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Parliament Considers Carbon-Credit Sales from Community Forests

A member-sponsored bill before Parliament could provide a clearer statutory basis for the sale of carbon credits generated from community forests. The Draft Community Forest Act Amendment was proposed by members of the House of Representatives, and its official description identifies its purpose as adding provisions concerning the sale of carbon credits. The proposal is currently undergoing public consultation under Section 77 of the Constitution and is not yet binding law. It remains subject to the legislative process and may be revised before enactment.

The proposal is nevertheless significant because community-forest carbon-credit activities already exist in practice, while the Community Forest Act was principally designed to regulate community participation in forest conservation, restoration, management, and sustainable use rather than transactions in carbon assets. The amendment should therefore not be understood as creating community-forest carbon projects for the first time. Its significance lies in seeking to place the sale of carbon credits more expressly within the statutory framework governing community forests.

Ownership, authority, and community approval:

One of the most important issues is the legal entitlement to carbon credits generated from a community forest. Ownership or control of the underlying land, statutory rights to manage the forest, responsibility for maintaining carbon stocks, entitlement to register a carbon project, and ownership of the resulting carbon credits are not necessarily the same thing. For project developers and purchasers, the relevant question is therefore not simply whether credits have been issued under a recognized carbon program, but whether the seller has a sufficient legal basis to claim and transfer them.

Closely related is the question of who has authority to approve a carbon project and sell the resulting credits. Community forests operate through statutory community-management structures, while carbon projects may involve commitments extending over many years. Project agreements may cover project registration, monitoring and verification, responsibility for development costs, allocation of credits, exclusivity, forest-management obligations, sale of credits, and distribution of revenues. The authority of the community representatives entering into those arrangements is therefore important, particularly where a developer is granted long-term or exclusive rights.

The final legislation will also need to be considered carefully in relation to community approval. A decision to enter into a long-term carbon project may have consequences extending beyond ordinary forest management, particularly where future carbon revenues or carbon rights are committed to a private developer. Any statutory requirements concerning community meetings, resolutions, voting, disclosure, or government approval could therefore become relevant not only to regulatory compliance but also to the validity and bankability of the project.

Revenue allocation and project agreements:

Benefit sharing will be another central issue. Community-forest carbon projects already operate against a background of administrative arrangements dealing with carbon-credit revenues and community benefits, so the proposed amendment will need to be read together with the existing framework. An important point to watch is whether the amended Act itself establishes principles for allocating proceeds from carbon-credit sales or leaves the details to subordinate regulations.

The commercial implications are substantial. Developers may bear the costs of feasibility studies, project design, carbon measurement, registration, verification, monitoring, and financing, while communities provide the forest stewardship and management activities on which the carbon benefits depend. Project-development agreements therefore need to deal clearly with project costs, entitlement to issued credits, authority to market and sell those credits, allocation of revenues, reporting obligations, and the duration of the developer’s rights. They should also address the particular risks of forest-carbon projects, including fire, illegal logging, natural disasters, changes in forest management, and other events that may reduce credit generation or result in carbon reversal.

If the amendment introduces mandatory rules on approval, sales, or benefit sharing, existing contractual models may need to change. Developers negotiating new projects should therefore avoid relying on broad provisions simply assigning all “carbon rights” to the developer without examining whether those rights can legally be granted, by whom, for what period, and subject to what approvals.

Existing projects and corporate purchasers:

The treatment of existing projects will be particularly important. Community-forest carbon projects may already be governed by agreements among communities, developers, government agencies, and other participants. If the amended Act introduces new requirements concerning authority, approval, sale, or revenue allocation, the question will be whether those requirements apply only to future projects or also affect existing arrangements. The final legislation and any transitional provisions should therefore be reviewed carefully. Existing agreements may also need to be assessed for change-in-law provisions and for clauses dealing with ownership and allocation of credits, exclusivity, benefit sharing, duration, and termination.

