Implementing the OECD Framework for Industry’s Net‑zero Transition in Thailand

Executive summary

Decarbonising petrochemicals and the plastic value chain can support both Thailand’s climate and strategic industrial goals.

Decarbonising Thailand’s manufacturing sector is key to achieving the country’s net-zero greenhouse gas (GHG) emissions target by 2050 and harnessing the related socio‑economic benefits. Indeed, the sector accounts for one quarter of the country’s total GHG emissions. Beyond emissions reduction, decarbonising the manufacturing sector contributes to Thailand’s broader industrial strategies, and strengthens the resilience of exports of emission‑intensive products. The country aims to position itself as a regional leader in sustainable industry and innovation – guided by the Bio-Circular-Green (BCG) Economy Model – thereby creating opportunities for new value‑added economic activities and high-skilled employment.

The petrochemical and plastic industries are central to Thailand’s economy. Thailand's petrochemical sector is the largest in the ASEAN region and the plastics industry accounted for nearly 7% of national Gross Domestic Product (GDP) in 2023. Petrochemicals and chemicals are the second largest employer in Thailand’s manufacturing sector. Building on abundant biomass resources, the country is the world third largest producer of bioplastics and aims to position itself as the ASEAN hub for bioplastics by 2027.

Thailand has laid out key policies that have the potential to support the decarbonisation of the petrochemical sector and plastic value chain. These include the Draft Climate Change Act, the Thailand Taxonomy, Thailand’s Board of Investment (BOI)’s investment incentives, or the establishment of special economic zones. However, in a context where competitiveness is a critical concern, there is a pressing need to develop financial instruments and policies to stimulate investments in low-carbon solutions.

To support Thailand in addressing this challenge, the OECD has implemented its “Framework for Industry’s net-zero transition”. This Framework offers a step-by-step approach to identify financing solutions and the enabling conditions that can accelerate industry’s transition. Three low-carbon options have been selected for the Framework implementation: bioethanol to bio-ethylene, bio-based and biodegradable plastics, and Carbon Capture and Storage (CCS) for ethylene production. These options are primarily meant to reflect a strong alignment with Thailand’s national strategies, the industrial landscape and the Framework’s objective of focusing on low-carbon options which struggle to achieve viable business cases.

A combination of instruments and enabling conditions is critical to stimulate investments in both bioplastics and CCS

The selected low-carbon options all face a competitiveness challenge. The costs of production of bio‑based plastics1 were estimated to be at least 2.5 times higher than those of their fossil fuel counterparts. For ethylene, production costs were assessed to be up to 20% higher when equipped with carbon capture, compared to a case without carbon capture. As evidenced by the economic assessments, various instruments can enhance their economic viability. However, they do not have the same potential to bridge the competitiveness gap. They must therefore be carefully selected and prioritised for implementation.

The most impactful instruments are specific to each low-carbon option, highlighting the need for a tailored approach. Overall, the instruments acting on Operating Expenses (OPEX) tend to be more impactful than the instruments acting on Capital Expenditures (CAPEX). Focusing on investment only is not sufficient to address the major concern of competitiveness raised by government and industry stakeholders.

A combination of instruments is needed to address the competitiveness gap. In most cases, the gap could not be closed by using a single instrument, or doing so would require a fundamental shift in how the instrument is currently deployed. A mix of instruments – such as carbon pricing, green premium, concessional loans and CAPEX grants – is needed to strengthen business cases.

Beyond financial instruments, building enabling conditions is equally important. In some cases, even a combination of instruments may not fully close the competitiveness gap. Therefore, policy measures – including on the demand side – and regulatory frameworks must also be developed to incentivise investments, enhance the effectiveness of financial instruments and enable the deployment of these low-carbon options.

Investments in bioplastics can be accelerated by building on existing regulations, policies and instruments

Investments in bioethanol to bio-ethylene projects could be fostered by amending existing regulations. Bio-ethylene competitiveness is currently hindered by the excise tax on domestically produced ethanol and by import duties. Therefore, Thailand’s Ministerial Regulation Prescribing the Excise Tax Tariff (No. 2), B.E. 2560 and its relevant notifications would need to be amended to allow a zero-tax rate for bioethanol use in the bioplastics industry. Likewise, Customs Tariff Decree (No.7) B.E. 2564 would need to be amended to allow a custom duty exemption for imported bioethanol used in the bioplastics industry. Moreover, subsidies provided for biofuels under the Oil Fuel Fund Act could be reconsidered to cover the use of bioethanol for industrial applications. Finally, there is a need to amend the Ministerial Regulation on the Licensing of Alcohol Production to allow domestically produced bioethanol to be sold and used for the bioplastics industry.

Carbon pricing and a plastic pollution fee could improve the competitiveness of bio-based and biodegradable plastics. Accelerating the implementation of the Emissions Trading Scheme (ETS) is thus crucial, ensuring that the petrochemical sector is covered among the manufacturing industries. In addition, a plastic pollution fee (or tax) would be a key instrument to reduce the competitiveness gap for bio-based and biodegradable plastics.

Bioplastic industrial projects could benefit from strong domestic capital markets, as well as from international assistance. Domestic commercial banks have developed a broad range of financing instruments – including concessional loans or bonds – to support investments in sustainable projects. These instruments could be leveraged to cover bioplastics and could be fostered by the implementation of the Thailand Taxonomy. Thailand could also tap into international financial and technical assistance for which bioplastics projects are eligible.

