Draft Climate Change Act: Full Overview with Detailed Emissions Trading System (ETS) Explanation

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Draft Climate Change Act: Full Overview with Detailed Emissions Trading System (ETS) Explanation

Thailand is preparing to introduce one of the most comprehensive climate frameworks in ASEAN — the Draft Act on Climate Change B.E. … (the “Draft Act”). The Cabinet approved the draft in principle in 2025, and it is expected to pass Parliament and enter into force in early 2027 (B.E. 2570). Once enacted, the Act will serve as the primary legal instrument for achieving Thailand’s updated NDC 3.0 targets, including carbon neutrality by 2050 and net-zero greenhouse gas (GHG)emissions by 2065, practically aligning with earlier aspirations for net-zero by 2050.

The Draft Act is designed to complement the forthcoming Clean Air Act, creating a twin-pillar system addressing both greenhouse gas mitigation and air pollution control.

Overview of the Draft Act

The Draft Act consists of 205 sections across 14 chapters and establishes the following core legal mechanisms:

Legally binding national climate targets and sectoral pathways;
A centralized governance framework, including a National Climate Change Committee (NCCC) chaired by the Prime Minister;
Five climate-related market-based and financial mechanisms:
- Climate Fund,
- Mandatory emissions reporting and an Emissions Trading System (ETS),
- A proposed Thailand Carbon Border Adjustment Mechanism (CBAM),
- domestic carbon tax, and
- Thailand Taxonomy for sustainable finance; and
Robust monitoring, reporting, verification (MRV), and enforcement provisions

Key Requirements for the Private Sector

The Draft Act imposes binding obligations on covered entities and large emitters, including:

• Mandatory greenhouse gas (GHG) emissions reporting;

• Participation in the ETS (for regulated installations);

• Compliance with carbon tax and CBAM obligations;

• Submission of verified emissions and activity data;

• Exposure to audits and administrative sanctions; and

• Alignment with sustainability-related disclosure and taxonomy requirements.

Detailed Explanation of the Emissions Trading System (ETS)

The ETS, codified in Chapter 8 (Sections 74–100), establishes a mandatory national cap-and-trade system and serves as the central economic mechanism under the Draft Act. It is designed to drive cost-effective emission reductions through a market-based approach. A national emissions cap will be set in accordance with Thailand’s climate targets, and tradable emissions allowances will be allocated through free allocation and/or auction. Entities that emit beyond their allocated allowances will be subject to fines.

Core Design

Under the ETS design, Thailand’s system aims to gradually reduce emissions through an annually declining national cap. The system will regulate approximately 300 large or strategically significant industrial facilities and will issue “allowances,” each representing one tonne of CO₂e. Covered entities must monitor their annual emissions and surrender sufficient allowances by 30 April of the following year to match their verified emissions.

During the initial phase (2028–2030), most allowances will be distributed for free to ease the transition for industry; however, this free allocation will decline over time, shifting toward a more market-based approach where entities will increasingly need to purchase or trade allowances. A reserve of 5–10% will be maintained to support new entrants, plant closures, or early-action performers.

Trading & Flexibility

The Draft Act permits flexibility mechanisms aimed at market efficiency:

Bilateral over the counter (OTC) and exchange-based trading.
Unlimited banking of surplus allowances.
Limited borrowing of future allowances (up to 10–20% of next year’s allocation)
Use of domestic and international offset credits, subject to a cap (approximately 5–10%)

MRV Requirements

MRV is a central component of the ETS, ensuring credibility and enforceability of emissions data. Regulated entities must:

Annual monitoring plans must be prepared and submitted.

Verified reports emissions reports must be submitted by 31 March each year.
Verification must be conducted by DCCE-accredited third-party bodies.
The DCCE may conduct random audits to ensure compliance and data accuracy.

Penalties

This Draft Act imposes criminal and administrative penalties according to the seriousness of the offence, including:

Fines of up to THB 5,000,000 or three times the benefit gained for false reporting;
Fines of up to three times the auction price for failure to surrender sufficient ETS allowances;
Fines of up to THB 5,000,000 or three times the benefit gained for failure to comply with carbon border adjustment requirements;
Imprisonment of up to three years and/or fines of up to THB 400,000 for violations of carbon tax enforcement; and
Fines of THB 10,000–100,000, plus daily fines for unregistered carbon credit operations.
Directors and responsible officers may also be liable for offences committed by a juristic person.

Benefits for the Private Sector

Policy certainty – Ensures consistent regulatory direction even amid government changes.
Competitive protection – Provides safeguards for businesses through Thailand’s CBAM framework.
Access to funding – Opens opportunities to Climate Change Fund grants and low-interest loans.
Export readiness – Supports compliance with international CBAM requirements, including EU and UK frameworks.
First-mover advantages – Rewards early adopters through carbon allowance sales and performance benchmarking.

What the Private Sector Needs to Prepare (2026–2028 Roadmap)
2026: Foundational Preparation
Build robust Scope 1, 2 (and material Scope 3) GHG accounting to establish a reliable emission baseline.
Collect 2–3 years of historical activity data to support future reporting and verification.
Self-assess likelihood of falling within around 3,000 entities expected to be subject to mandatory emission reporting, or within around 300 entities covered under the ETS.

2027: Strategic Planning and Readiness
Conduct marginal abatement cost curve (MACC) analysis to prioritize least-cost mitigation actions.
Participate in public hearings on upcoming regulations to stay aligned with emerging requirements.
Train staff or contract accredited verifiers to ensure MRV readiness.

2028–2030: Alignment and Long-Term Integration
Develop 2030–2050 decarbonization roadmaps consistent with sectoral and national targets.
Budget for carbon-tax pass-through costs as carbon pricing mechanisms begin to take effect.
Map supply-chain embedded emissions, especially for CBAM-affected firms, to prepare for cross-border compliance.

As the Draft Act is still undergoing the legislative process, businesses should closely monitor regulatory developments to ensure timely preparation and alignment with the final requirements.

Conclusion

The Draft Act marks a significant step in Thailand’s climate governance, establishing a comprehensive national framework and introducing tools such as the ETS, carbon tax, CBAM, and Climate Fund. For businesses, the Draft Act presents both obligations and opportunities. Early preparation will enhance regulatory readiness, unlock financial incentives, and support international competitiveness.

Key Takeaways

Businesses in or trading with Thailand should view the next 18–24 months as a crucial period to prepare for this transformative legislation.

Thailand is rolling out a comprehensive, EU-style climate package, combining national targets, an ETS, a carbon tax, CBAM, a Climate Fund, and the Thailand Taxonomy.

Large emitters will be subject to mandatory reporting starting year 2027–2028, with enforceable carbon pricing expected around 2030.

The system rewards early action and protects domestic industry.

The years 2026–2027 is the decisive preparation and influencing window.

Author: Panisa Suwanmatajarn, Managing Partner.

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Draft Climate Change Act: Full Overview with Detailed Emissions Trading System (ETS) Explanation

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