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| A talk on carbon credit held in Ho Chi Minh city on August 16, 2024__Photo: Xuan Anh/VNA |
According to the Scheme on establishment and development of the carbon market in Vietnam approved on January 24 by the Prime Minister under Decision 232/QD-TTg, the establishment of the carbon market in Vietnam is a strategic step to fulfill the country’s international commitments on climate change, especially the goal of achieving net zero emissions by 2050. The development of the carbon market is expected to assist the country in controlling emissions and open up new financial opportunities through the carbon credit exchange mechanism, and help businesses adapt to the world’s sustainable development trends.
Roadmap for developing the carbon market in Vietnam
The carbon market stemmed from the Kyoto Protocol to the United Nations Framework Convention on Climate Change. As per this Protocol, countries with unused emission quotas may sell, donate or purchase emission quotas to/from countries that have the emission amounts higher or lower than the committed amounts. Since then, a new type of commodity, i.e., greenhouse gas emission reduction/sequestration certificates, has emerged in the world, and transactions in this type of commodity form the carbon/carbon credit market.
At present, the carbon market in the world is basically operated as the voluntary international carbon market and the mandatory domestic carbon market. Vietnam so far has no mandatory market for carbon credits. As a result, the transfer of emission reductions is carried out under bilateral agreements between stakeholders on the voluntary carbon market.
On January 7, 2022, the Government issued Decree 06/2022/ND-CP on the mitigation of greenhouse gas emissions and the protection of the ozone layer. This Decree has specific provisions on the roadmap for development and the time of organization of the domestic carbon market. It states that until the end of 2027, the country will have to formulate regulations on the management of carbon credits and exchange of greenhouse gas emission quotas and carbon credits, and regulations on the operation of the carbon credit exchange. The mechanism for carbon credit exchanges and offsets in potential fields will be implemented on a pilot basis, while guidance on implementation of domestic and international carbon credit exchange and offset mechanisms will be provided in accordance with law and treaties to which Vietnam is a contracting party. It is also required to establish, and organize the trial operation of, the carbon credit exchange from 2025, and organize activities to build capacity and improve public awareness about the carbon market development.
In furtherance of Decree 06, Decision 232/QD-TTg launches two phases for deployment of the carbon market:
Pilot operation from 2025 through 2028
In this phase, the carbon market will be operated on a pilot basis nationwide. The transfer of carbon credits and greenhouse gas emission reductions to foreign and international partners will be specified in legal documents after it is considered and decided by competent authorities.
All greenhouse gas emission quotas will be considered for free allocation to greenhouse gas emitters in sectors with large emissions.
Carbon credits will be certified for trading on the carbon exchange, including carbon credits obtained from: (i) programs and projects implemented under the domestic carbon credit exchange and offset mechanism; (ii) the clean development mechanism (CDM); (iii) the joint crediting mechanism (JCM); and (iv) the mechanism provided in Article 6 of the Paris Agreement.
Official operation from 2029
The carbon market will be officially operated nationwide from 2029. The increase of sectors and facilities to be allocated greenhouse gas emission quotas will be considered according to the roadmap. Greenhouse gas emission quotas will be considered for free allocation or allocation through auction. Specific ratios for free allocation and auction of greenhouse gas emission quotas will be proposed in the phase of pilot implementation and after sufficient information and data on allocated greenhouse gas emission quotas and transaction volumes are obtained.
Addition of new types of carbon credits certified for trading on the carbon exchange and extension of subjects allowed to participate in carbon credit trading on the carbon exchange will be considered (conditions for organizations and individuals to participate in trading on the carbon exchange will be adjusted).
Based on results of the review of the trial operation of the domestic carbon market, it is necessary to assess socio-economic impacts of the carbon market and orientations for the official development of the carbon market, while considering the connectivity of the domestic carbon market with the regional and world carbon markets and the transferability of carbon credits and greenhouse gas emission reduction results to foreign and international partners for reporting to competent authorities for decision.
The establishment of the carbon market aims to create a mechanism for businesses and organizations to trade in greenhouse gas emission quotas and carbon credits in an efficient manner, and, at the same time, encourage businesses to reduce emissions in order to benefit from the carbon credit exchange policy, thereby promoting investment in clean technologies and use of renewable energy and improving the competitiveness of Vietnamese businesses in the international market.
Vietnam’s carbon market will be developed in a centralized manner, with close supervision by the State to ensure transparency, efficiency and conformity with domestic conditions and international practices.
The Government emphasizes that the operation of the carbon market must ensure harmony of interests of businesses, organizations and stakeholders, and contribute to green transformation of the economy. The trading system will operate in adherence to market principles with appropriate regulation mechanisms so as to prevent risks of speculation, price manipulation or loss of national resources.
In both phases, the Government will specify the ratio of carbon credits used for offsetting emissions to the total greenhouse gas emission quotas allocated to facilities.
