The Situation of Carbon Credits in Vietnam

What is carbon credits?

Carbon credits are a permit that allows the owner to emit a certain amount of carbon dioxide or other greenhouse gases. In the market, the buying and selling of carbon, or more precisely, the buying and selling of CO2 emissions, is conducted through carbon credits. One carbon credit permits the emission of one ton of carbon dioxide or its equivalent in other greenhouse gases.

One carbon credit permits the emission of one ton of carbon dioxide or its equivalent in other greenhouse gases

The development of the carbon credit market in Vietnam is one of the economic tools introduced into the Environmental Protection Law since 2020. However, to date, the recognition and issuance of carbon credits still depend on third parties, such as international organizations or mechanisms.

Why is it necessary to implement carbon credits?

The primary goal of carbon pricing and establishing a carbon market is to mitigate greenhouse gas emissions, contribute to climate change mitigation, and achieve other sustainable development goals. Carbon credits represent a new commodity created when emission reduction or greenhouse gas absorption activities are implemented, monitored, and traded, similar to other commodities. Therefore, carbon credit exchange is often referred to as the carbon market. Through the carbon market, emissions can be reduced at a lower cost to businesses and society, driving low-emission technology development and enhancing the competitiveness of enterprises.

Furthermore, the application of carbon credits offers various benefits to stakeholders, such as:

• For sellers: Income from selling carbon credits to parties interested in emissions reduction; opportunities to access new sources of funding, technology, and knowledge to improve production efficiency and reduce costs; credibility and reputation with customers, partners, and the community.
• For buyers: Opportunities to comply with emissions reduction regulations by governments or voluntary commitments; a competitive advantage in international markets; social responsibility and environmental protection.
• For governments: Tools to regulate and incentivize emissions reduction activities; revenue from taxes or non-tax revenue from carbon credit transactions; support from international and non-governmental organizations in building and operating the carbon market.

The Situation of Carbon Credits in Vietnam

Vietnam has been a pioneer in participating in international carbon credit mechanisms such as the Clean Development Mechanism (CDM) and Joint Crediting Mechanism (JCM). According to the Ministry of Natural Resources and Environment, Vietnam has had 256 recognized CDM projects, estimated to reduce emissions by 317 million tons of CO2. Among them, 185 projects have issued over 100 million carbon credits, generating over VND 15,000 billion in revenue. Additionally, Vietnam has implemented 34 JCM projects with Japan, reducing an estimated 1.6 million tons of CO2 emissions. Seventeen of these projects have issued over 500,000 carbon credits, receiving nearly USD 35 million in support.

Hơn 500.000 tín chỉ carbon nhận được gần 35 triệu USD hỗ trợ

However, the application of carbon credits in Vietnam still faces numerous difficulties and challenges, such as:

• Lack of domestic legal regulations and management systems for carbon credits; absence of standards and procedures to determine, monitor, and audit emissions reduction and removal; insufficient databases and information on resources and emissions reduction potential.
• Insufficient human resources, financial resources, and technology for carbon credit-related activities; a lack of incentives and support mechanisms for participants; limited awareness and interest among stakeholders regarding the benefits and application of carbon credits.
• Limited collaboration and cooperation among ministries, localities, businesses, and domestic and international organizations in building and developing the carbon market; lack of integration and participation in regional and international carbon credit mechanisms and initiatives.

Future Directions

To address these challenges, Vietnam has taken steps to build and develop the domestic carbon market. On January 7, 2022, the government issued Decree No. 06/2022/ND-CP on greenhouse gas emissions reduction and ozone layer protection. This decree outlines a clear roadmap and timeline for the development and implementation of the domestic carbon market, including:

• Phase 1 (2021 - 2025): Establishing legal frameworks, management systems, standards, procedures, and databases; identifying resources and emissions reduction potential; building and testing domestic carbon market models for selected sectors with high emissions reduction potential.
• Phase 2 (2026 - 2030): Testing and implementing the domestic carbon market for sectors with high emissions reduction potential; participating in regional and international carbon credit mechanisms and initiatives; supporting and encouraging participation in the carbon market.
• Phase 3 (from 2031): Completing and expanding the domestic carbon market to all sectors; integrating and participating in regional and international carbon markets; ensuring fairness, transparency, and effectiveness in the carbon market.

Furthermore, Vietnam has engaged in various activities to support the development of the carbon market, including:

• Participation in international carbon credit projects, such as the Partnership for Market Readiness (PMR) project sponsored by the World Bank, the Low Carbon Transition in Energy Efficiency (LCT) project funded by the European Union, and the Carbon Pricing Leadership Coalition (CPLC) coordinated by the World Bank.
• Organizing awareness-raising, training, advocacy, and communication activities on carbon credits for stakeholders, including government agencies, businesses, social organizations, and communities.
• Promoting research, development, and application of greenhouse gas reduction technologies, such as renewable energy, energy-efficient technologies, and fuel-switching technologies.

In Conclusion

Carbon credits are an effective economic tool for mitigating greenhouse gas emissions and addressing climate change. Vietnam has made significant progress in implementing carbon credits, but there is still much work to be done to build and develop the domestic carbon market. This requires the attention and collaboration of stakeholders both within and outside the country to fulfill international commitments and achieve Vietnam's sustainable development goals.