Forest carbon credits are generated from the volume of carbon reduced or absorbed through projects that prevent deforestation and forest degradation, promote sustainable forest resource management, and conserve or enhance carbon stocks. In Vietnam, forest carbon absorption and storage services were codified in the Law on Forestry 2017, making them one of the five recognized forest environmental services.
The country is now accelerating efforts to finalize the legal framework needed to operate a carbon trading exchange by 2029. This represents an important step towards linking the country’s forest potential with the rapidly-growing global stream of carbon finance, while creating significant space for the development of a domestic forest carbon market.
Path forward
According to the United Nations Environment Programme (UNEP)’s “State of Finance for Forests 2025” report, global capital flowing into forest development projects and nature-based climate solutions doubled during 2020-2024 compared with the previous five-year period. Approximately $23.5 billion a year is being invested in protecting and restoring forests worldwide, up significantly from less than $12 billion annually in the preceding period. This surge underscores why forest carbon credits are increasingly viewed as a promising “green finance channel” within the global carbon market.
Vietnam’s carbon trading exchange is yet to be officially launched, but the country has already achieved an important milestone in successfully selling 10.3 million forest carbon credits internationally through the World Bank at $5 per credit, generating $51.5 million. With its substantial forest area and ongoing sustainable forestry initiatives, this deal is seen as a landmark transaction that helps define Vietnam’s capacity to supply forest carbon credits. It also signals strong prospects for future market activity.
Experts estimate that with 15 million ha of forest, Vietnam could generate $50-100 million annually from forest carbon credits. To develop the market and unlock this potential, Ms. Nghiem Phuong Thuy from the Forestry and Forest Protection Department at the Ministry of Agriculture and Environment, said the Ministry is building four central policy directions to institutionalize forest carbon absorption and storage services and to establish the foundations for a transparent, effective and sustainable forest carbon market.
The first direction focuses on completing the legal framework for forest carbon absorption and storage services. This framework must also ensure compliance with Vietnam’s Nationally Determined Contribution (NDC), preventing the issuance or sale of credits beyond the country’s emission reductions commitments. In parallel, the government is drafting decrees related to managing the domestic carbon exchange, including provisions for a compliance market, trading mechanisms, and monitoring systems.
The second direction involves building technical frameworks and standards for the forest carbon market. This includes developing a national forest carbon standard that will serve as a foundation for project registration and validation under a unified domestic system, rather than relying entirely on international standards. Pilot projects aligned with the national standard during the carbon market’s trial phase (ending in 2028) will help refine measurement, reporting and verification (MRV) methods and test their applicability, providing a basis for future expansion.
Ms. Thuy stressed that allocating NDC quotas to individual projects will be crucial to avoid overselling beyond national commitments, and Vietnam will also need a national registry system for carbon quotas and credits to issue, track, and store credits before they are traded.
The third direction centers on mobilizing resources. Alongside international financing and private sector investment, Vietnam is working to effectively channel funding from local budgets and national programs to support forest carbon initiatives.
The fourth direction emphasizes communication, training, and capacity building. “Developing a forest carbon market is a new endeavor that requires consistent understanding across government agencies, local authorities, forest owners, businesses and civil society organizations,” Ms. Thuy said. Training in carbon market mechanisms, technical standards, MRV methodologies, credit trading, and risk management will help ensure that all participants can operate projects efficiently and transparently.
Role of financial institutions
To build a viable forest carbon market, experts recommend that Vietnam strengthen its institutional and legal frameworks, diversify financial resources, and expand access to carbon finance and blended finance models. They also highlight the importance of international cooperation and proactive engagement with global funding programs.
At the same time, simplifying administrative procedures and improving implementation guidelines will be essential to attract investment and enhance stakeholder readiness. Financial institutions are also expected to play an increasingly critical role in scaling both forest carbon projects and the broader market.
According to Ms. Tran Hong Nhung from Flinders University in Adelaide, Australia, limited State budget capacity and constraints in domestic enterprises mean commercial banks, insurance companies, investment funds, guarantee funds, and local financial mechanisms will become key providers of capital, technical assistance, and confidence building for green forestry projects. “These institutions not only provide credit but also offer flexible and diversified financial mechanisms, from loan guarantees to equity investment and public-private partnerships – helping businesses leverage capital more effectively to implement forest carbon projects,” Ms. Nhung said.
Small and medium-sized enterprises (SMEs), which often face procedural barriers and high collateral requirements, could benefit significantly from financial products tailored to reduce administrative burdens and offer more flexible terms. Financial institutions can also support project preparation, risk assessment and documentation, enabling enterprises to meet MRV requirements and secure project verification; an essential step before credits can be commercialized.
Regarding the potential role of financial institutions, Ms. Nhung outlined three principal functions. First, they can supply capital, both directly or indirectly, for carbon project implementation, forest management and protection, reforestation, and investment in technical MRV infrastructure. Second, they can provide advisory support and develop specialized financial instruments such as green loans, carbon bonds, credit guarantees, and profit-sharing models. And third, financial institutions also play a vital role in helping businesses connect with international standards and markets, ensuring higher value and more tradable carbon credits.
With Vietnam’s net-zero commitments to 2050, rich biodiversity, and the significant potential of its forest carbon market, the opportunities to mobilize resources for forest carbon services are substantial. However, experts emphasize that turning this potential into reality will require collective action from all levels of government, development partners, researchers and the private sector to create additional value for forests and effectively mobilize resources for conservation and sustainable forestry development.
Bao Tram