Demand for bioplastics can be stimulated by expanding and enforcing existing policies. The economic assessments indicate that supply-side instruments alone may not be sufficient to meaningfully narrow the competitiveness gap. Demand-side measures are therefore essential to drive the adoption of bioplastics. Thailand can build on several existing policies to stimulate demand for bioplastics, by expanding the “Green Tax Expense”, as well as by enforcing Green Public Procurement (GPP) regulations and bans on Single Use Plastics (SUPs). Introducing mandates on bio-based content would further support demand creation and provide a long-term vision for bioplastic production. Implementing such policies will require streamlining existing bioplastic labelling schemes and developing a methodology for bioplastics’ GHG emissions accounting, supported by a Measurement, Reporting and Verification (MRV) system.

The adoption of bioplastics requires a broader enabling ecosystem. Sustaining an increased demand for bioplastics needs to be supported by a biomass feedstock supply strategy that: i) ensures the expansion of bio-based industries does not lead to adverse environmental and social impacts (such as competition with food production or land use pressures) and supports community engagement; and ii) maintains sufficient feedstock supply despite competing interests for biomass use beyond bioplastics (e.g. for energy, food, or biofuels). Downstream in the value chain, the deployment of industrial composting facilities is essential to ensure the benefits of bioplastics in terms of reducing GHG emissions and plastic pollution.

Scaling-up CCS requires further foundational efforts and targeted instruments

Foundational actions are needed to support CCS deployment at scale. On governance, appointing a single lead government agency for CCS planning would help ensure co-ordination and policy consistency across Ministries. Furthermore, there is a crucial need to develop a comprehensive legal and regulatory framework covering the full CCS value chain. This includes amending existing regulations, notably the Petroleum Act, which need to be complemented by dedicated CCS regulations (covering different dimensions such as environmental, safety, ownership and public acceptance). On infrastructure, exploration activities need to be conducted to ensure a comprehensive CO₂ storage evaluation, facilitated by unlocking existing regulatory barriers. Such dimensions include environmental and safety considerations, ownership or liabilities. In addition, it is important to consider land-use planning and community engagement to ensure public acceptance

Instruments that monetise CO₂ emissions should be prioritised. The economic assessments showed that instruments that give a value to CO₂ (emitted or avoided) have the potential to close the competitiveness gap. Accelerating the implementation of the ETS under the Climate Change Act is thus crucial, ensuring that the petrochemical sector is covered, and that CCS is formally recognised as a mitigation measure. Likewise, Thailand’s Voluntary Carbon Markets (VCM) would need to be further strengthened to address structural challenges hampering its growth, such as expiration dates for carbon credits or promoting trading of domestic carbon credits in the international market. To ensure transparency and measurable progress in emission reductions, this would need to be supported by a MRV system.

As carbon markets mature, early-stage CCS development will require targeted and time-bound government support. Instruments such as Carbon Contracts for Difference (CCfDs) can ensure that there is a stable, predictable carbon price going forward. Regarding infrastructure, developing a business model dedicated to CO₂ transport and storage (T&S) – such as a Regulated Asset Base (RAB) model – will be critical. International experiences show that early stage of CCS development requires time-bound government support to develop such instruments. Revenue recycling mechanisms envisioned under the Climate Change Fund could be used for providing such support.

CCS projects could benefit from strong domestic capital markets and international assistance. Domestic commercial banks have developed a broad range of financing instruments – including concessional loans or bonds – for sustainable projects. These instruments could be leveraged to cover CCS projects and could be fostered by the implementation of the Thailand Taxonomy. Moreover, Thailand could tap into international financial and technical assistance focusing on industry decarbonisation to support CCS projects.

Implementing these recommendations can contribute to the development of CCS in general, well beyond the petrochemical sector. Competitiveness, infrastructure or regulatory framework development are challenges pertaining to the whole CCS value chain. Implementing the foundational actions and instruments mentioned above would not only support projects in the Map Ta Phut cluster within the Eastern Economic Corridor (EEC) but also benefit the entire CCS value chain and other sectors that could adopt CCS.

Alignment between decarbonisation policies and policies aiming to eliminate plastic pollution needs to be strengthened.

Plastic GHG emissions reduction and pollution control are two interlinked issues. Therefore, decarbonisation policies need to be aligned with policies aiming to eliminate plastic pollution. From the perspective of the Framework implementation, the three selected low-carbon options are meant to reduce CO₂ emissions from fossil fuel-based plastic production. However, Thailand’s policy choices for curbing plastic pollution may drive the choice and the design of some of the recommendations provided in this report (e.g. demand side policies, target for bioplastic production, plastic pollution fee…).

Given these linkages, Thailand could develop a roadmap that encompasses both decarbonisation and plastic pollution reduction objectives. This roadmap would strengthen policy coherence between these two objectives and would help: i) clarify which types of plastics can support both objectives; ii) prioritise decarbonisation options that also contribute to reducing plastic pollution; and iii) identify potential synergies and trade-offs when developing policies for reducing GHG emissions and for reducing plastic pollution. By addressing different sustainability dimensions, this approach would ensure a comprehensive and integrated implementation of the BCG Economy Model to the plastic value chain.

Note

← 1.  The term “bioplastics” used in this executive summary and in chapters 2 to 6 is used for ease of reading. It refers specifically to the bio-based plastics derived from option No. 1 (bioethanol to bio‑ethylene) and option No. 2 (bio-based and biodegradable plastics) covered in this report. The broader definition of bioplastics is provided in Annex C.