It is expected that in the future, each year Vietnam will have about 10.8 million voluntary carbon credit provided, accompanied by a large exchange and purchase demand. The formation of a carbon market helps our country seize opportunities in effectively reducing carbon emissions, increasing compatibility with international carbon pricing mechanisms.
Overview
Vietnam carbon market is planned to be piloted from 2025 to 2027, and officially operate from 2028. The domestic carbon market operates under a “cap and trade” mechanism, wherein the primary participants are greenhouse gas (“GHG”) emitting establishments. These participants engage in transactions that involve the exchange of reduced GHG quantities, manifested in two forms: GHG Emission Quotas and Carbon Credits. Moreover, the carbon market and its associated compliance requirements are believed to have an impact on the business activities of enterprises in various aspects. Additionally, it has the potential to create a new avenue for revenue generation, particularly for enterprises operating in green industries. Furthermore, this presents an opportunity for businesses to align their operations with sustainable practices and contribute to environmental conservation.
Vietnam has taken significant steps to fulfill its commitments under the Paris Agreement and the COP 26 Conference by issuing various legal documents to implement climate change mitigation and adaptation measures. One key aspect of this effort is the establishment and growth of the domestic carbon market. The direction for building this market is primarily outlined in two important legal documents: the 2020 Law on Environment Protection and the guiding Decree No. 06/2022/ND-CP.
Overall, Vietnam’s carbon market focuses on three main elements: the participants, the entities subject to regulation, and the operational mechanisms.
Participants
(i) Emitting Establishments include emitting establishments in certain specific sectors and GHG emitting establishments which are subject to emission inventory.
(ii) Organisations engaged in the domestic and international carbon credit exchange and offset mechanism are also participants in the carbon market.
(iii) Other relevant organisations and individuals are also part of the carbon market.
An establishment is considered an Emitting Establishment when it meets certain criteria. For example, if the establishment has annual GHG emissions of 3000 metric tons of CO2 equivalent or more, or falls into the following categories:
(i) Thermal power plants and industrial production facilities with a total annual energy consumption of 1000 tons of oil equivalent (TOE) or more.
(ii) Cargo transportation companies with a total annual fuel consumption of 1000 TOE or more.
(iii) Commercial buildings with a total annual energy consumption of 1000 TOE or more.
(iv) Solid waste treatment facilities with an annual operating capacity of 65000 tons or more.
Furthermore, every two years, the Prime Minister will update the list of specific sectors and establishments subject to GHG inventory based on the criteria mentioned above, in order to further identify Emitting Establishments.
Regulated objects
The carbon market exchanges objects that consist of reduced GHG emissions. These emissions are expressed in two forms: GHG Emission Quotas and Carbon Credits. GHG Emissions include atmospheric gases such as carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O), as well as low-concentration yet potent GHG like hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3). Moreover, GHG emission quotas indicate the allowable quantity of GHG emissions that a nation, organization, or individual can release during a specific period. In addition, the measurement of these quotas is in metric tons of CO2 or its equivalents. Furthermore, they establish the limits of GHG emissions to mitigate environmental impact.
A Carbon Credit is a commercially tradable certificate that represents the right to emit one tonne of carbon dioxide (CO2) or equivalent. Specifically, programs and projects under the mechanism of exchange and offset allow the acquisition of Carbon Credits. Furthermore, it is possible to convert these credits into clearing units for GHG Emission Quotas on the trading floor. Additionally, it is important to note that one (1) Carbon Credit is equivalent to one (1) tonne of CO2 equivalent.
The implementation of the carbon market and its effect on businesses
Experts say that the establishment of a carbon credit market is an important orientation for Vietnam to achieve net zero emissions by 2050. Vietnam is a potential development market in the world, however, to mobilize FDI capital, Vietnamese enterprises and supply chains must move towards a green and sustainable direction. Following the trend of implementing Net Zero goal, the demand for voluntary carbon credits in the world is increasing recently, and Vietnam is no exception to that trend. Mostly through a pre-purchase contract, the party in need will place an order for the implementation of carbon credit projects in Vietnam. Currently, there are no issued credits available for trading on the exchange.
Decree 06 has outlined a timeline for the development of Vietnam’s domestic carbon market.
They will begin implementing a pilot carbon credit exchange in 2025. By the end of 2027, they will establish regulations on carbon credit management, GHG emission quotas, and carbon credit exchange. From 2028 onwards, the carbon credit exchange will officially operate, with regulations in place to connect the domestic market with regional and global carbon markets.
Enterprises, particularly those with carbon credits from green projects, anticipate an array of opportunities arising from the carbon market. It will create avenues for revenue generation through trading GHG Emission Quotas or Carbon Credits. Vietnam’s stable legal framework has the potential to attract foreign investors, leading to increased investments in sectors like renewable energy, clean fuels, and eco-friendly industries.
However, the establishment of the domestic carbon market also presents challenges for businesses. It will restrict productivity based on emission quotas, increase compliance costs, and put pressure on technological transformations. This could potentially impact the competitiveness of enterprises.
Conclusion
In fact, the number of carbon credits in Vietnam is higher than 40 million, including types such as forests, sea, renewable energy, energy saving… all generate carbon credits. Currently, carbon emissions in Vietnam are higher than in many countries around the world, so in order to reduce emissions, the demand for carbon absorption in Vietnam is also very high. In Vietnam, the domestic carbon market includes activities of exchanging greenhouse gas emission quotas and carbon credits obtained from the domestic and international carbon credit exchange and clearing mechanism in accordance with the provisions of law and international treaties to which Vietnam is a member. According to the Environmental Protection Law 2020, a carbon credit is a certificate that is commercially tradable and represents the right to emit one ton of CO2 or one ton of CO2 equivalent.
The fact that countries, including Vietnam, make greenhouse gas reductions in line with previous climate commitments and especially the goal of reducing net emissions to “zero” by 2050 according to the general agreement at the Association of Southeast Asian Nations (ASEAN). The Conference of the Parties to the 26th United Nations Framework Convention on Climate Change (COP26) has established a carbon market in which countries sell or purchase excess emissions rights from countries that exceed or fall short of their committed targets.
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