For companies purchasing community-forest carbon credits, a clearer statutory framework could improve legal certainty, but it should not replace transaction-level due diligence. Buyers should establish the legal status of the community forest, the authority through which the project was approved, compliance with applicable community and government approval requirements, the developer’s entitlement to the credits, applicable benefit-sharing arrangements, and whether the credits have previously been sold, allocated, pledged, or otherwise committed.

There is also an important distinction between carbon-program eligibility and legal entitlement to transact. Registration or issuance under a recognized carbon standard demonstrates compliance with the requirements of that program, but should not necessarily be regarded as conclusive evidence that all underlying questions of ownership, community authorization, or contractual authority have been resolved. This is especially relevant to long-term off-take arrangements for future credits, where the purchaser assumes project-development and regulatory risks in addition to ordinary delivery risk.

What to watch:

The proposal remains a member-sponsored parliamentary bill rather than a change in current law. Businesses should therefore not restructure existing projects on the assumption that it will be enacted in its present form. Its progress is nevertheless worth following because it addresses an increasingly important intersection between community forest management and the carbon market.

If enacted, a clearer statutory framework could strengthen the basis on which communities derive economic benefits from forest conservation, provide greater certainty for developers investing in community-forest carbon projects, and make the resulting credits easier for corporate purchasers to diligence. Much will depend on how the final legislation addresses ownership, authority to sell, community approval, revenue allocation, benefit sharing, and existing projects.

Key takeaways:

  • Corporate purchasers should examine the underlying legal entitlement to community-forest credits rather than relying solely on their registration or issuance under a carbon standard.
  • The proposed amendment was initiated by members of the House of Representatives and specifically addresses the sale of carbon credits from community forests. It is undergoing public consultation under Section 77 of the Constitution and is not yet binding law.
  • Community-forest carbon-credit activities already exist. The proposal is significant because it could provide a more express statutory foundation for the sale of those credits.
  • Carbon-credit ownership, authority to sell, and community approval are separate legal issues and will be important for both project structuring and buyer due diligence.
  • Project-development agreements may need to address statutory requirements concerning approval and benefit sharing, as well as project costs, allocation of credits, exclusivity, carbon-reversal risks, and changes in law.
  • Existing projects should monitor the final legislation and any transitional provisions to determine whether current contractual arrangements will need to be reviewed.

Author: Panisa Suwanmatajarn, Managing Partner.

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Reforming Industrial Licensing: New Approach to Factory Regulation and Environmental Compliance

Introduction:

The Department of Industrial Works (DIW), Ministry of Industry in Thailand has initiated a comprehensive reform of industrial licensing and factory management processes, signaling a significant shift towards more stringent environmental and operational standards. This strategic approach aims to enhance industrial governance, protect environmental interests, and promote responsible business practices.

Key Regulatory Reforms:

Licensing Mechanism Transformation

The DIW has implemented a multi-faceted approach to industrial licensing that focuses on:

  1. Streamlined Approval Processes
    • Simplifying factory operation permit issuance
    • Reducing administrative procedures
    • Accelerating permit processing times
  2. Merit-Based Support System
    • Prioritizing and supporting responsible industrial operators
    • Providing expedited consultations and services
    • Creating preferential pathways for compliant businesses

Blacklist Mechanism for Non-Compliant Operators:

The DIW will establish a comprehensive blacklist targeting industrial operators with problematic histories, including:

  • Companies with previous legal violations
  • Entities with environmental pollution records
  • Operators exceeding standard emission levels
  • Businesses with improper industrial waste management
  • Entities previously ordered to implement corrective measures
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Rigorous Evaluation Criteria:

Blacklisted operators will undergo extensive scrutiny, including:

  • Historical operational performance assessment
  • Facility location analysis
  • Machinery installation review
  • Production safety protocols
  • Pollution treatment system standards
  • Waste management efficiency
  • Legal compliance verification

Focus on High-Risk Industrial Sectors:

Special attention will be directed towards high-risk industrial categories, particularly those involved in waste treatment and processing, such as:

