Promoting the Vietnamese carbon credit market

The carbon market is considered a vital tool for reducing greenhouse gas (GHG) emissions and driving the green transition. However, it is still relatively new in Vietnam. What is your assessment of the current situation and scale of the carbon market?

The global carbon credit market has been very active since the Kyoto Protocol was established in 1997 and continues to grow strongly, with countries and regions having rolled out mandatory carbon credit trading systems, reaching a total value of $104 billion in 2023. The European Union and China are typical examples, while the US has regional markets like California.

In South Korea, the carbon market has been in place since 2015. Meanwhile, Southeast Asian countries such as Thailand, Indonesia, and Malaysia are either planning or already implementing this market.

Vietnam has been participating in the carbon market since 2005 through the Clean Development Mechanism. In terms of the number of projects, Vietnam is currently ranked fourth in the world, with over 250 projects and more than 40 million carbon credits generated from related projects.

In addition, Vietnam also has bilateral mechanisms such as the Joint Crediting Mechanism with Japan, through the establishment of its own carbon standards or voluntary international standards such as the Gold Standard and Verified Carbon Standard.

Vietnam is also expected to establish a market in the future after completing its legal framework and raising awareness and capacity among businesses. The period from now to 2027 will serve as a testing phase for the carbon market in Vietnam, focusing on major emitting sectors such as energy and industry.

It is forecast that by 2035, the carbon market in Vietnam will become an important part of the strategy for green and sustainable economic development, contributing to the carbon neutrality goal.

What is the relationship between the compliance carbon market and the voluntary carbon market?

The carbon market includes both mandatory markets and voluntary markets. The mandatory carbon market is one where carbon credit trading is based on commitments from countries or regions regarding climate change within the framework of the United Nations Framework Convention on Climate Change to achieve GHG reduction targets. The participants in this market are mainly large emission facilities, not all businesses or facilities across the market.

The voluntary carbon market operates outside the mandatory market, allowing organisations, businesses, and individuals to trade carbon credits in accordance with standards recognised by the market and internationally, on a voluntary basis to meet emission reduction commitments.

In the voluntary market, the scope is broader, encouraging investment participation by businesses, creating a link between the compliance and voluntary markets. When a business is allocated a quota, if they wish to emit more, they must purchase additional quotas from the market or buy credits from the voluntary mechanism.

South Korea allows businesses to use 10-15 per cent of carbon credits to offset exceeding their quota. For example, if a company is allocated 100 tonnes of CO2, equivalent to 100 quotas, they can buy an additional 15 credits to emit 115 tonnes of CO2. Additionally, many companies worldwide, such as Nestlé and Coca-Cola, have their own net-zero commitments, investing in reducing GHG emissions or purchasing credits to offset their emissions.

What policies has Vietnam put in place to organise and develop the carbon market?

The carbon market in Vietnam has great potential, but it still faces many problems in its development, particularly regarding legal factors, technical infrastructure, business awareness, and financial resources.

The development of the carbon market was regulated in the Law on Environmental Protection 2014 (LEP), focusing on the international market. The 2020 version of the law also addresses the organisation and development of the domestic market. Vietnam will establish two: one for compliance, related to the allocation of GHG emission quotas, and one voluntary market, which sets carbon standards for businesses to voluntarily participate in creating credits.

In 2022, the government detailed several provisions of the LEP, especially regarding the roadmap for developing the carbon credit market and the responsibilities of stakeholders to organise and develop it domestically. Facilities were to submit information regarding their activities to specialised agencies in 2024 so that these agencies can assist in calculating the results of GHG inventories. Starting from 2025, businesses must independently calculate and submit their data for local authorities to verify and report to relevant agencies.

The first step in developing the carbon market is to establish information and data systems to allocate GHG emission quotas to businesses.

The government has listed requirements for businesses and facilities emitting GHGs to conduct inventories. Currently, over 2,150 businesses across industry, construction, transport, agriculture, and forestry are reporting on their GHG inventories.

Based on the 2025 carbon market pilot, Vietnam will expand the market’s scope by 2028 and officially launch the market. By 2050, it will consider connecting Vietnam’s carbon market with regional markets.

Towards 2026, the government plans to allocate free quotas to about 150 businesses in the thermal power, steel, and cement sectors. The initial quota allocation will be based on GHG inventory data and business output.

To promote the development of the voluntary market, the Vietnamese government also allows businesses to use up to 20 per cent of carbon credits to offset their GHG emission quotas. This percentage is relatively high compared to international markets, such as China 10 per cent or South Korea around 15 per cent.

For the domestic voluntary market, ministries and specialised agencies will propose carbon standards for each sector and support Vietnamese businesses to invest in and develop projects and sell credits on carbon exchanges managed and developed by the Ministry of Finance.

Vietnam is capable of selling some 40 million carbon credits for a revenue of 200 million USD annually, the Department of Forestry has calculated.

Carbon credits have recently made headlines in Vietnam, with the concept often surrounded by overblown expectations of an easy option, or suspicions of what feel unlikely attempts to cancel out greenhouse gas emissions.

There is an urgent need for rules to develop Vietnam’s carbon credit market, given the country’s significant potential to generate carbon credits from its vast forests and numerous greenhouse gas reduction projects.

Companies in Vietnam must begin to report their carbon inventory and participate in carbon credit exchanges. Lam Nguyen Hoang Thao, senior associate at Russin & Vecchi, provides deep analysis of the issue.

Industry experts have emphasised the critical importance of building a skilled workforce and establishing a strong legal framework as Vietnam’s emerging carbon credit market gains momentum.

The plan to establish the first carbon credit exchange in 2025 places Vietnam with a huge task of training enough professional forces to participate in the market.