WHERE IS VIETNAM IN THE PROCESS OF APPLYING CARBON CREDITS?
1. Vietnam’s commitment to combating climate change:
As we know and need to repeat: Carbon credits are a type of license or certificate that represent the reduction of emissions by one ton of CO2 or an equivalent amount of greenhouse gas. These credits can be used to trade and exchange in the carbon market, promoting the implementation of activities to reduce greenhouse gas emissions.
There are two main types of carbon credit markets in the world:
-Compulsory carbon credit market: This is a market where organizations, businesses and countries are legally required to inventory and reduce greenhouse gas emissions. They also have the right to participate in credit exchange and trading activities, dealing with both carbon and greenhouse gas emission quotas. Emission reductions must comply with national, regional and international regulations.
An example of carbon credits traded in the mandatory carbon market is Certified Emission Reductions (CERs), issued under the Clean Development Mechanism of the United Nations Framework Convention on Climate Change (UNFCCC).
-Voluntary carbon credit market: This market operates based on bilateral and multilateral relationships between organizations, companies, and countries. The purchasers of carbon credits voluntarily engage in a process to align with environmental, social, and corporate governance policies. In the voluntary carbon market, buyers aim to offset their greenhouse gas emissions voluntarily. Some types of voluntary carbon credits are referred to as emissions deflators, certified according to standards such as the Validated Carbon Standard (VCS), Gold Standard (GS) and Global Carbon Council standards (GCC).
The question is whether Vietnam is participating in the carbon credit market on a mandatory or voluntary basis. In general, it can be said that we exist in both of the above markets, but are mainly in the process of implementing voluntary carbon credits according to the government’s commitments by 2028. Speaking at the High-Level Conference on COP26 global climate change held in the UK on November 1, 2021, Prime Minister Pham Minh Chinh said climate change has truly become the biggest challenge facing humanity. At the conference, Prime Minister Pham Minh Chinh emphasized three important messages: 1. Responding to climate change is the top priority of all departments, 2. Depending on the circumstances, each country needs to commit to reducing strong greenhouse emissions to curb global climate change, 3. Climate finance and technology transfer play an important role in the successful implementation of the Paris Agreement. Based on these three messages, Prime Minister Pham Minh Chinh made a commitment that Vietnam will achieve netzero emissions by 2050.
2. The carbon credit market will operate according to the roadmap by 2028
In Vietnam, the carbon credit market is in the process of being built according to a specific roadmap until the end of 2027. The Environmental Code signed in 2020 will officially take effect on January 1, 2022, mentioning a commitment to reducing CO2 emissions and building a legal corridor related to carbon credits, also known as the carbon Emission Trading Scheme (ETS). According to the World Bank, the main sponsor of many carbon credit exchange system appraisal and standardization projects, there will be a need for additional policies and tools regulating the control of carbon credits. This includes the national greenhouse gas inventory, monitoring, reporting and verification system (MRV) and the establishment of a management unit at the national level for emissions registration. To comply with international standards, Vietnam’s carbon credit exchange system is expected to work with large emitters of greenhouse gases before expanding to include lower emitters.
According to World Bank studies as well, Vietnam’s national carbon density per GDP increased by 48% in the period 2000-2010, the second highest in East Asia. From 2010 to 2020, CO2 emissions increased nearly four times, mostly from coal fired power, industrial emissions, and traffic activities. Therefore, the goals of the current Environmental Protection Code need to achieve the following objectives:
-Goal 1: Reducing greenhouse gas emissions by operating the carbon credit market will contribute to reducing air pollution and protecting people’s health.
-Goal 2: Reducing greenhouse gas emissions through the ETS market contributes to mitigating extreme weather phenomena such as floods, forest fires, rising sea levels, and encroachment. These phenomena have already caused and will continue to cause economic losses. Millions of Vietnamese people have had to relocate from their places of residence. A typical example of this is the prediction of salinity and climate change in the Mekong Delta until 2050.