  • Slag melting facilities
  • Industrial waste management plants (Categories 101, 105, 106)
  • Hazardous and non-hazardous waste processing facilities
  • Electronic waste recycling units
  • Chemical waste treatment centers

Regulatory Objectives:

The reforms aim to achieve the following strategic goals:

  1. Ensure clean and transparent industrial establishment processes
  2. Promote environmentally friendly industrial growth
  3. Balance economic development with social and environmental considerations
  4. Create a sustainable industrial ecosystem

Implementation Strategy:

The DIW will:

  • Reduce administrative bottlenecks
  • Implement strict review protocols
  • Provide clear guidelines for industrial operators
  • Maintain transparent monitoring mechanisms
  • Enforce rigorous compliance standards

Key Takeaways:

  1. Proactive Regulatory Approach: Thailand is transitioning from reactive to proactive industrial regulation.
  2. Environmental Priority: Protecting ecological systems and community health is paramount.
  3. Operator Accountability: Businesses must demonstrate responsible practices to maintain operational licenses.
  4. Transparent Governance: All processes will be open to public scrutiny and systematic review.

Conclusion:

These reforms represent a significant milestone in Thailand’s industrial policy, demonstrating a commitment to sustainable development, environmental protection, and responsible business practices.

Author: Panisa Suwanmatajarn, Managing Partner.

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Why Businesses Should Choose Rehabilitation

Since the outbreak of Covid-19, the Thai economy has experienced a prolonged shutdown, leading to the need for bankruptcy and rehabilitation processes to address the financial challenges faced by businesses. However, there is a common misconception among the public that rehabilitation is synonymous with bankruptcy. This misunderstanding arises from the fact that rehabilitation provisions are enshrined in the same legislation as the Bankruptcy Act B.E.2483 (1940), leading to the belief that rehabilitation is equivalent to bankruptcy. In reality, the objectives of bankruptcy and rehabilitation are different. Bankruptcy aims to identify and gather the debtor’s assets for equitable distribution among creditors, while rehabilitation aims to maintain the value of the organization, provide an opportunity for the debtor to continue business operations, and preserve employment.

Although both rehabilitation and bankruptcy share the objective of resolving creditor issues through equitable debt distribution, they involve different processes. In the case of bankruptcy, the debtor must have a debt exceeding 2 million baht and be ordered by the court to receivership. The court will then schedule a witness hearing to render a judgment on the debtor’s bankruptcy. Once the debtor is declared bankrupt, the court will order receivership, prohibiting the debtor from engaging in any actions related to their properties or businesses without the court’s approval.

On the other hand, the rehabilitation process requires the debtor to have a debt exceeding 10 million baht and demonstrate a reasonable cause and prospect for the rehabilitation of their business. After the court receives the petition for rehabilitation, an urgent witness hearing is scheduled, and the court can make orders regarding the rehabilitation. Once the court accepts the rehabilitation petition, an automatic stay is initiated, providing legal protection to the debtor against certain actions from creditors until the expiration of the implementation period for the rehabilitation plan or the successful completion of the plan.

The purpose of bankruptcy and rehabilitation laws is for building and improving investor trust. Each approach has its own strengths and weaknesses, which are outlined below:

Strengths and weaknesses of Bankruptcy:

Bankruptcy primarily focuses on identifying and collecting the debtor’s assets for equitable distribution among creditors. This process involves a receivership order issued by the bankruptcy court, granting the official receiver control and management authority over the debtor’s assets. However, this also means that the debtor loses the right to manage their business.

Strengths and weaknesses of rehabilitation:

Rehabilitation primarily focuses on maintaining the overall value of the organization and providing the debtor with an opportunity to continue business operations. The debtor can request a court’s business organization order, and upon approval, an automatic stay is initiated, allowing the debtor to operate continuously during the debt restructuring process.

The automatic stay in the rehabilitation process serves several purposes, including halting legal actions against the debtor, preserving assets by preventing their seizure or sale, and promoting negotiation and restructuring between the debtor and its creditors.

