According to statistics from the United Nations, Vietnam ranks fifth among countries generating carbon credits. How do you evaluate the potential of the carbon credit market in Vietnam today and its operating mechanism?
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| Nguyen Dinh Tho, general director of the Institute of Strategy and Policy on Natural Resources and Environment |
The carbon credit market is a trading system that allows organisations to buy and sell greenhouse gas (GHG) emission rights, specifically CO2. It consists of compliance market and voluntary market. In countries around the world, the market has evolved starting from the compliance market.
In the EU and other developed countries, the carbon credit market has been established since 2005 and officially put into operation in 2007.
The compliance market requires large emitters to engage in technology exchange and control, as well as to pay taxes or purchase quotas, carbon credits if emissions exceed the allocated limits. Nearly 30 countries and territories have currently implemented carbon taxes ranging from $1 to around $140 per tonne of carbon.
Meanwhile, the voluntary carbon market typically relies on contracts, bilateral or multilateral cooperation agreements between organisations, companies, or countries. Therefore, the price of such credits is also regulated by the market.
Vietnam is following the same path to the rest of the world, but in addition to the compliance market, we also have a voluntary market.
In the forestry and agriculture sectors, Vietnam still has the opportunity to tap into the voluntary carbon credit market. With three-quarters of Vietnam’s land covered by mountains and hills and a forest cover rate of 42-43 per cent, Vietnam has a great opportunity to develop forestry credits, but the market size may not be as large as forested countries like Brazil.
In 2023, Vietnam successfully sold 10.3 million forest carbon credits through the World Bank at a price of $5 per tonne, generating $51.5 million in revenue. Currently, Vietnam is implementing a project involving one million hectares of low-emission rice fields and has the opportunity to sell credits for rice emissions.
The market can operate effectively depending on the government’s policies, the connectivity between the compliance market and the voluntary market within the country, with bilateral countries, within the ASEAN region, across Asia, and on a global scale.
Failure to connect the voluntary market and the compliance market will result in limited opportunities to generate and sell carbon credits. Currently, in the voluntary market, such credits are priced around $1-1.20 per credit.
What policies and directions does Vietnam need to put in place so that carbon credit trading can operate sustainably?
On the policy front, Vietnam has the Environmental Protection Law of 2020 and a decree which regulates the reduction of GHG emissions and protection of the ozone layer.
The responsibility for reporting on GHG inventory lies with businesses and large emission sources. Local authorities must collaborate with the central government to implement the national inventory. However, many businesses still believe that this is not their responsibility, and they only take action when notified by localities’ departments of natural resources and environment or the Ministry of Natural Resources and Environment.
Vietnam is currently in the process of establishing a carbon market on a trial basis during 2025-2027 and officially running in 2028. During this period, we need to develop quota allocation plans for each business and provide guidance for them to develop emission reduction plans.
On that basis, we will establish connections through implementation mechanisms and the existing Clean Development Mechanism with Japan, expanding to other countries such as South Korea, Switzerland, and New Zealand. In the ASEAN region, as well as in Asia and globally, Vietnam also needs to connect the voluntary market and compliance market with the global market.
What is the most enduring challenge for Vietnamese businesses in implementing international commitments on emission reduction?
As of August last year, over 2,100 large-emitting enterprises will have to conduct credit inventories before March. However, up to this point, only 10 per cent of businesses, mainly in the steel, cement, and thermal power sectors, are ready to conduct such inventories. The remaining 90 per cent of businesses need guidance and assistance to complete the reports on GHG inventory.
Based on this, the government will allocate quotas according to the Nationally Determined Contributions (NDCs). In the updated commitment, Vietnam has increased to reducing emissions by 15.8 per cent without international support and 43.5 per cent with international support.
New NDC measures are to be unveiled this year. According to the Paris Agreement regulations, each new or enhanced NDC should progress beyond its previous one and be as ambitious as possible, meaning that Vietnamese businesses, if receiving international support, will have to reduce emissions by 43.5 per cent and must develop emission reduction plans in the near future.
Additionally, the implementation of environmental, social, and governance (ESG) reporting alone has cost textile and garment businesses around $10 million in the past. This will be a significant expense if businesses overlook climate finance, carbon finance, and carbon credit markets.
Vietnam will operate a carbon credit trading platform and connect the domestic market with the international market by 2028. What should the country do to ensure this?
Vietnam has been on a long preparation path since 1992 when the United Nations Framework Convention on Climate Change was established, along with all three pillars of sustainable development related to the economy, society, and environment, as well as the Kyoto Protocol in 1997.
At COP29, countries reached an agreement to support developing countries with $300 billion per year for climate finance, aiming to reach $1.3 trillion per year by 2035. This source is an opportunity for Vietnamese businesses to fulfill their responsibility in green transformation, transition to clean energy, and support the transition process.
If businesses do not know how to access climate finance support, they have to bear all the costs incurred for energy and technology conversion to comply with the requirements of developed markets such as the European Union. Conversely, the entire investment in clean energy and green technology will be offset by the carbon credits they receive. Therefore, raising awareness, education, and communication are crucial to enhance the understanding of large emission businesses.
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