Tasks and solutions
In order to form and develop the carbon market, in the 2025-30 period, the Scheme lays emphasis on five groups of major tasks and solutions regarding commodities to be traded on the carbon market; market participants; the national registration system and carbon exchange; market operation; and capacity building.
Commodities to be traded on the carbon market
Commodities to be traded on the carbon market in Vietnam include two main types: greenhouse gas emission quotas and carbon credits.
Greenhouse gas emission quotas will be allocated to facilities with large emissions free of charge or through auction. Meanwhile, carbon credits may be collected from domestic or international emission reduction programs and projects under such mechanisms as the CDM, JCM, and the mechanism stated in Article 6 of the Paris Agreement.
These types of quotas and credits will be traded on the carbon exchange organized by the Hanoi Stock Exchange. Market participants will include businesses on the list of facilities subject to greenhouse gas inventory, organizations implementing emission reduction projects, as well as organizations and individuals qualified for investing in carbon credits. With a view to ensuring transparency and efficiency, the Ministry of Natural Resources and Environment (MONRE) will manage a national registration system for carbon quotas and credits, which will help monitor, control and facilitate transactions on the market.
The carbon market-operating system in Vietnam consists of related agencies that coordinate with one another in surveillance and management. The MONRE will take charge of developing the legal framework, managing the national registration system and supervising transaction activities.
The carbon market development is expected to bring about many opportunities for Vietnam to reduce emissions and transit to a green economy but will also face challenges concerning legal framework, transparency in transactions, and risks related to speculation and market manipulation.
It is also necessary to improve the awareness and capacity for businesses, particularly small- and medium-sized enterprises, to ensure their efficient participation in the market. Vietnam should study the connectivity of the domestic market with the international market in order to optimize benefits from the exchange of carbon credits.
Carbon market participants
It is suggested to focus on identifying participants in transactions and ensuring the market’s transparency. The MONRE will update and adjust every two years the list of greenhouse gas-emitting sectors and facilities subject to inventory, then submit it to the Prime Minister for decision.
In 2025, authorities should issue regulations on facilities to be allocated greenhouse gas emission quotas and conditions for organizations and individuals to participate in carbon credit investment and trading to ensure the controlled market development, prevent market manipulation or loss of national resources.
In addition, it is proposed to formulate regulations on organizations to support trading in the carbon market to suit the size and development of the market. By 2028, the MONRE will have to study, propose and report to the competent authorities the regulations on the increase of entities eligible for trading in carbon credits on the carbon exchange (conditions for organizations and individuals to participate in trading on the carbon exchange will be adjusted).
The national registration system and carbon exchange
Focus will be placed on the establishment and operation of market surveillance instruments. At the same time, it is required to study and report to competent authorities the regulations on the transfer of carbon credits and greenhouse gas emission reductions to foreign partners in the phase of pilot operation of the carbon market; and formulate and submit a decree amending Decree 06 with the contents on management of carbon credits to a competent authority.
The allocation of greenhouse gas emission quotas will be planned and organized every year and in the period through 2030 on the basis of the total greenhouse gas emission quotas set by the Prime Minister for that period and for every year.
In the 2025-30 period, the MONRE will also coordinate with other ministries and sectors in formulating regulations and organizing the evaluation and recognition of programs and projects under the international and domestic carbon credit exchange and offset mechanisms; and organizing the certification of greenhouse gas emission quotas and carbon credits to be traded on the carbon exchange of the domestic carbon market.
As the in-charge agency, the Ministry of Finance will coordinate with related ministries and sectors in reviewing, and proposing amendments and supplementations, to the regulations on taxes, charges, fees and service prices related to the carbon market and the exchange/transfer of greenhouse gas emission quotas and carbon credits (if any) in the process of revision of the laws on taxes, charges and fees; and studying the management and use of revenues from quota auctions.
Awareness improvement and capacity building
In 2025, the MONRE will take charge of building a portal/website on the domestic carbon market; surveying and assessing the need and readiness of businesses to participate in the domestic carbon market, and proposing solutions to support businesses and stakeholders to access, and get ready for participating in, the carbon market in Vietnam.
According to the MONRE, Vietnam has so far completed the updated Nationally Determined Contribution (NDC) and submitted it to the Secretariat of the United Nations Framework Convention on Climate Change. Accordingly, with domestic resources available up to 2030, the country will reduce the total greenhouse gas emissions by 9 percent compared to the usual development scenario, equivalent to 83.9 million tons of CO2.
In conclusion, the building and operation of the domestic carbon market will help Vietnam seize opportunities to effectively reduce carbon emissions, and improve the compatibility with international carbon pricing mechanisms, as this market is expected to bring about not only environmental benefits but also finance and competitiveness benefits for Vietnam. The successful operation of the carbon market will not only help Vietnam achieve its climate goals but also contribute to the country’s long-term development in the context of the global economy’s vigorous transition to a green growth model.-
