A size that suits
It is crucial to identify an appropriate size for the carbon market Vietnam will pilot in 2025 and officially operate by 2028
Asurvey conducted by the Energy and Environment Consulting JSC (VNEEC) on 537 Vietnamese businesses in the field of industry and trade, construction, waste treatment, and transport nationwide with emissions estimated at over 10,000 tons of carbon dioxide equivalent, found that the proportion of those to have conducted greenhouse gas inventories stood at over 35 per cent, while 57.38 per cent had not yet formulated plans to reduce emissions and only some 28 per cent had already established such plans.
In particular, over half had heard about Vietnam’s Emission Trading System (ETS) and the carbon market but lacked knowledge about the fundamental operating principles, while a few were completely unaware of ETS and the carbon market and just 1.27 per cent understood how they operated.
Historical data for the pilot
Ms. Dang Hong Hanh, Team Leader, Climate Change Policy Expert, Co-Founder, and Executive Director of VNEEC, said Vietnam’s carbon market is regulated by various legal documents, including the Law on Environmental Protection 2020, which creates a basic legal framework for the formation of a carbon market, and Decree No. 06/2022/ND-CP from 2022 on the mitigation of greenhouse gas emissions and the protection of the ozone layer, which provides detailed regulations on reducing greenhouse gas emissions and forming and developing a carbon market.
In addition, Decision No. 01/2022/QDTTg from the Prime Minister promulgated a list of fields and facilities emitting greenhouse gases that were required to conduct inventories, and a list of participants in the carbon market. The Decision is updated every two years. There were initially 1,912 businesses obliged to report on their greenhouse gas inventories, with the figure estimated to increase to nearly 3,000 this year.
Vietnam has also developed tools for managing greenhouse gas emissions, including the ETS and a mechanism for calculating carbon credits, which will be piloted in 2025-2027, as well as nonmarket tools such as regulations for the direct control of emissions, technology and financial support, and support in capacity improvements.
Under regulations, the development roadmap for a carbon market in Vietnam includes a preparatory period from 20212024, pilot implementation from 20252027, when a carbon credit transaction floor will be set up and operating, and official operations from 2028.
The three main subjects involved in a carbon market in Vietnam are: (i) domestic organizations participating voluntarily; (ii) facilities with greenhouse gas emissions that are required to conduct greenhouse gas inventories, such as power plants, industrial production facilities, cargo transportation companies, commercial buildings with a total amount of energy consumption exceeding 1,000 tons of oil equivalent, and solid waste treatment facilities with a capacity of over 65,000 tons; and (iii) other individuals and organizations who engage in investment and business activities in the field of carbon credit trading.
In order to effectively implement the roadmap, Ms. Hanh proposed selecting a plan for the pilot phase and designing an ETS while issuing related legal documents, including defining and allocating the greenhouse gas emissions quota.
Pilot activities are to be carried out in 2025 and 2026 together with preparing full ETS designs and issuing additional legal documents for the pilot phase and ETS design. The ETS will be in full operations from 2028.
Ms. Hanh also noted that one important matter is that the national database must consist of data on greenhouse gas emissions inventories at all levels in order to allocate quotas. The current Decree No. 06 only regulates a quota allocation method based on the average emissions in a sector. However, when consulting with the steel sectors in South Korea and the EU, they told her it took them seven years to obtain data about their greenhouse gas emissions inventory.
Therefore, experts recommended that it is initially necessary to apply historical data in the pilot phase while identifying the appropriate process of quota allocation. According to Ms. Hanh, greenhouse gas emissions data for the three levels of businesses, localities, and ministries play a crucial role in setting correct quotas for businesses.
Specific plans needed
Regarding operational coordination and the stability of the carbon market, she said it is necessary to decide what and when intervention measures will be taken. South Korea, for example, initially did not intend to intervene in the market. However, when the price become too high or too low, it intervened by adjusting policies.
The VNEEC also noted that the pilot period is quite short, from now to 2025, while it has taken other countries three to six years. Political determination from the government is therefore required, as are more detailed documents and the active participation of different parties. It is necessary to carry out a host of tasks at the same time, and to choose an appropriate scale for the pilot. In particular, there are many new technical and administration issues relating to an ETS, which calls for human resources training and the issuance of legal documents to guide implementation in 2024.
The biggest challenge in operating an ETS is the lack of data about businesses with huge greenhouse gas emissions, which have a reporting deadline of March, 2025. “We need to conduct pilot implementation at the most feasible scale,” Ms. Hanh said. “Thailand, for example, started with seven enterprises and Indonesia 32, of which 75 per cent were operating in the field of electricity.” She emphasized that a carbon market can change rapidly, and so called for flexible policies that can be constantly adjusted.
Mr. Björn Fondén, an international policy advisor from the International Emissions Trading Association (IETA) said there are many benefits for businesses, including having the opportunity to join the domestic and international carbon markets, which will bring them additional revenue; attracting green investment, thus improving their competitiveness from innovating and manufacturing products with advanced technology; promoting the capacity of technology renewal and entering new markets; and mitigating financial, production, and trade risks.
Therefore, businesses need to build a plan on mitigating greenhouse gas emissions; understand their starting point and assess their current emissions situation and climate change risks; build a strategy with clear targets and adaptation solutions; identify and implement greenhouse gas emissions reduction initiatives and strategies, renew technology, and join the carbon market; and build long-term value.
Ms. Roxanne Tan, Senior Manager of Climate Policies, Finance, and Carbon Markets at consultants South Pole, said that in order to take part in a carbon market, businesses need to prepare and report on their greenhouse gas emissions inventory through comprehensively examining the whole process and activities that emit greenhouses gases, to prevent any duplication. At the same time, it is necessary to establish an internal carbon pricing strategy to orient the business to develop a long-term strategy on decarbonization, and to regularly monitor progress of sectors and policies.
During the 2026-2030 period, she continued, Vietnam should identify measures to reduce greenhouse gas emissions and analyze expenses and benefits from gas emissions mitigation solutions, while developing technical tools to implement such measures on the basis of a carbon pricing policy within the framework of the ETS, and putting the government’s gas emissions reduction programs into practice. ■