Developing a carbon market and transforming CO2 into commodities is one of the solutions that could help mobilize resources for environmental protection and development. The carbon market in Vietnam has been gradually heating up, especially after the Government issued Decree No. 06/2022/2023 on the mitigation of greenhouse gas emissions and protection of the ozone layer. By 2028, the carbon credit trading platform is expected to be fully operational.
In this article, BLawyers Vietnam would like to provide an overview of carbon credit and the carbon market in Vietnam.
1. What is carbon credit?
A carbon credit is a certificate representing the right to emit one ton of carbon dioxide (CO2) or an equivalent amount of other greenhouse gases synthesized as 1 ton of CO2 equivalent.
A ton of CO2 equivalent is the amount of greenhouse gases converted into a ton of CO2 based on their global warming potential. The Intergovernmental Panel on Climate Change regulates the global warming potential of greenhouse gases.
Mechanisms for carbon credit exchange and offset mean mechanisms of registration and development of greenhouse gas reduction programs and projects, and generation of carbon credits by methods certified by Vietnam or international countries. Carbon credits earned by these programs and projects are traded on carbon markets or offset against greenhouse gas emissions exceeding the allocated quota.
2. Carbon market and carbon credit exchange in Vietnam
There are two main types of carbon markets in the world:
(i) Mandatory carbon market: a market where countries, organizations, or enterprises are forced by law to audit and decrease greenhouse gas emissions, as well as to engage in activities such as exchange, trading, and transfer of greenhouse gas emission quotas and carbon credits. Emission reduction must comply with mandatory regulations of countries, regions, and international organizations.
(ii) Voluntary carbon market: based on bilateral or multilateral cooperation agreements between organizations, enterprises, or countries. Credit buyers participate in transactions voluntarily in order to comply with environmental, social, and corporate governance policies.
For the first time in Vietnam, the Law on Environmental Protection 2020 regulates the establishment and development of the domestic carbon market. The Ministry of Natural Resources and Environment is in charge of determining the quota allocation method, as well as the carbon credit exchange and offsetting mechanism that will be applied in the Emission Trading System. The government has issued Decree No. 06/2022/ND-CP on mitigation of greenhouse gas emissions and protection of the ozone layer, which contains regulations on reducing greenhouse gas emissions, along with forming and developing the carbon market.
The domestic carbon market covers activities such as greenhouse gas emission quotas exchange and carbon credits obtained from participation in domestic and international carbon credit exchange and offsetting mechanisms in compliance with laws and treaties to which Vietnam is a signatory party. Greenhouse gas emission quotas exchange and carbon credits trading means buying, selling, auctioning, borrowing, returning, and transferring greenhouse gas emission quotas and carbon credits on the carbon trade exchange.
A carbon trade exchange is a center for processing transactions related to purchases and sale of carbon credits, greenhouse gas emission quotas; and auctioning, borrowing, returning, and transferring quotas and carbon credits.
3. Roadmap for the development of the domestic carbon market
The roadmap for the development of the domestic carbon market is as follows:
(i) During the period until the end of 2027, the following actions will take place:
- Development of regulations for managing carbon credits, emissions trading limits, and carbon credit exchanges; establishment of operational rules for the carbon credit trading platform.
- Implementation of pilot mechanisms for carbon credit exchange and offset in potential sectors, along with guidance on the implementation of these mechanisms, both domestically and internationally, in accordance with the laws and international agreements as Vietnam is a member of.
- Establishment and operation of the pilot carbon credit trading platform starting in 2025.
- Implementation of activities to enhance capabilities and raise awareness about carbon market development.
(ii) Starting in 2028, the following steps are planned:
- Official operation of the carbon credit trading platform in 2028.
- Establishment of regulations for linking and exchanging carbon credits domestically with regional and global carbon markets.
In summary, beginning in 2028, large enterprises and emitters will be forced to make investments in emission reduction strategies, which will undoubtedly incur significant costs. If factories or enterprises are unable to decrease emissions or comply with emission reduction and offset mechanisms, they are required to purchase carbon credits to offset their emissions.
The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at firstname.lastname@example.org. BLawyers Vietnam would love to hear from you.
Date: 15 September 2023
Writer: Linh Nguyen