Carbon market is considered a crucial tool for reducing greenhouse gas emissions at low costs for businesses and the society, promoting the development of low emission technologies, enhancing the competitiveness of businesses and helping Vietnam achieve its net-zero emission goal by 2050. The Scheme on development of a carbon market in Vietnam is designed to assign tasks to ministries, sectors and localities, providing specific time lines for the implementation of legal provisions on the organization and development of a domestic carbon market.
Nguyen Van Minh Department of Climate Change, Ministry of Natural Resources and Environment
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| A planted forest in Mang Yang district, Gia Lai province__Photo: VNA |
Climate change has emerged as an irreversible trend and the biggest challenge to mankind, having exerted impacts on all fields including the economy, politics, diplomacy, and global security. Each nation must take proactive measures to mitigate adverse impacts while curtailing greenhouse gas (GHG) emissions in line with their nationally determined contributions (NDC) for implementing the Paris Agreement on Climate Change, starting from 2021. The goal is to strive for a global average temperature increase of 1.5oC by the end of this century as compared to the pre-industrial era.
Vietnam submitted its NDCs to the Secretariat of the United Nations Framework Convention on Climate Change in 2015, and the first updated NDCs in 2020. At the 26th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26) at the end of 2021, Vietnam jointly committed to reduce methane gas emissions by 30 percent by 2030 as compared to the 2020 emission level. The country also joined the Global Coal to Clean Power Transition Statement, the Glasgow Leaders’ Declaration on Forests and Land Use aiming to stop and reverse the forest loss and land degeneration by 2030; and joined the Adaptation Action Coalition aiming to mobilize resources for adaptation to climate change. Particularly, Prime Minister Pham Minh Chinh declared to achieve the net-zero emission level by 2050. Concretizing these statements, Vietnam forwarded the second updated NDCs to the UNFCCC Secretariat on November 8, 2022, at the COP27 in Egypt.
Vietnam has determined that the carbon market is an effective instrument in carrying out GHG emission reduction activities, contributing to the commitment to reduce GHG emissions according to the NDCs and especially contributing to achievement of net-zero emission level in 2050.
Regulations on organization and development of carbon market in Vietnam
Having developed financial mechanisms and policies for the formation and operation of the carbon market in Vietnam, the 2020 Law on Environmental Protection institutionalized the organization and development of carbon market as an instrument to help reduce domestic GHG emissions, contributing to the realization of Vietnam’s commitments on GHG emission reduction when participating in the Paris Agreement on Climate Change. The Law provides that the domestic carbon market covers activities of exchanging GHG emission quotas and carbon credits gained from domestic and international carbon credit exchange and offset mechanisms in accordance with law and treaties to which Vietnam is a contracting party. GHG-emitting establishments must inventory greenhouse gases on the list of those entitled to emission quota allocation and may exchange and trade them on domestic carbon market.
To detail the 2020 Law on Environmental Protection regarding GHG emission reduction and ozone layer protection, the Government issued Decree 06/2022/ND-CP specifying participants in, development roadmap and implementation time for, the domestic carbon market. The decree also touches upon such matters as certification of carbon credits eligible for trading on exchanges of the domestic carbon market, and exchange of GHG emission quotas and carbon credits on such exchanges. Dossiers, order and procedures for execution of projects under the carbon credit exchange and offset mechanism and responsibilities of agencies in the development of the carbon market are also included in the decree.
Specifically, the domestic carbon market development roadmap consists of two phases. The first phase is from now to the end of 2027 during which efforts will be concentrated on: (i) formulating regulations on carbon credit management and exchange of GHG emission quotas and carbon credits; (ii) guiding the implementation of domestic and international carbon credit exchange and offset mechanisms in conformity with law and treaties; (iii) piloting carbon credit exchanges from 2025 and formulating regulations on operation of carbon credit exchanges; (iv) carrying out capacity building and awareness raising activities; and (v) providing principles of GHG emission quota and carbon credit exchange activities on the domestic carbon market as well as the organization of operation of this market.
The second phase starts from 2028 in which focus will be placed on organizing the official operation of carbon credit exchanges; and specifying activities of connecting and exchanging domestic carbon credits with the carbon markets in the region and the world.
Participants in domestic carbon market
Decree 06 mentions the following entities as participants in the domestic carbon market:
- Establishments on the list of GHG emission domains or establishments subject to GHG inventory, issued together with Prime Minister Decision 01/2022/QD-TTg of January 28, 2022. The list will be updated biennially according to the criteria specified in the decree.
These establishments are those discharging an annual amount of GHG emissions of 3,000 tons of CO2 equivalent or over, or those falling into one of the following categories: (a) thermo-power plants, industrial production facilities or commercial buildings consuming the total annual energy amount of 1,000 tons of oil equivalent (TOE) or over; (b) cargo transportation companies consuming the total annual fuel amount of 1,000 TOE or over; and (c) solid waste treatment facilities with the annual capacity of 65,000 tons or over.
- Organizations participating in the implementation of domestic and international carbon credit exchange or offset mechanisms in accordance with law and treaties of which Vietnam is a member; and,
- Other organizations and individuals involved in greenhouse gas emission quota and carbon credit investment or trading on the carbon market.