It is important to note that the automatic stay is not an indefinite protection. It remains in effect until the court decides whether to accept or reject the rehabilitation petition and plan. If the court accepts the plan, the automatic stay may continue until the plan is fully implemented. However, if the court rejects the plan, the automatic stay is lifted, and creditors can resume their legal actions against the debtor.

Rehabilitation case example:

A prominent company in Thailand, JKN GLOBAL GROUP PUBLIC COMPANY LIMITED (“JKN”), announced its intention to file a petition for business rehabilitation on November 8, 2023. This action demonstrates the consequences and benefits of the rehabilitation plan, including:

  • Adjusting the company’s business and financial structures to align with current financial and economic conditions.
  • Resolving liquidity problems through organizational restructuring, ensuring the company can continue operating.
  • Attracting financial backing from new investors or financial institutions to infuse capital into the company’s operations.
  • Providing guidance on the sale of non-beneficial or non-income-generating assets and utilizing the proceeds to settle debts owed to all creditors.

In conclusion, when businesses consider the choice between bankruptcy and rehabilitation, they must carefully evaluate the specific processes and operational authority involved. Engaging in the company’s business rehabilitation process allows for effective resolution of liquidity issues with legal backing and ensures fair protection for all stakeholders. Moreover, the company can sustain its business operations during rehabilitation, addressing challenges and generating profits through ongoing activities.

Author: Panisa Suwanmatajarn, Managing Partner.

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Thailand’s Carbon Credit Policy: The Push for Business Collateral

As a result of Thailand’s intention to reduce greenhouse gas (GHG) emissions at the 26th UN Climate Change Conference of the Parties, Thailand has established a Voluntary Carbon Market under the supervision of the Thailand Greenhouse Gas Management Organization (Public Organization), or TGO.  The establishment of the market is a result of the cooperation of businesses and organizations to voluntarily participate in the trading of carbon credits. Thailand’s carbon credit policy is under the Thailand Voluntary Emission Reduction Program (T-VER), in which TGO will register T-VER and certify the number of greenhouse gases that can be reduced or stored from T-VER. The amount of greenhouse gas that can be reduced or stored is called “carbon credits”.

Since carbon credits are traded in the market, they can be counted as an asset. This makes it possible to apply carbon credits to the financial services of banks in the form of a factor in environmentally friendly financing projects. Carbon credits can also be pledged as credit enhancement in these transactions, which helps to ensure that the project can meet its financing requirements. Additionally, carbon credits can be used as collateral in loans, particularly those used for climate-resilient investment projects, as they provide a measurable way to assess and manage climate-related risk. However, the specifics of how carbon credits can be used as collateral will depend on the financing agreement and the relevant legal and regulatory framework.

sky clouds building industry

According to the press release 2023 report on the Department of Business Development’s website, the Department of Business Development has discussed with relevant agencies pushing for “carbon credits” as business collateral. The carbon credit will likely be considered collateral in the future, said Mr. Tosapol Tangsubutr, Director-General of the Department of Business Development, who is urging people to plant valuable perennials on their land to create carbon credits. This corresponds to the Ministerial Regulation on Other Assets as Collateral B.E. 2561 (2018), which announced that perennials are assets that can be used as collateral to provide more business collateral. In summary, carbon credits are likely to be business collateral in the future, according to the Business Security Act B.E. 2558 (2015). There are additional issues to be studied, namely, what type of property carbon credits are classified as, valuation, credit granting process or procedure, property supervision, and collateral enforcement process including various minor details relating to the Business Security Act B.E. 2558 (2015) and comparing to foreign laws for more legal integrity.

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New Regulation Governing the Services Related to Digital Identity Proofing and Authentication System

Most people nowadays conduct their transactions through electronic means. Before engaging in such electronic transactions, they must go through the process of verifying the person’s identity, which is currently supported by the digital system and is an important step in assisting the party to know their customers.

