Vietnam’s Carbon Market On The Path To Net-Zero
How will the carbon market work?
Vietnam’s carbon market is expected to be like a compliance market, where the government sets a carbon emission limit on eligible companies (carbon allowance) and then issues them carbon permits. Companies meet their commitments by either implementing low-carbon technologies within their facilities, or by purchasing carbon credits from other companies who already met their commitments and have excess credits. Supporting carbon credit projects such as renewable energy and reforestation are an additional viable approach.
As per the UNDP report , developing countries will need up to US$6 trillion by 2030 to finance half of their emission reduction goals listed in their Nationally Determined Contributions (NDCs). However, there is a huge shortfall in the finance available for climate actions that lead to GHG emission reductions. The means by which countries drive and finance climate action will therefore be critical in terms of meeting their emission reduction commitments.
Charting Vietnam’s sustainability timeline
Vietnam is committed to achieving net zero emissions by 2050. Its net-zero target is conditional on support of finance and technology from the developed countries, including through mechanisms under the Paris Agreement. Many countries are looking to carbon markets as part of the answer, and Vietnam has taken a step to develop its domestic carbon market to support this transition, with a pilot carbon credit exchange platform launching in 2025. The domestic carbon market in Vietnam began in 2015 when Vietnam joined a Partnership for Market Readiness (PMR) – a World Bank-led initiative that aims to strengthen Vietnam’s ability to develop market-based tools for emission reductions. However, a specific regulation that deals with Vietnam’s carbon market came into force in 2022 (Decree 06/2022/ND-CP) which aimed at enhancing environmental monitoring, pollution control, and sustainable development practices across various sectors. As a first step, the government asked specific industrial sectors and companies in Vietnam to prepare an organizational greenhouse gas inventory, which maps the emission profile of various industrial sectors and prepares companies to participate in the upcoming carbon market pilot. The expected roll-out timeline of the carbon market is provided below:
The roadmap of carbon market development in Vietnam
Taking action: What companies can do to make the most of the carbon market
The primary purpose of Vietnam’s carbon market is to help the country achieve its net-zero emissions target by 2050 via a market-based mechanism. Forward looking companies will see the opportunity in the commencement of the carbon market; it provides the potential to invest in low-carbon technologies, earn carbon credits and financially benefit from selling credits to other obligated entities. Companies can consider investments in the areas of renewable energy, energy efficiency, and reforestation.
Though a major uptake of the carbon credits in Vietnam will be likely under the compliance market (obligated buyers), companies with voluntary targets will have limitations on buying carbon credits. Companies with voluntary emission reduction targets — especially those with science-based targets (SBT) approved by the Science-based Target Initiative (SBTi) — cannot buy carbon credits to meet their target.
SBTi’s long-term and net-zero targets require companies to set targets to cut emissions by more than 90% before 2050. These companies can neutralize residual emissions via permanent carbon removal and storage measures. Carbon credits can be used for neutralizing residual emissions (limited to 10% of total emission reduction). SBTi required carbon credits should be verified by an independent third party to the protocols of a high-quality carbon standard. SBTi also recommends to use the Carbon Credit Quality Initiative (CCQI) guideline that provides transparent information on the quality of carbon credits.
Carbon Border Adjustment Mechanism set to change the game for suppliers
Additionally, European importers have started asking GHG inventory data from their suppliers under the EU’s Carbon Border Adjustment Mechanism (CBAM). Vietnam’s carbon credit eligibility under the CBAM remains uncertain. However, it’s probable that the price paid for purchasing Vietnam’s carbon credits will be considered as part of the carbon price paid in its country of origin. Consequently, this adjustment would impact the overall net carbon price required for exporting goods to Europe.
For more information on CBAM, see our overview here.
Proactivity and resilience pave the way to success
In the face of the evolving regulatory landscape, resilience will be key. Companies need to develop a greenhouse gas emissions inventory, set ambitious emission reduction targets (ideally science-based targets), advance action plans for emission reduction, and introduce a system to continuously measure carbon emissions in order to meet reporting obligations. By staying on the front foot, companies will be able to minimize the overall impact of CBAM, and reap the benefits of staying compliant with Vietnam’s carbon market.
Effectively navigating Vietnam’s carbon market requires keeping pace with regulatory shifts and a thorough understanding of marketplace intricacies. If your organization needs support, reach out to our team.
For guidance in navigating Vietnam’s carbon market, connect with Trang.Nguyen@actrenewable.net to learn more.
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