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

Annex G. Techno-economic model and sensitivity analyses to financial solutions

Key features of the techno-economic model

The OECD has developed a techno-economic tool based on Microsoft Excel^® to carry out the techno-economic assessments. LCOP calculations are conducted through the modelling of engineering, environmental, economic and financial features of each low-carbon and fossil fuel-based option assessed. For each option, this implies the following steps (Figure A G.1):

• The research and compilation of technical data1 (e.g. on plant operation, products, raw materials, energy sources…) involved in the industrial production processes,

• The research and compilation of economic and financial data (e.g. market prices of products, CAPEX, cost of debt, corporate income tax…),

• The modelling and computation of the materials and energy flows of the industrial processes,

• The modelling of a financial module featuring simplified income statement. Both technical, economic and financial data are processed to compute financial cash flows, ultimately providing insights on business revenues, expenses and profits,

• The modelling and computation of discounted cash flows, net present value (NPV) and LCOP.

• The modelling of financial instruments tested to conduct sensitivity analyses (e.g. concessional finance parameters, economic and financing instruments…).

It is important to note that the model aims to provide a high-level estimate of LCOP rather than a specific assessment to a given project. Therefore, the results should be interpreted and used with the objective to understand the structure, the key drivers and the order of magnitude of the LCOP, as well as how instruments compare to each other to close the competitiveness gap.

Figure A G.1. Overview of the key features and modules of the techno-economic model

Note: FCF: Free Cash Flows, IRR: Internal Rate of Return, EBITDA: Earnings before interest, taxes, depreciation and amortisation.

Option No. 1 (bioethanol to bio-ethylene): reference case and sensitivity analyses

Reference case

Some of the key assumptions of the economic assessments for bio-ethylene are presented in Table A G.1, noting that other data were obtained from industrial stakeholders’ consultations and cannot be publicly disclosed.

Table A G.1. Key assumptions for the economic assessments (reference scenario) – Option No. 1

Parameter	Value
Bio-ethylene production capacity	200 kt/year
Project lifetime	30 years
Bioethanol price (domestic)	USD 0.69 /L
Tax on bioethanol for industrial use	THB 6 /L (USD 0.18 /L)
Import duties on bioethanol	No (domestic)
CAPEX	USD 526 million
WACC	15%
CIT	20%
CIT exemption	Yes (as per Table A C.1)
Carbon price	No

Source: Data based on stakeholder consultations, (Suratman, 2024[1]; The Revenue Department, n.d.[2]; Krungsri, n.d.[3])

Excise tax and import duties on bioethanol

Under the Ministerial Regulation on the Licensing of Alcohol Production, B.E. 2560 (2017) and the Ministerial Regulation Prescribing the Excise Tax Tariff (No. 2) B.E. 2560 (2017), ethanol (including bioethanol) produced domestically in Thailand is taxed a rate of THB 6 /L. Removing this excise tax could reduce the competitiveness gap by 20% compared to the reference case (Figure A G.2).

Under the Customs Tariff Decree (No.7) B.E. 2564 (2021), any ethanol (including bioethanol) imported into Thailand faces a custom duty of THB 80 /L. Considering 100% imported bioethanol more than triples the competitiveness gap compared to the reference case (100% domestic bioethanol).

In practice, bio-ethylene manufacturing companies may source their bioethanol both domestically and from abroad. The share of domestic versus imported bioethanol may be driven by several factors such as i) maintaining feedstock supply stability to ensure constant production, and ii) achieving a certain quality standard of bioethanol. Thus, the LCOP of the bio-ethylene manufactured under Thailand’s existing excise tax and import duties is expected to range between USD 2.84 (all domestic production) – 7.41 /kg (all imported), depending on the amount of bioethanol that is imported. Removing the import duties would prevent the competitiveness gap from widening any further. However, there would be less incentives for biopolyethylene manufacturers to use domestic bioethanol purely based on the price of bioethanol and not considering other factors (e.g. logistics, local sourcing).