Goal 3: The ETS market will help increase the national budget and encourage the development of green technologies. This market mechanism makes businesses more committed to technologies that help reduce greenhouse gas emissions into the environment, thereby encouraging greater investment in green technology. This is evident in dairy companies in Vietnam, such as Vinamilk and Truemilk, which have taken significant steps to balance their carbon emissions per product by engaging in afforestation projects to absorb CO2 and replace carbon dioxide. They are also transitioning to more advanced and modern farming methods to reduce greenhouse gas emissions in dairy farming
-Goal 4: The goal is to increase the competitiveness of exported goods and attract FDI investment capital. This is particularly crucial for demanding markets with strict tariff regulations related to environmental protection and greenhouse gas reduction, such as the European Union. Since October 2023, the European Union has announced an increase in taxes on goods exported to this market with high carbon emissions. To reduce the rate of carbon emissions per unit of goods exported to Europe, businesses need to increase the purchase of carbon certificates and demonstrate that production processes and raw materials reduce greenhouse gas emissions. However, proving green production processes is currently challenging for Vietnamese businesses due to the lack of verifiable regulations and organizations in Vietnam. Therefore, purchasing a reputable carbon certificate is the optimal solution.
3. Immediate solutions for Vietnam’s carbon credit market
While the preceding sections have outlined the commitments and goals recommended by both the government and international organizations to transition Vietnam into a green country, the current reality prompts numerous questions.
1. First, we need to conduct sufficient research on the potential for carbon credits within current agricultural and forestry ecosystems in Vietnam.
According to research and recommendations on the carbon market sponsored by international organizations, typically the World Bank and the Asian Development Bank (ADB), assessments and reports are currently only shown on a small scale. The area of agricultural and forestry crops in Vietnam is small, with at least 30% of nationally owned forest areas not fully assessed to be able to issue carbon credits.
Most recently, the amount of carbon credits evaluated, measured and transferred by the World Bank to the international carbon market is 10.3 million tons, equivalent to 1,250 billion VND. Vietnam has just transferred 10.3 million tons of CO2 to the World Bank, earning nearly 1,250 billion VND. This is the latest information reported to the Prime Minister by the Ministry of Agriculture and Rural Development. Accordingly, the number of carbon credits obtained from forests in the North Central region is part of the greenhouse emissions payment agreement (ERPA) in the North Central region signed on October 22, 2020, between the International Bank for Reconstruction and Development (IBRD) of the World Bank (WB) and the Ministry of Agriculture and Rural Development of Vietnam.
A large number of forests that can sell carbon credits, such as Shan Tuyet tea forests in Ha Giang, Yen Bai, Lao Cai, still have a lot of potential. Not to mention the trees planted in protective forests and people’s forests, grown and traded by people themselves, are long-lasting perennial crops with enough potential to be granted carbon credits, but due to some conditions that have not been included in carbon credit calculations.
Ms. Nguyen Thi Anh Hong, from the Tea Association (VITAS), stated that every year ADP and the World Bank sponsor research to evaluate the proportion of forests and the prospects of carbon credits in perennial crops in Vietnam. In the latest report from the Tea Association (VITAS) titled “Evaluating the effectiveness of carbon sequestration and reducing greenhouse gas emissions in tea farm management practices” it has been shown that popular agricultural crops such as Midland tea and Shan Tuyet tea trees have very good carbon absorption.
Ignoring complex calculations of a specialized nature, we state a straightforward conclusion: only with popular agricultural crops like tea, in addition to providing jobs for about 500,000 workers each year, it also helps attract and absorb a significant amount of carbon emissions if we have adequate research and a support system for farmers in controlling fertilization, care, as well as calculating carbon absorption to be able to issue credits.
With concentrated tea plants in Ha Giang, covering an area of 375.61 hectares of tea with ages ranging from 5 to 40 years old, the total accumulated WCO2e is 29,193.07 tons. On average, each hectare of tea can absorb 77.72 tons CO2e. In scattered tea growing areas and high mountain Shan tea, covering an area of 108.1 hectares of tea grown in three provinces (Yen Bai, Ha Giang, Lao Cai), the total amount of WCO2e accumulated is 4,962.93 tons. On average, each hectare of tea absorbs and accumulates 45.91 tons of CO2e each year. Good agricultural practices, caring for tea plants according to standards, reducing inorganic fertilizers, and increasing organic fertilizers will help reduce greenhouse gas emissions.
For other perennial crops, there are currently relatively few surveys, and there are still many opportunities for forest areas that can provide carbon credits.
2. Second, state agencies need to promptly finalize the legal framework and establish separate departments tasked with the appraisal of carbon credits at the national level.
The current agency with the authority to inspect, appraise and certify carbon credits is the Ministry of Natural Resources and Environment. Presently, the Ministry of Natural Resources and Environment has issued procedures to confirm carbon credits and greenhouse gas emission quotas traded on the domestic carbon market exchange. It also registers programs and projects according to the carbon credit exchange and offset mechanism. Organizations wishing to develop programs and projects will submit applications following the guidance of the Ministry of Natural Resources and Environment. The Ministry will conduct an evaluation and send a notice to the organization regarding the decision to approve or disapprove the program or project within a maximum of 38 days.
