In face of escalating climate changes and challenges, financial sector, as an allocator of capital, is undergoing a transformation through policies and tools to help businesses and households adapt to climate change in timely manner. Taxonomy is one of the critical tool to classify activities, assets, and income proportions that align with key sustainability objectives and conditions. It aims to ensure each sector has a common definition of environmentally-friendly activities, serving as a reference point for guiding policy formulation, strategy development, and risk assessment for businesses’ future adaptation.
Following the Thailand Taxonomy Phased I, released in June 2023 which aimed at reducing greenhouse gas emissions of the activities in the energy and transportation sectors, the Thailand Taxonomy Board commenced meetings to initiate the development of Thailand Taxonomy Phase II in February 2024. This phase expands the coverage to additional key economic sectors, including manufacturing, agriculture, waste management, and construction. It continues to focus on objectives related to climate change mitigation as in Phase I. The development of criteria will take country’s context and interoperability into account.
To help conceptualise the Thailand Taxonomy in this near future, this article will be sharing the overview of how the Phase II will potentially be developed by each sector as follow.
- Manufacturing
The sector is recognized as the hardest to abate sector with its high levels of greenhouse gas emission and substantial costs in adopting greenhouse gas reduction technologies in production processes. The coverage in this sector is expected to consider the country’s policies, and international climate obligations and measures.
Existing green taxonomies, such as the EU Taxonomy, Singapore-Asia Taxonomy, and CBI Taxonomy, encompass heavy industries with significant greenhouse gas emissions and face challenges in emission reduction, as well as enabling activities that facilitate emission reduction. Listing activities and their metrics/thresholds are contingent upon taxonomy’s approach and country’s context.
The focus in this phase will be on developing criteria and metrics to support the transition of Thai industries towards more environmentally friendly practices. In the meantime, businesses can refer to internationally recognized Taxonomy as guidelines for internalizing taxonomy-aligned activities into usual practice.
- Agriculture
Agriculture sector in Thailand faces significant vulnerability to climate change. When it comes to greenhouse gases, agriculture ranks second in Thailand, contributing to 15.23% of the nation’s total emissions.
While current agricultural Taxonomies often categorize perennial crops, annual crops, and livestock without specifying plant or animal breeds, there’s a growing trend among countries with substantial agricultural sectors to define specific activities and criteria for key economic crops. The development of Thailand Taxonomy Phase II is expected to employ both horizontal and specific criteria, especially rice, rubber, and sugarcane as key economic crops.
Also, there is a potential to extend the coverage to include significant aquaculture and climate change adaptation which could be prioritized to prevent future damage and loss.
- Waste Management
The waste management sector plays a significant role in mitigating greenhouse gas emissions and supporting the circular economy. Thailand faces challenges in managing municipal waste improperly disposed of and numerous unregulated waste disposal sites, including incinerators without air pollution control system and open burning sites nationwide.
The focus of Thailand Taxonomy Phase II is on aligning activities with the definition of waste defined in Enhancement and Conservation of National Environmental Quality Act B.E. 2535 and in line with international standards. This includes non-hazardous waste collection and transportation, biowaste treatment: composting and anaerobic digestion, and waste-to-energy from non-recyclable waste, and material recovery facilities. Additionally, activities like wastewater treatment plants and desalination systems are crucial components in this comprehensive framework.
- Construction and Real Estate
The variation in environmentally friendly building standards across the globe poses a significant challenge in developing criteria for the taxonomies in this sector. In recent years, taxonomies have been developed to address the challenge of standard comparison by delineating a list of referenceable standards.
The Singapore-Asia Taxonomy specifies reference to standards certified by the Climate Bonds Initiative, covering various activities such as construction of new buildings, renovation and retrofitting of existing buildings, acquisition or ownership of buildings, and the installation, maintenance, and repair of energy-efficient equipment and renewable energy systems. Consequently, the Thailand Taxonomy Phase 2 can consider adopting similar methodologies to develop a list of activities, criteria, and metrics aimed at reducing discrepancies among standards.
The Thailand Taxonomy Board expects to schedule a public consultation to solicit feedback on the draft of Thailand Taxonomy Phase II from various stakeholders, during the fourth quarter of 2024, with a targeted release in the subsequent year.
In the meantime, businesses across the mentioned four major economic sectors, should closely monitor the ongoing development of its scope and criteria. This can be efficiently achieved through active engagement with industry associations or pertinent government bodies. In addition, it’s imperative to stay informed not only about the upcoming Thailand Taxonomy Phase 2 but also other related policies or regulations, such as the draft Climate Change Act B.E. … which currently opens for public consultation. Such proactive involvement will facilitate a comprehensive assessment of potential impacts and enable businesses to adequately prepare for necessary adjustments in production processes and data collection for greater financing accessibility or preparing for future disclosure and reports.
The article is written by Dr. Bordin Vongvitayapirom, Senior Manager, Sustainability & Climate COE and contributed by Thanida Lawseriwanich, Assistant Manager, Sustainability & Climate COE, Deloitte Thailand
