revenue and maintain fiscal sustainability while meeting spending pressures and investment needs.

Heightened geopolitical conflict and high oil prices could lead to another inflationary surge in Thailand, due to its high dependency on energy imports. A section of the report which focuses on Thailand’s Path to Carbon Neutrality says moving to a low-carbon growth path can help build energy security, reduce environmental degradation, and position Thailand as a regional leader in green and sustainable growth.

  • Thailand has set a clear goal of achieving net-zero emissions by 2065 and 30 percent reduction in emissions by 2030. A range of policies has been implemented to reduce greenhouse gas emissions and Thailand is taking the first steps to implement comprehensive carbon pricing – or putting a cost on carbon emissions so that companies and households are discouraged from using fossil fuels.
  • Carbon pricing is a critical policy instrument for achieving ambitious reductions in greenhouse gas emissions. The two main forms of carbon pricing, carbon taxes and Emission Trading Schemes (ETS), together with other complimentary policies and the withdrawal of fossil fuel subsidies, can be used to lower greenhouse gas emissions.
  • An effective carbon price could also ease the financial pressure on Thailand’s healthcare system, much of which is publicly funded. In 2019, health damages linked to exposure to PM2.5 particles led to 32,211 premature deaths due to ambient air pollution and an additional 7,449 due to household air pollution. These deaths, in economic terms, cost Thailand about US $32,841 million—roughly 6 percent of its GDP. By driving down vehicle emissions, the implementation of a carbon price could decrease related illness and death rates.
  • World Bank model simulations show that Thailand could make greater use of carbon pricing to prevent further increases in emissions. However, in the long term, modest carbon prices that increase rapidly after 2030 would not be sufficient for large-scale emission reductions. Additional measures, such as building EV infrastructure or providing training in solar panel installation, would be necessary to accelerate low-carbon technology take-up.