Carbon credits: the potential benefits that parties should take note of when conducting M&A transactions in Vietnam

Carbon Credit Is The Potential Benefit

As climate change is an urgent global issue, demand for carbon credits is increasing and carbon credits are becoming a valuable asset. Enterprises can use carbon credits to offset their emissions, meet emission reduction requirements, or apply to their business. This creates opportunities for businesses and organizations that own greenhouse-gas emission reduction projects, including in mergers and acquisitions (M&A) deals. Carbon credits are one of the benefits that renewable energy projects aim to have in the future.

In this article, BLawyers Vietnam explains the potential benefits of carbon credits that parties need to pay attention to when conducting M&A transactions.

1. What are carbon credits?

A carbon credit is a certificate representing the right to emit one ton of carbon dioxide (CO2) or an equivalent amount of other greenhouse gas synthesized as 1 ton of CO2 equivalent.

A ton of CO2 equivalent is the amount of greenhouse gas 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.

2. Why should parties involved in M&A transactions note that carbon credits are a potential resource?

Carbon credits are a potential resource that parties involved in M&A transactions need to pay attention to for the following reasons:

(i) Carbon credits have commercial value

Carbon credits have commercial value and can be bought, sold or traded on the carbon market. The price of carbon credits can vary depending on the location and market where they are traded. Enterprises and organizations that own greenhouse-gas emission reduction projects can sell carbon credits to other enterprises or environmental organizations. This could be a new and potential source of revenue for businesses.

(ii) Carbon credits can help businesses and organizations reduce costs

Enterprises can use carbon credits to offset their emissions, instead of having to invest in emission reduction measures such as installing energy-saving equipment, switching to renewable energy, etc. This can help enterprises save significant costs, especially for organizations that have difficulty in directly reducing emissions.

(iii) Carbon credits can help increase business value and create competitive advantages

Enterprises and organizations that own greenhouse-gas emission reduction projects are responsible for the environment, so this can help them increase business value, especially for businesses with environmentally friendly business activities.

In addition, organizations with many carbon credits can use them to demonstrate their commitment to emission reduction. This can help organizations attract customers and investors interested in environmental issues.

3. What should parties involved in M&A transactions pay attention to?

To maximize the potential benefits of carbon credits, parties involved in M&A transactions need to pay attention to the following issues:

  1. Determining whether the target enterprise owns any greenhouse-gas emission reduction projects. This is an important factor to consider when assessing the potential benefits of carbon credits. Parties involved in M&A transactions should request the target business to provide information about its carbon credits, including the number of carbon credits, the value of the carbon credits, and plans for using the carbon credits in the future.
  2. Evaluating the economic potential of the target business’s carbon credits. Parties can use market valuation tools to estimate the value of carbon credits. Currently, the price of carbon credits can fluctuate over time, so information needs to be updated periodically and regularly.
  3. Identifying the market demand for the type of carbon credit that the target business or organization owns.
  4. Considering the impact of carbon credits on the development strategy of the new business. Parties should consider using carbon credits to reduce emission costs, attract customers and investors, or meet other objectives.

In summary, during an M&A deal, understanding carbon credits and the carbon market can help parties more accurately assess the value of the business. At the same time, owning carbon credits can also increase the value of the enterprise during the M&A process. Therefore, parties involved in M&A transactions should be aware that carbon credits are a potential benefit.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 26 December 2023

Writer: Linh Nguyen

blawyersvn-cta-image

Request a consultation

To schedule a meeting with BLawyers Vietnam’s attorneys, please call us or complete the intake form below. We will respond within 24 hours.

This field is for validation purposes and should be left unchanged.