Indeed, in Vietnam, numerous businesses have proactively engaged in the planning and execution of activities aimed at reducing greenhouse gas emissions, particularly those falling under the Clean Development Mechanism (CDM) and Credit Mechanism. The Joint Crediting Mechanism (JCM), managed by the State, has witnessed active participation. Additionally, several voluntary carbon credit creation mechanisms, including the Gold Standard (GS) and the Verified Carbon Standard (VCS), have been applied and implemented by various domestic organizations for activities related to mitigating greenhouse gas emissions.
As reported by the Ministry of Natural Resources and Environment, the trading of carbon credits obtained from initiatives to reduce greenhouse gas emissions under the mentioned mechanisms has exhibited positive trends in recent years. With 4 million credits solely from CDM projects, generating over 15 trillion VND, businesses have gained additional financial resources to expand production and operations. This has concurrently led to reduced interest costs on loans and provided further incentive for development.
However, currently, only the Ministry of Natural Resources and Environment appraises projects. In the long term, there needs to be an interdisciplinary department with the function of supporting carbon credit appraisal. This is crucial for the reputation of the appraisal agency. If we are slow to establish such a department, we may lose ground domestically because an unprofessional appraisal agency may lead to the certificate’s reputation not being recognized, particularly in demanding markets like Europe.
Purely carbon index appraisal is a task that involves both management and scientific assessments. Additionally, it encompasses the responsibility of periodically evaluating projects. As mentioned in other articles, many carbon credits have been dismissed because they were issued in areas that initially were old-growth forests but gradually transformed into land for other purposes. At this juncture, the role of management and appraisal agencies becomes extremely important.
The Ministry of Natural Resources and Environment has submitted a draft project to develop the carbon market in Vietnam to the Prime Minister. According to the proposed roadmap, from now until the end of 2027, the Ministry of Natural Resources and Environment, in coordination with the Ministry of Finance and relevant agencies, will focus on perfecting the legal framework for the organization and operation of the domestic carbon market. In 2025, the pilot phase will commence and from 2028, the carbon credit exchange will officially operate. Subsequently, Vietnam will issue regulations on connecting and exchanging domestic carbon credits with regional carbon markets and the global carbon market. In the period after 2030, the plan is to continue operating and expanding the domestic carbon market and fostering connections with regional and global carbon markets.
3. Third, we need to reassess our carbon emissions and promptly implement measures to reduce them.
The commitment to achieving net-zero emissions by 2050 is indeed impressive but poses a significant challenge for future generations. We cannot simply sit back and declare that we will pass a university entrance exam next year without putting in the effort to study this year. Reducing greenhouse gas emissions is not just a statement, it is a crucial commitment that impacts the country’s reputation and requires immediate action.
-One noticeable trend is the exponential increase in the number of cars and motorbikes consuming gasoline over the years. Severe traffic jams in major cities are no longer limited to festive occasions but have become a regular issue. This seems to be unrelated to carbon emissions commitments, perhaps because it has not been included in the country’s total carbon emissions calculations. Additionally, energy consumption has reached unprecedented levels. While before 1995, the use of air conditioners was relatively low and many houses in the city still relied on fans for cooling, by the 2020s, almost every household was using air conditioners and related electronic equipment, contributing to increased energy consumption.
Furthermore, the electrical energy for civil and industrial activities is primarily derived from thermal power. The number of operational thermal power plants has significantly increased, operating at full capacity and even exceeding 100% during peak hot seasons. Solar and wind energy, potential green alternatives, face challenges and are not being developed to their full potential due to existing energy industry policies. Addressing these issues is crucial to meeting emissions reduction goals and transitioning towards a more sustainable energy landscape.
It needs to be emphasized that our approach to traffic and energy policy planning is entirely passive, as these areas fall under different management agencies. Relying solely on the Ministry of Natural Resources and Environment may not be sufficient to translate emissions commitments into reality.
-Another issue lies in the fact that while carbon emissions are increasing without complete reporting, carbon sequestration is being sold through external funding mechanisms. International organizations do not sponsor us to plant forests and sell carbon credits to domestic businesses directly. Instead, many follow previous sponsorship activities, meaning carbon credits may be purchased before they even exist. This resembles shares of a seed company on the stock market, which are sold in small doses to a few traders but are contracted by supporting companies and organizations from the initial stages.