Figure A G.2. Impact of excise tax and import duties on bioethanol on bio-ethylene LCOP

Subsidies on bioethanol price

Bioethanol prices in Thailand before any taxes can vary and are higher compared to prices in Brazil and the United States. The LCOP of bio-ethylene is evaluated at different bioethanol prices in Thailand, Brazil and the United States2. It should be noted that differences in bioethanol prices across countries may also reflect differences in the type of biomass feedstock used (e.g. corn, sugarcane), as well as in sustainability standards on biomass management and use. Figure A G.2 illustrates how the competitiveness gap of bio-ethylene changes depending on the price of bioethanol. While lower prices of bioethanol can significantly reduce the competitiveness gap (up to 50%), it is still not sufficient to fully close it.

Providing subsidies on bioethanol price would have the same effect: in practice, subsidies would lower the purchasing price of bioethanol for the bio-ethylene manufacturer. Therefore, the impact of such subsidies directly refers to Figure A G.3, where considering the lower boundary for bioethanol price in Thailand can reduce the competitiveness gap by around 20% compared to the reference case. This would correspond to a subsidy of USD 0.2 /L, namely 30% of the bioethanol price of the reference case.

Figure A G.3. Impact of bioethanol price on the competitiveness gap

Carbon price

Whether through a carbon tax or an ETS, carbon pricing can reduce the competitiveness gap by increasing the LCOP of fossil fuel-based ethylene. Values ranging from 0 (reference case) up to USD 120 /tCO₂ are tested, resulting however in a limited impact on the competitiveness gap. Even when considering a high carbon price of USD 120 /tonne CO₂, the competitiveness gap is only reduced by 8% compared to the reference case.

Figure A G.4. Impact of carbon price on the competitiveness gap

Carbon credits

The lower cradle-to-gate GHG emissions of bio-ethylene (compared to fossil fuel-based ethylene) could be valued to generate additional revenues. Indeed, the quantity of GHG emissions avoided could be sold as carbon credits. For easing comparison across the sensitivity analyses, these additional revenues are modelled as a reduction in LCOP. Selling carbon credits from bio-ethylene production shows some effectiveness in reducing the competitiveness gap. At the highest carbon credit value considered (USD 120/tonne CO₂ avoided), the competitiveness gap is reduced by 15% compared to the reference case.

Figure A G.5. Impact of carbon credits on the competitiveness gap

CAPEX grant

Providing subsidies through CAPEX grant lower the level of investment required by the manufacturer for the bio-ethylene production facility. Mirroring the bio-ethylene LCOP breakdown, CAPEX support shows a limited effect in reducing the LCOP and the competitiveness gap. At the highest share of CAPEX grant considered (25% of total investment), the competitiveness gap is only reduced by 7% compared to the reference case.

Figure A G.6. Impact of CAPEX grant on the competitiveness gap

WACC

The use of instruments resulting in decreasing the cost of capital is analysed through the lens of the WACC. This analysis is intended to reflect the effect of any financing or de-risking instruments that would result in lowering the WACC. It covers for instance the use of concessional loans (namely loans at below-market interest rates) or guarantees (which would reduce the risks perceived for implementing the project). WACCs ranging from 8% to 15% are tested, highlighting a quite limited effect on the competitiveness gap. A reduction of seven percentage points in the WACC could lower the competitiveness gap by only around 10%.

Figure A G.7. Impact of the WACC on the competitiveness gap

Corporate income tax exemption

Both the Thailand BOI and EEC offer CIT exemption for bioplastic production projects. The reference case already includes the CIT exemption since this is what is currently provided to companies that manufacture bio-ethylene in Thailand. To assess the effect of this measure, a case without CIT exemption is modelled. However, whether the CIT exemption is considered or not, there is no impact on the project's profitability. Indeed, the bio-ethylene manufacturing project alone is at a financial loss, namely the company does not have to pay CIT anyway. It may be however possible that CIT exemption offers benefits to companies when considering a portfolio of projects that generates profits (at the portfolio level and bio-ethylene production is just one of the projects). Furthermore, although the CIT exemption does not impact the competitiveness gap, it may help stimulate investments for option No. 1 by demonstrating government commitment to support such projects. As it is modelled, the CIT exemption is not decisive for option No. 1, as it only reinforces the competitiveness of already economically viable projects. In conclusion, while CIT exemption can incentivise investments, it is not the driving force behind project’s economic viability, nor competitiveness.