The Digital Identity Proofing and Authentication System is designed to provide a secure and efficient process for validating the identity of users who are attempting to access sensitive information. This system employs cutting-edge technology to ensure that only users with legitimate credentials can access the data they need. The system allows organizations to reliably authenticate user identities using a variety of methods such as biometrics, physical documents, government-issued IDs and other types of identification.

The Digital Identity Proofing and Authentication System also features robust data encryption techniques to protect the sensitive information from unauthorized access. This ensures that only users with appropriate credentials can access the data. Additionally, the system has been designed to be tamper-resistant and provide comprehensive reports that allow organizations to track user activity and access history.

code projected over woman

In addition to security features, the system includes a range of tools for user management. Administrators can manage user roles, access rights, and account information quickly and easily. They can also enable or disable users in bulk and set temporary passwords for new users.

The main regulations on digital identification include the European eIDAS Regulation, the General Data Protection Regulation, the Identity Theft Prevention Act, the EU Payment Service Directive and the Anti-Money Laundering Directive. These regulations set out requirements for digital identities, such as customer authentication, data protection and fraud prevention. Companies providing digital identification services in EU must ensure compliance with these laws. Additionally, some countries have their own regulations in place that must be adhered to when offering such services.

The Digital Identity Proofing and Authentication System is an essential tool for any organization that needs to maintain accurate records and secure access to sensitive data. It provides a simple yet powerful solution for verifying user identities while also ensuring the security.

In this regard, the Royal Decree on Supervision of Services Related to Digital Identity Proofing and Authentication System B.E. 2565 (2022) (“Royal Degree“) was announced on 23 December 2022 and will be effective 180 days after the announcement (i.e. 21 June 2023) to govern an operation of a legal entity who provides services related to digital identity proofing and authentication systems.

The Royal Degree Decree specifies the characteristics of the service provider who must obtain a license to operate digital identity proofing and authentication, i.e. (1) Identity proofing services, (2) Authenticator, (3) Identity authentication services and (4) services of exchanging the digital proofing and authentication data through the network or system. Furthermore, applicants must be a limited company, public limited company or other legal entity that meets the qualifications defined by Electronic Transactions Development Agency (“ETDA“) by submitting all required documents and information to the ETDA, such as information about the system and technology used to provide services, a risk assessment and management plan, a personal data protection plan and security plans and measures for information systems.

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The licensee has duties to report as follows:

  1. Submitting a Business Readiness Assessment Report to Electronic Transactions Development Agency (“ETDA”) within 180 days of receiving a license. Otherwise, EDTA may consider revoking the license.
  2. Notifying ETDA if a third party collects or retains Digital Identity Proofing and Authentication System Information on its behalf. Any changes to such third-party must be reported to EDTA within 15 days of the change.
  3. Notifying ETDA of any changes in registered capital, director, manager or person in charge of operating the services, as well as system and technology that may have an impact on service provision.
  4. Notifying ETDA if they receive a complaint or a lawsuit relating to the licensee’s business operations.
  5. Submitting an annual report to ETDA in the format, content and method prescribed by ETDA.
  6. Inspecting the digital identity proofing and authentication system and report the same to the ETDA.
  7. Notifying ETDA at least 60 days before the expected date of discontinuation of business.

The ETDA shall consider announcing the rules, procedures and conditions concerning the period for business termination, transfer of services to another Licensee, management and collection of information relating to digital identity proofing and authentication and any other matters that ETDA deems appropriate in order to prevent damage, protect service users and ensure that users can continue to use the services.

The service providers who require the license and have been in operation prior to the effective date of this Royal Decree may continue to do their businesses. However, they must apply for a license and submit a business readiness assessment report within 90 days of the Royal Decree’s effective date. Therefore, if you are required to obtain this license, please read this Royal Degree and begin preparing your application, as well as keep up to date on any new sub-regulations that may be announced.

Author: Panisa Suwanmatajarn, Managing Director.