Allocation of GHG emission quotas
Decree 06 states that based on the national GHG emission reduction goal and roadmap and results of the latest inventory of GHG emissions for GHG-emitting establishments, the Ministry of Natural Resources and Environment (MONRE) will submit the total GHG emission quotas and the ratios of reserve and auction quotas for the 2026-30 period and on an annual basis to the Prime Minister for approval.
The ministry will also have to base itself on the results of GHG emission inventories at national level and in industries as well as at the GHG-emitting establishments to take charge of, and coordinate with line ministries in, formulating and issuing GHG emission norms per product unit for production and business establishments, and allocating GHG emission quotas to such establishments in the 2026-30 period and every year.
Implementation of programs and projects under the carbon credit exchange and offset mechanism
The Decree provides that organizations wishing to formulate and implement programs or projects in Vietnam’s territory under the carbon credit exchange and offset mechanism within the framework of the UNFCCC, treaties or agreements to which Vietnam is a signatory will file dossiers under the guidance of the MONRE. The ministry will evaluate such programs or projects and send notices of its approval or disapproval of the programs or projects to the organizations within 38 working days.
For organizations implementing programs or projects under the carbon credit exchange and offset mechanism outside the framework of the UNFCCC, treaties and agreements to which Vietnam is a contracting party in the territory of Vietnam, have to provide program/project registration information and annually send reports to the MONRE.
Exchange of GHG emission quotas and carbon credits on domestic carbon market
Decree 06 says that the exchange of GHG emission quotas and carbon credits is carried out on carbon credit exchanges. Activities performed on carbon credit exchanges include: auction, transfer, borrowing and return of GHG emission quotas, and use of carbon credits for GHG emission offset.
Accordingly, emitting establishments may undergo auction to own more GHG emission quotas in addition to the allocated quotas in the same commitment period. They are also entitled to transfer the volumes of GHG emission quotas not used up in a year to subsequent years in the same commitment period. These establishments can borrow GHG emission quotas allocated for the following year for use in the current year in the same commitment period. Moreover, they can use carbon credits from projects under the carbon credit exchange and offset mechanisms to make up for the GHG emission volumes exceeding the allocated GHG emission quotas in the same commitment period, provided the quantity of carbon credits used for emission offset must not exceed 10 percent of the total GHG emission quotas allocated to the establishments.
The allocated GHG emission quotas will be automatically recovered by the MONRE when establishments cease operation, are dissolved or go bankrupt. However, the State encourages establishments to voluntarily return the unused GHG emission quotas as an effort to contribute to the achievement of the national goal of GHG emission reduction.
At the end of each commitment period, establishments must pay for the GHG emission volumes exceeding the allocated GHG emission quotas after applying forms of auction, transfer, borrowing and use of carbon credits for offset. At the same time, the excessive GHG emission volumes will be deducted from the quotas to be allocated for the subsequent commitment period.
Certification of carbon credits and GHG emission quotas eligible for trading on domestic carbon market
To be traded on carbon credit exchanges, GHG emission quotas and carbon credits should be certified. That means, organizations and individuals wishing for certification of GHG emission quotas and carbon credits for trading will have to submit their applications for certification to the MONRE through the online public service system. The MONRE will carry out verification and grant letters of certification within 15 working days.
Responsibility to develop domestic carbon market
The Government assigns the Ministry of Finance to take charge of building and establishing carbon credit exchanges and issuing the financial management mechanism for operation of the carbon market. Meanwhile, the MONRE will coordinate with related ministries in organizing the trial operation and official operation of carbon credit exchanges to serve management, monitoring and supervision of the carbon market. It will also provide regulations on activities for connecting the domestic carbon credit exchanges with regional and world carbon markets, and implementation of carbon credit exchange and offset mechanisms. In addition, it will develop materials for public communication about activities for building capacity for carbon market participants.
For their part, ministries, ministerial-level agencies and provincial-level People’s Committees are tasked to coordinate with the MONRE and the Ministry of Finance in implementing regulations and activities to promote the carbon market development.
Scheme on development of carbon market in Vietnam
Detailing the implementation roadmap and responsibility for ministries, sectors and localities associated with the schedules and specific time limits for establishment and operation of the domestic carbon market strictly under the Law on Environmental Protection and Decree 06/2022/ND-CP, the Prime Minister assigns the Ministry of Finance to take charge of and coordinate with the MONRE as well as related ministries and sectors in formulating and submitting to the Prime Minister the Scheme on development of the carbon market in Vietnam for issuance.
In light of this, the Ministry of Finance has organized the formulation of the Scheme with such principal contents as viewpoints, objectives, market model, tasks, solutions and organization of implementation.
Regarding market model, the following issues will be clarified under the Scheme: commodities on the market; market participants; organization of the market; and management, monitoring and supervision of the market.
The Scheme will set out three groups of tasks and solutions: (i) tasks and solutions related to the formulation and completion of the legal framework; (ii) tasks and solutions concerning organization and operation of the domestic carbon market; and (iii) tasks and solutions pertaining to awareness raising and capacity building. Attached to the Scheme-approving Decision will be a List of tasks and solutions for implementation of the Scheme.-