Option No. 2 (PLA, PBS, TPS): reference case and sensitivity analyses

Reference case

Some of the key assumptions of the economic assessments are presented in Table A G.2, noting that other data were obtained from industrial stakeholders’ consultations and cannot be publicly disclosed.

Table A G.2. Key assumptions for the economic assessments (reference scenario) - Option No. 2

Parameter	PLA	PBS	TPS	PET (fossil-fuel based benchmark)
Production capacity	75 kt/year	20 kt/year	Confidential	242 kt/year
Project lifetime	30 years	30 years	20 years	30 years
Key inputs price	Lactic acid USD 1.25 /kg	1.4 butanediol (BDO) USD 1.05 /kg Succinic acid (SA) USD 0.5 /kg	Starch USD 0.43 /kg Glycerol USD 1.04 /kg	Confidential
CAPEX	USD 552 million	USD 214 million	Confidential	Confidential
WACC	15%			11%
CIT	20%
CIT exemption	Yes (as per Table A C.1)			No
Carbon price	No

Note: Data marked as confidential have been collected through stakeholder consultation.

Source: Data based on stakeholders consultations, (TotalEnergies Corbion, 2018[4]; The Revenue Department, n.d.[2]; PTT MCC Biochem, 2022[5]; Kerdlap and Baker, 2023[6]; Thai Tapioca Starch Association, n.d.[7]; Krungsri, 2023[8]; Business Analytiq, n.d.[9])

Subsidies on lactic acid (PLA)

For PLA, lactic acid makes up a major share of the LCOP. Similarly to option No. 1, the impact of subsidies is analysed through different lactic acid prices. The lactic acid price range analysed spans from the reference case price to the lowest price recorded in Thailand over the past 6 years. When considering a 15% reduction in lactic acid price (which would correspond to a subsidy of USD 0.2 /kg), the competitiveness gap decreases by around 12%.

Figure A G.8. Impact of different lactic acid prices on the competitiveness gap (PLA)

Carbon price

Whether through a carbon tax or an ETS, carbon pricing can reduce the competitiveness gap by increasing the LCOP of PET. Values ranging from 0 (reference case) up to USD 120 /tCO₂ are tested, highlighting different impacts on the competitiveness gap depending on the resin considered. When considering a carbon price of USD 120 /tonne CO₂, the competitiveness gap can be reduced by 7% (PBS) to 18% (PLA and TPS) compared to the reference case.

Figure A G.9. Impact of carbon price on the competitiveness gap

Carbon credits

Similarly to option No. 1, the quantity of GHG emissions avoided through the production of PLA, PBS and TPS (compare to PET) could be sold as carbon credits (or valued through carbon incentives). At the highest carbon credit value considered (USD 120 /tonne CO₂ avoided), the competitiveness gap is reduced between 9% (PBS) and 15% (TPS) compared to the reference case.

