Possessing Potential
The establishment of a carbon market in 2028 will offer many benefits to Ho Chi Minh City.
At the “Carbon Market Policy: Forecasting Impact and Guiding Policies from Ho Chi Minh City” workshop, held recently by the University of Economics Ho Chi Minh City (UEH), Professor Su Dinh Thanh, Director of the UEH, emphasized the role of a carbon market in socioeconomic development.
“Participating in the international carbon market will help Ho Chi Minh City enhance its international standing in joint efforts to combat climate change,” he told the gathering. “Effectively utilizing the unique mechanisms and policies as stipulated by Resolution No. 98/2023/QH15, which was passed by the 15th National Assembly and contains specific mechanisms for the development of Ho Chi Minh City, will enable the city to seize opportunities, minimize challenges, and contribute to achieving the goal of reducing greenhouse gas emissions and promoting sustainable socio-economic development.” This is a significant advantage for the city’s government in asserting its leadership, dynamism, and creativity while prioritizing environmental protection and sustainable development.
A carbon market is an effective tool aimed at reducing greenhouse gas emissions towards achieving Vietnam’s goal of net-zero emissions by 2050, and will contribute to improving environmental quality and enhancing public health, particularly in terms of economic efficiency. It will also provide incentives for businesses to innovate technologies and use production inputs more efficiently, thereby contributing to increasing Total Factor Productivity (TFP) and enhancing competitive strength (according to “Porter’s Five Forces”: Competitive Rivalry, Supplier Power, Buyer Power, Threat of Substitution, and Threat of New Entry).
Furthermore, a carbon market will also create investment attraction opportunities in the field of renewable energy and environmental technology and bring in international climate finance, stimulating the growth of the green economy and creating new job opportunities.
Opportunities & challenges
UEH has made significant contributions in recent times to building and implementing a carbon market for Ho Chi Minh City. It has collaborated with local authorities in conducting research on the matter, as well as the impact of the Carbon Border Adjustment Mechanism (CBAM), and has proposed solutions in adaptation, including potential assessments, development of models, and appropriate policy measures. It has also provided advisory services to local government agencies, businesses, and other involved parties regarding a carbon market and associated initiatives.
Many experts and scientists at the workshop identified that Ho Chi Minh City holds great potential for piloting and operating a carbon
market, which should bring numerous benefits to both the city and the country.
As an active member of the Advisory Council of the Ho Chi Minh City People’s Committee for implementing Resolution 98, in charge of environmental issues, UEH and its carbon market research team have contributed several topics of discussion to city authorities. It will also actively participate in studying a carbon market.
According to Professor Thanh, establishing and operating a carbon market is a difficult matter, as there has been little research into such a market in Ho Chi Minh City. Therefore, he proposed, research should be focused on policies for operating a carbon market in line with mechanisms under Resolution No. 98, in order to prevent any adverse effects, promote sustainable economic growth, and transform business mindsets towards a green economy and a circular economy, etc.
To strengthen the role of carbon credit issuers in the voluntary carbon market, it was agreed at the workshop that Ho Chi Minh City should prioritize policy-making that regulates such a market in a favorable manner, in conformity with financial mechanisms under Resolution No. 98.
Clear financial mechanisms will help the city reasonably allocate resources while also meeting the financing requirements throughout the lifespan of the carbon market project to ensure the quality and quantity of carbon credits to be issued.
Ho Chi Minh City also needs to issue guidelines directing the management and operation of a carbon market, identifying the roles of each agency in implementation, monitoring, supervision, and evaluation to ensure it meets the requirements of accreditation organizations and successfully issues carbon credits.
As a buyer of carbon credits, Ho Chi Minh City needs to establish a roadmap and research platforms for trading. The authenticity and reliability of carbon credits should be under careful consideration, as different organizations may have their own assessment methods. This requires collaboration with reputable international organizations to develop a verification and monitoring system to ensure market efficiency.
At the same time, the cost burden on each business and industry will also vary, so without appropriate support policies this may cause market disruption. It is therefore advisable to learn from global experience and establish funds for environmental protection purposes. For example, the Environmental Protection Fund in New Zealand supports projects that reduce greenhouse gas emissions by purchasing carbon credits.
In addition to equipping businesses and communities with knowledge and enhancing their awareness of the carbon market, the city government can also introduce a new fee, such as a carbon tax, and use the revenue from this as financial support for companies exporting goods to Europe, as well as for businesses that accelerate their investment in advanced technology that reduces carbon emissions and for those want to become a carbon credit provider.
Joining the international market
A carbon market is a significant economic tool in promoting reductions in greenhouse gas emissions and combating climate change. Mandatory carbon markets have indeed proven effective in reducing greenhouse gas emissions.
For instance, the European Union Emissions Trading System (EU-ETS), which is one of the oldest and most successful mandatory carbon markets in the world, has helped reduce greenhouse gas emissions by more than 40 per cent within the bloc since 2005. The Quebec-California carbon trading market, meanwhile, is a mandatory carbon market in North America, helping reduce greenhouse gas emissions by over 10 per cent in the region since 2013. Since 2021, China has been the world’s largest carbon market in terms of scale, accounting for nearly half of global reductions in greenhouse gases.
In Southeast Asia, only Indonesia has implemented a mandatory carbon market for the energy sector, from February 22, 2023. Vietnam is approaching a pilot phase, from 2025, and will officially operate from 2028, according to Government Decree No. 06/2022/NDCP on the mitigation of greenhouse gas emissions and protection of the ozone layer.
According to a report from Ecosystem Marketplace, the global supply of carbon credits has been rapidly increasing, with approximately 240 million issued during the 2010-2021 period. Of these, 92 million were used in carbon offset programs by organizations and individuals who have mitigated their greenhouse gas emissions, resulting in a total transaction value of $2.4 billion in the entire market, which is expected to stand at around $3.2 billion this year.
Though the formation of a carbon market remains in the preparatory phase, Vietnam has participated in the international carbon market through implementing carbon credit projects since 2005. The first was the Clean Development Mechanism (CDM), and nearly 30 million carbon credits have now been issued. The country also develops projects based on independent international standards.
Carbon Berkeley data reveals that Vietnam has currently registered 71 projects under the Gold Standard (GS) and 53 under the Verified Carbon Standard (VCS), with the respective numbers of credits generated amounting to 7,573,843 and 4,256,407. Additionally, certain projects produce carbon credits under the Joint Crediting Mechanism (JCM) and the mechanism of the Global Carbon Council (GCC). These carbon credit projects in Vietnam primarily focus on renewable energy such as hydro, biomass, solar, and wind, household and community initiatives like biogas, clean water, cooking stoves, and lighting, and waste and forestry management. ■
Though the formation of a carbon market remains in the preparatory phase, Vietnam has participated in the international carbon market through implementing carbon credit projects since 2005. The first was the Clean Development Mechanism (CDM), and nearly 30 million carbon credits have now been issued. The country also develops projects based on independent international standards.