Despite the saying that “forests are golden, seas are silver,” the reality is that forests are limited and have already been fully utilized. For a carbon credit to be successful, perennial trees need to grow for at least 4-6 years to mature and absorb significant amounts of carbon to earn the credit. However, as soon as they can issue credits, they are often bought back, with the forest investment units being the ones purchasing the credits.
Currently, numerous organizations and individuals from Japan sponsor and invest in afforestation in Vietnam. They guide and sign contracts with farmers to care for, plant, and manage forests, following strict procedures supported by Japanese experts. Many may not understand why these organizations and individuals invest in trees that yield almost no immediate economic benefits. Only when those forests are included in signed carbon credits do we realize the profound vision behind such initiatives.
-It would be naive to assume that the amount of carbon tax imposed will remain stable over time. In reality, it is likely to gradually increase based on the policies of importing countries. Consequently, with a limited supply of carbon credits, we may find ourselves facing unexpectedly high tax rates. At that point, businesses may scramble to purchase carbon certificates only to discover that the market dynamics are not in their favor.
It is entirely foreseeable that the future carbon credit market will become more prominent than the current stock or oil market. Forward thinking organizations and individuals, such as the afforestation experts from Japan mentioned earlier, will be the ones reaping the benefits of being ahead of the curve. Their early investments and dedication to projects deserve to be rewarded in a market that is poised to play a pivotal role in addressing environmental concerns.
4. Conclusion: With the information given, we do not dare to make major recommendations, but it clearly needs to be taken seriously by relevant agencies. The following are personal conclusions:
-There needs to be a national agency for carbon certification inspection and licensing. It needs to be an inter-ministerial agency under the government to advise and provide recommendations to the government on reducing carbon emissions. This agency also needs to be a place to support carbon inspection and certification. In addition, this agency can support individual organizations in implementing carbon emission reduction projects.
-The government needs to consider and direct the development of personal means of transport with specific, consistent policies. We cannot massively license means of transport and then introduce policies to suddenly cut back or impose unexpectedly high taxes on means of transport when we “suddenly realize” the overload of carbon emissions from personal transportation. Before 2010, there was a policy of odd-even signs circulating daily. At that time, the new policy was only aimed at reducing the amount of private car traffic. But at the present time, even that policy would not contribute to reducing carbon emissions if applied because the number of private cars has actually increased exponentially up to now. One thing is for sure: in the future, there will be a “carbon” tax on personal vehicles because there is no other way to reduce the amount of carbon emitted. So from now on, it is necessary to reduce the number of vehicles in circulation.
-Energy agencies need to research energy sources that reduce emissions in the near future when energy consumption is increasing year by year. Previously, nuclear power was estranged from many developed countries due to its insecurity, but these countries are considering resuming the operation of this energy source because there is still no viable energy source that can replace thermal power with low carbon emissions. Even with solar or wind energy, there are still many limitations on when they can operate.
-Ultimately, reducing carbon emissions is not just the job of a ministry or government, but also the responsibility of every citizen. Only when people are clearly aware of the importance of limiting global carbon emissions will government policies to limit greenhouse gases have lasting effects. Therefore, propagating and promoting the meaning of reducing carbon emissions to the entire population is an issue that needs to be addressed as soon as possible. Hopefully, Vietnam’s commitments to zero carbon emissions will soon come true.
References:
1.Perfecting mechanisms and policies to operate the domestic carbon market – Ministry of Natural Resources and Environment website:
https://monre.gov.vn/Pages/hoan-thien-co-che,-chinh-sach-van-hanh-thi-truong-cac-bon-trong-nuoc.aspx
2.Nghe An Newspaper: Vinamilk Nghe An dairy factory and dairy farm achieve carbon neutrality according to international standards May 26, 2023
3.Carbon Pricing Aids Vietnam’s Efforts Towards Decarbonization – World Bank
4.Evaluating the effectiveness of carbon absorption and greenhouse gas emission reduction in tea farm management practices – Nguyen Thi Anh Hong – Vitas Tea Association
5.Carbon pricing models in the world and lessons learned for Vietnam – Nguyen Hoang Nam Institute of Business Research (UEH)
6.Carbon credit transactions: Market expectations in Vietnam – Natural Resources and Environment Electronic Newspaper – Vietnam Ministry of Natural Resources and Environment
7.Emission quotas become assets of businesses – Electronic Newspaper of Natural Resources and Environment – Ministry of Natural Resources and Environment of Vietnam