Figure A G.10. Impact of carbon credits on the competitiveness gap

Plastic pollution fee / tax on plastic

The United Nations Environment Assembly (UNEA) has mandated the negotiation of an international legally binding instrument to end plastic pollution, also known as the Global Plastics Treaty. Various countries have proposed to incorporate a Global Plastic Pollution Fee (GPPF), which would provide economic incentives and funding to implement the treaty. This fee would primarily be applied to entities responsible for producing, importing, or using plastic materials, especially those that contribute to plastic pollution. To help address plastic pollution, some countries and regions (such as the UK or the EU) are also introducing taxes or fees on non-recycled plastics. To reflect the use of such instruments, sensitivity analyses are conducted to assess the impact of applying a fee to virgin PET. Values are tested up to USD 1000 /tonne, which is aligned with the order of magnitude of plastic taxes considered by 2030 in the scenarios of the OECD Global Plastic Outlook, as well as in the EU tax on non-recycled plastic packaging waste (EUR 800 /tonne) (OECD, 2022[10]; European Commission, n.d.[11]). The fee considerably impacts the LCOP of PET, increasing the LCOP by 80% when applying a fee of USD 1000 /tonne. At the highest value considered (USD 1000 /tonne), the competitiveness gap is reduced between 20% (for TPS) and around 45% (for PLA) compared to the reference case. It should be however noted that these results assume that the fee only applies to fossil-fuel based plastics and not to all types of plastics (including the bio-based and biodegradable plastics). The scope to which the plastic pollution fee is applied is a critical aspect, as it can either support or hamper the development of option No. 2 (aspect further discussed in chapter 4).

Figure A G.11. Impact of a plastic pollution fee on the competitiveness gap

Green premium

PLA and PBS resin sale market prices are currently significantly higher than fossil-fuel based plastic resins such as PET. This constitutes a green premium providing additional revenues, compared to PET. For easing comparison across the sensitivity analyses, these additional revenues are modelled as a reduction in LCOP. With a reduction of more than 50% in the competitiveness gap (around 50% for PLA and 75% for PBS), the results strongly highlight that stimulating demand for bio-based and biodegradable plastics is crucial.

Figure A G.12. Impact of a green premium on the competitiveness gap

CAPEX grant

CAPEX support shows a quite limited effect in reducing the LCOP and the competitiveness gap. At the highest share of CAPEX grant considered (25%), the competitiveness gap is reduced between 3% (for TPS) and 16% (for PLA) compared to the reference case.

Figure A G.13. Impact of CAPEX grant on the competitiveness gap

WACC

The use of instruments resulting in decreasing the cost of capital is analysed through the lens of the WACC. This analysis is intended to reflect the effect of any financing or de-risking instruments that would result in lowering the WACC. It covers for instance the use of concessional loans (namely loans at below-market interest rates) or guarantees (which would reduce the risks perceived for implementing the project). WACCs ranging from 8% to 15% are tested, highlighting different effects on the competitiveness gap depending on the resin considered. A reduction of seven percentage points in the WACC could lower the competitiveness gap between 5% (for TPS) and around 20% (for PLA).

Figure A G.14. Impact of the WACC on the competitiveness gap

Corporate income tax exemption

Similarly to option No. 1, the reference case already includes the CIT exemption since this is what is currently provided to companies that manufacture PLA, PBS or TPS in Thailand. The effects and impact of considering a CIT or not are the same as for option No. 1: there is no impact on the project's profitability, as the PLA, PBS or TPS production project is at a financial loss (namely the company does not have to pay CIT anyway). As it is modelled, the CIT exemption is not decisive for option No. 2, as it only reinforces the competitiveness of already economically viable projects. As for option No. 1, while CIT exemption can incentivise investments, it is not the driving force behind project’s economic viability, nor competitiveness.

Option No. 3 (CCS): reference case and sensitivity analyses

Reference case

Some of the key assumptions of the economic assessments are presented in Table A G.3, noting that other data were obtained from industrial stakeholders’ consultations and cannot be publicly disclosed.

Table A G.3. Key assumptions for the economic assessments (reference scenario) – Option No. 3

