How many Vietnamese businesses have thought about and started working on reforestation to achieve carbon credits? And when will Vietnam officially open the carbon credit market?
Currently, many countries around the world have committed to reducing greenhouse gas emissions to address climate change, and Vietnam is no exception. The Vietnamese government has set an important goal of reducing greenhouse gas emissions. On September 20, 2023, during the opening session of the Climate Ambition Summit at the United Nations forum, Prime Minister Pham Minh Chinh affirmed Vietnam’s commitment to achieving the goal of “net zero emissions” with the proportion of renewable energy exceeding 70% by 2050. The commitment to “net zero emissions” or “net zero” represents a strong commitment by Vietnam at the 26th climate conference (COP26) of the United Nations Framework Convention on Climate Change.
To address these challenges, the Vietnamese Government has implemented measures and introduced future strategies and goals. A crucial aspect of this strategy is the development of a policy framework for fostering the domestic carbon market. The 2020 Environmental Protection Law has proposed regulations regarding the organization and development of the domestic carbon credit market, and Decree No. 06/2022/ND-CP has specified these regulations.
The establishment and testing of the carbon credit exchange are expected to take place in 2025. The carbon credit trading and offsetting process will comply with the regulations that have been issued. In the second phase, set for 2028, Vietnam is expected to organize and officially operate the Carbon Credit Exchange, along with activities to connect and exchange domestic carbon credits with the regional, as well as global, carbon market. This represents an important step in the process of developing the carbon market in Vietnam.
According to the Environmental Protection Law of 2020, carbon credits are defined as certificates that can be traded and represent the right to emit one ton of CO2 or an equivalent ton of other greenhouse gases.
Vietnam’s domestic carbon market includes the exchange of greenhouse gas emission quotas and carbon credits obtained from carbon credit exchanges and offsetting mechanisms, both domestically and internationally. This is subject to the regulation of laws and international treaties in which Vietnam participates.
The primary objective of carbon pricing and the establishment of a carbon market is to mitigate greenhouse gas emissions, contribute to the fight against climate change, and support the achievement of various sustainable development goals. As a result, engaging in the carbon market represents not only a responsibility but also an opportunity for organizations and businesses. Businesses can leverage this opportunity to reinvest and grow in a sustainable manner. Through the carbon market, businesses can effectively reduce greenhouse gas emissions at a low cost, enhancing their competitiveness.
This market operates based on a ‘buy and sell’ principle, where the state generates revenue through fees from future exchange activities involving quotas, carbon credits, and carbon taxes. These funds will be allocated to projects and research related to carbon emission reduction, absorption, and storage. Carbon sellers will benefit from the implementation of efficient environmental solutions, while buyers will have the opportunity to offset emissions exceeding their quotas.
Vietnam stands as one of the nations most severely affected by climate change, grappling with issues such as river and coastal erosion, significant subsidence, and the encroachment of seawater. Notably, the Mekong Delta is sinking due to a combination of land subsidence and rising sea levels. The impacts of climate change have already inflicted losses of up to $10 billion in 2020, equivalent to 3.2% of the GDP. The total economic cost of climate change could escalate to $523 billion by 2050. In this century, Vietnam has witnessed a fourfold increase in per capita greenhouse gas emissions, maintaining one of the fastest growth rates worldwide. Therefore, it is imperative that we take decisive and immediate action to safeguard our environment.
In this context, Vietnam is placing increasing emphasis on environmental concerns and addressing climate change. The government has identified the development of green finance as the correct path to mobilize capital for the green economy. The domestic carbon credit market not only aids Vietnam in fulfilling its commitment to carbon emission reduction but also presents opportunities for connecting with international markets. Moreover, it fosters the growth of low-carbon technologies and enhances Vietnam’s attractiveness for foreign investments.
The domestic carbon market primarily comprises greenhouse gas emission quotas assigned to major greenhouse gas emitters, complemented by a share of carbon credits derived from projects operating within credit exchange and offset mechanisms.
In particular, forest owners are encouraged to participate in the development and implementation of programs and projects related to carbon credit exchange and offset mechanisms. Thanks to this, they can collect carbon credits and sell them to businesses to compensate for greenhouse gas emissions exceeding assigned quotas, as well as to participate in international carbon markets.
In the future, the Ministry of Natural Resources and Environment and related ministries will have to prepare to operate the carbon market effectively. It is important to support domestic businesses in participating in programs and projects that reduce greenhouse gas emissions and generate carbon credits. This will help the state collect revenue from the application of fees related to the exchange of carbon quotas and credits, as well as carbon taxes in the future. This not only creates important financial resources but also promotes a green transformation in businesses.
Currently, the vast majority of Vietnamese businesses have only just begun to consider afforestation to gain carbon credits, but they have not yet taken action. There are about 2,750 establishments required to conduct greenhouse gas inventories, and this list is being periodically updated. Businesses need to start implementing emission reduction measures now to meet the requirements of reducing greenhouse gas emissions from 2026, in order to avoid production disruptions. Vietnamese businesses will face serious challenges if they do not meet the criteria and standards for reducing greenhouse gas emissions when participating in the global market. Developed regions around the world are implementing carbon tax measures on imported and exported goods. The European Union (EU) is at the forefront of establishing emission reduction policies, including the carbon border adjustment mechanism (CBAM) to prevent carbon leakage for goods imported into the EU market. The CBAM mechanism requires Vietnamese businesses, when exporting products to the EU market, to report the amount of goods affected by the carbon adjustment mechanism. CBAM is expected to have a significant impact on Vietnamese businesses in the future, and Vietnam is facing many challenges when building and developing the domestic carbon market. Synchronous solutions are needed to ensure the feasibility of financial resources and simultaneously develop a sustainable green economy. The carbon credit market will help Vietnam take advantage of opportunities in international trade and create favorable conditions for the sustainable development of the economy and the environment.