With ambitious emission reduction targets and a growing emphasis on sustainable development, Vietnam is harnessing carbon markets to propel its transition to a low-carbon economy.
The journey towards establishing a carbon market in Vietnam began in 2015 when it joined the Partnership for Market Readiness (PMR), a World Bank initiative aiding developing countries in setting up legal frameworks and testing carbon trading systems. This laid the groundwork for subsequent legislative actions.
In December 2021, Vietnam took a significant step forward by forming a National Steering Committee to oversee the realization of its commitments made at the 2021 United Nations Climate Change Conference (COP26), which included achieving net-zero carbon emissions by 2050.
Further solidifying the regulatory framework, Vietnam introduced Decree 06/2022/ND-CP in January 2022. This decree outlines a phased approach for developing the carbon trading system, with the first phase focusing on crafting regulations for managing carbon credits and initiating trading activities.
The second phase, set to commence in 2028, will mark the official launch of a carbon credit trading platform and the integration of the domestic market with regional and global counterparts, enhancing participation and market liquidity.
Under the forthcoming system, industries exceeding their carbon emission limits will need to purchase additional credits to offset their surplus emissions, enforced with administrative fines for non-compliance, thereby incentivizing active emission reduction efforts.
While Vietnam continues to work towards establishing a robust domestic carbon market, it has already gained valuable insights through indirect participation in international carbon trading schemes like the Clean Development Mechanism (CDM) and Joint Crediting Mechanism (JCM), alongside engaging in initiatives like REDD+.
Vietnam’s abundant forest resources present significant opportunities for forestry-based carbon projects. The province of Quang Nam has spearheaded this by piloting a forest carbon credit project, potentially yielding substantial economic returns.
Maximizing the effectiveness of such projects requires determining carbon rights and equitable benefit-sharing mechanisms, placing local communities at the forefront of benefit distribution.
The prospect of a domestic carbon market in Vietnam not only promises emissions reduction but also opens up new economic avenues, domestically and internationally. With the burgeoning voluntary carbon market in Asia, Vietnamese companies stand to export high-quality credits to meet the offsetting needs of businesses, particularly in hubs like Singapore.
Moreover, the implementation of carbon-related trade barriers could offer Vietnamese exports a competitive edge, provided they meet international emissions standards, thereby avoiding potential tariffs and enhancing global market access.
Foreign investors are also showing keen interest in Vietnam’s carbon market potential, particularly in forestry carbon projects, although specific government policies guiding such investments are currently lacking.
Despite the progress made, Vietnam faces challenges such as the need for a comprehensive legal framework, stronger international collaboration, and heightened awareness among businesses and the public. To overcome these hurdles, the government is pushing sustainable development and green growth initiatives, with plans for carbon pricing instruments and compliance-based carbon credit markets.
Vietnam’s commitment to green transformation has garnered support from international organizations like the Organisation for Economic Co-operation and Development (OECD), recognizing its potential to establish a vibrant and effective carbon market.
As Vietnam continues on its journey towards establishing a carbon market, the benefits are vast. Beyond emissions reduction and climate goals attainment, a well-functioning carbon trading system could generate new revenue streams, foster economic opportunities for forest-dependent communities, and position Vietnam as a leader in the global transition towards sustainability.
Dean Dougn