Parameter	Value
	Ethane-based steam cracker	Naphtha-based steam cracker
Production capacity	Confidential	Confidential
Capacity factor	Confidential	Confidential
Ethylene yield	80%	30%
Propylene yield	< 2%	15%
Butadiene yield	< 2%	5%
Aromatics yields	-	12%
Feedstock (ethane or naphtha) input	1.2 t/t ethylene	3.3 t/t ethylene
Naphtha price	-	USD 680 /t
Ethane price	USD 230 /t	-
Natural gas price	USD 0.33 /m3
Electricity price	USD 90 /MWh
Ethylene price	USD 956 /t
Propylene price	USD 855 /t
Butadiene price	USD 1470 /t
Aromatics price	-	Benzene USD 1009 /t, P-xylene USD 984 /t, Toluene USD 884 /t
Direct CO2 intensity	1.3 tCO2/t ethylene	1.6 tCO2/t ethylene
CAPEX of the CO2 capture system	USD 200 million /Mt CO2 captured capacity
CO2 capture system Project lifetime	20 years
Additional firing duty due to the CO2 capture system and additional electricity for CO2 compression	Confidential
Additional CO2 emitted due to the capture system (direct emissions)	15%
CO2 capture rate	90%
WACC	11%
CIT	20%
Carbon price	No

Note: Data marked as confidential have been collected through stakeholder consultation.

Source: Data based on stakeholder consultations and (Hu et al., 2023[29]; IEA, 2018[33]; Ren, Patel and Blok, 2006[34]; Ren et al., 2009[35]; Thunder Said Energy, n.d.[36]; Young et al., 2022[37]; van Gijzel, 2016[38]; Gholami et al., 2021[39]; Nanthachatchavankul, Gridsdanurak and Chiarakorn, 2012[40]; Krungsri, n.d.[12]) (Lee, 2023[21]; ECHEMI, n.d.[22]; ECHEMI, n.d.[23]; Thailand Board of Investment, 2023[24]; Boulamanti and Moya, 2017[25]; Chen et al., 2024[26]; West, 2021[27]; Ma et al., 2024[28]; Suviranta, 2023[29]; Ministry of Energy, 2024[30]) (Neelis et al., 2005[31]; Chen et al., 2024[26])

Cracking furnace with PCC requires additional energy compared to a case without CO₂ capture. Additional heat is required for ensuring solvent recovery and extra electricity is needed for CO₂ compression. For instance, typical values for ensuring the regeneration of MEA can go up to 4.0 GJ/tCO₂ (Hu et al., 2023[12]; Ma et al., 2024[28]). As a result, direct CO₂ emissions from a steam cracker equipped with CO₂ capture can be increased by up to 20% compared to a case without CO₂ capture. Given the efficiency of the CO₂ capture system, this can however lead up to 90-95 % of CO₂ avoided compared to a case without CO₂ capture (Figure A G.15).

Figure A G.15. Emissions reduction of ethylene production from steam cracker with carbon capture

Note: Illustration for an ethane-based steam cracker

Subsidies on energy prices (natural gas and electricity)

Given that a steam-cracker equipped with a CO₂ capture system requires additional energy (natural gas and electricity), energy prices directly impact the competitiveness gap. Similarly to options No. 1 and 2, subsidies on input prices – here on natural gas and electricity – are tested to assess the magnitude of this impact. Variations in natural gas prices up to -35% compared to the reference case are considered. This range covers the Thailand’s Pool Gas minimum price observed over the past 5 years (respectively THB 200 corresponding to 2019/2020 levels and THB 500 corresponding to 2022 levels) (Ministry of Energy, 2024[30]).

When considering a 35% reduction in natural gas price (which would correspond to a subsidy of THB 120 /MMBtu), the competitiveness gap decreases by 10%.

Variations in electricity prices up to -30% compared to the reference case are considered, reflecting the spectrum of tariffs in Thailand for industrials including off-peak periods (Thailand Board of Investment, 2023[24]). When considering a 30% reduction in electricity price (which would correspond to a subsidy of around THB 0.9 /kWh), the competitiveness gap decreases by 5%.

Figure A G.16. Impact of different natural gas prices on the competitiveness gap

Figure A G.17. Impact of different electricity prices on the competitiveness gap

Carbon price

Carbon pricing implies additional costs for olefin production, whether with or without considering CO₂ capture. However, even if not zero, direct CO₂ emissions from a steam cracker equipped with a CO₂ capture system are significantly reduced compared to a steam cracker without CO₂ capture. Therefore, the increase in LCOP due to carbon pricing for a steam cracker equipped with a CO₂ capture system is considerably lower than for a steam cracker without CO₂ capture. The competitiveness gap is thus reduced when applying carbon pricing and can even be closed with prices of around USD 80‑95 /t CO₂ emitted.

Figure A G.18. Impact of carbon price on the competitiveness gap

Carbon incentives

Mechanisms that consist in monetising the CO₂ avoided could provide additional revenues for olefin production with CO₂ capture. Such mechanisms could include carbon credits (as for options No. 1 and 2), as well as carbon contracts for difference (CCfD, see chapter 5). As for carbon pricing, these mechanisms can significantly reduce the competitiveness gap. The gap could even be closed when considering carbon incentives of around USD 80-95 /t CO₂ avoided.

Figure A G.19. Impact of carbon incentives on the competitiveness gap

Green premium

Considering a green premium for the case with CO₂ capture reflects that the CO₂ emission reductions come at higher costs for olefin production. As for carbon incentives, the green premium applied to the selling price of the product (i.e. olefins production with CO₂ capture) would generate additional revenues. However, discussions with the stakeholder group throughout the implementation of the Framework highlighted that a green premium would be unlikely to be implemented at a large scale (i.e. customers would be little inclined to pay for a premium). Therefore, a moderate price increase of 15% on the ethylene selling price is selected for this sensitivity analysis. When considering a 50% share of sales to which the premium applies, the competitiveness gap could be reduced by up to 80%. Similarly to option No. 2, the results highlight that stimulating demand for low-emissions olefins can be a powerful lever.

Figure A G.20. Impact of a green premium on the competitiveness gap

CAPEX grant

CAPEX grant directly reduces the investment of the CO₂ capture system to be considered, nevertheless showing a quite limited effect in reducing the related LCOP and the competitiveness gap. At the highest share of CAPEX grant considered (25%), the competitiveness gap is reduced by around 10% compared to the reference case.

Figure A G.21. Impact of CAPEX grant on the competitiveness gap

WACC

Similarly to options No. 1 and 2, the use of instruments resulting in decreasing the cost of capital is analysed through the lens of the WACC (covering concessional loans or guarantees). Lower WACCs values up to 8% are tested. The impact remains quite limited compared to other instruments tested, with a maximum reduction of less than 10% in the competitiveness gap.

Figure A G.22. Impact of the WACC on the competitiveness gap

Corporate income tax exemption

Tax rebates mechanisms are tested through a corporate income tax ranging from 20% to 0% for the full lifetime of the project. In this way, the sensitivity analysis covers existing CCS related tax rebates from Thailand’s BOI, whereby petrochemical production facilities deploying CCS are granted 8-year corporate income tax exemptions (Table A C.1). This sensitivity analysis also reflects the effect of mechanisms such as tax liability offsets related to CCS that have been implemented in other countries (such as the CCUS Investment Tax Credit in Canada). It is important to note that, while tax rebates can improve the business case for CCS by improving the project NPV, they do directly act on the competitiveness gap. Therefore, it is crucial that such tax rebates are accompanied by other types of instruments to address the competitiveness gap.

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[27] West, K. (2021), Retrofit of post-combustion CO₂ capture for steam crackers using MEA solvents, https://energy.nl/data/retrofit-of-post-combustion-co2-capture-for-steam-crackers-using-mea-solvents/.

[17] Young, B. et al. (2022), “Environmental life cycle assessment of olefins and by-product hydrogen from steam cracking of natural gas liquids, naphtha, and gas oil”, Journal of Cleaner Production, Vol. 359, https://doi.org/10.1016/j.jclepro.2022.131884.

Notes

← 1.  Data (technical, economic and financial) are based on scientific literature, grey literature and industry stakeholders’ interviews.

← 2.  Prices based on stakeholder consultations and (Krungsi, 2024[32]; IRENA, n.d.[33]) (Procurement Resource, n.d.[34]).