Growing profits
Vietnam can rightly expect to secure a host of carbon credits from the proper management of its agricultural sector.
In a discussion with carbon credit experts in January, Minister of Agriculture and Rural Development Le Minh Hoan said that, in the future, carbon credit markets will become more vibrant and the agricultural sector needs to tap the opportunity to benefit financially.
Credits created
Vietnam has sold carbon credits worth a total $60 million over the past few years. Of these, the Biodigesters program, for a low-carbon livestock sector in Vietnam, built 181,683 biogas plants and has been assessed by international organizations as having contributed significantly to reductions in greenhouse gas emissions. Via the program, Vietnam sold 3,072,265 carbon credits, earning $8.1 million.
Forests have been confirmed as the largest absorbers of carbon dioxide. In 2023, Vietnam’s forestry sector sold 10.3 million forest carbon credits, equivalent to 10.3 million tons of carbon dioxide, through the World Bank (WB) for $51.5 million, at an average price of $5 per ton.
The sale was part of Emission Reductions Payment Agreements (ERPA) in the northcentral region signed on October 22, 2020, between the International Bank for Reconstruction and Development (IBRD) at the WB and the Ministry of Agriculture and Rural Development (MARD).
In early August, 2023, the WB paid the first ERPA installment of $41.2 million to the ministry, or 80 per cent of the contract. The remaining $10.3 million will be paid after the transfer of 10.3 million tons of carbon dioxide is completed.
According to MARD, sub-sectors such as livestock, crop cultivation, and afforestation all hold solid prospects for transitioning towards sustainable farming practices that cut greenhouse gas emissions through circular agricultural production, ecological agriculture, and organic agriculture. It has been estimated that the agricultural sector boasts the potential of securing 57 million carbon credits a year, equivalent to reducing 57 million tons of carbon dioxide emissions. Vietnam therefore has the potential to sell carbon credits worth $300 million annually.
At a recent dialogue entitled “Carbon finance and opportunities for the Vietnamese timber industry”, a representative from the WB said that several international organizations have signed agreements with local or national governments through the Reducing Emissions from Deforestation and Forest Degradation (REDD)+ mechanism to provide financial support aimed at curbing deforestation and restoring forests. The total value of the global carbon market from forests stood at approximately $2 billion in 2023, all of which was channeled through the REDD+ mechanism.
In the three years since 2020, payments for forest carbon absorption credits have grown by 10 per cent each year. Prices range from $1.62 to $8.99 a ton, but the majority of international organizations pay $5 per ton. The total value of global carbon credit trading from forests is estimated at $20 billion by 2030, for a tenfold increase against 2021.
The WB has signed agreements with 15 developing countries, including Vietnam, on the sale of carbon credits generated from preserving forests, at an average price of $5 a ton. Some 95 per cent of these credits will count towards each country’s Nationally Determined Contribution (NDC), while the remaining 5 per cent will be held by the WB.
Prospects for forestry
Deputy Chairman of the Handicraft and Wood Industry Association of Ho Chi Minh City (HAWA), Mr. Phung Quoc Man, told the dialogue that export revenue for wood and wooden products grew 59 per cent year-on-year in the opening two months of 2024 and is expected to reach $16 billion for 2024 as a whole and $25 billion by 2030.
The EU has implemented a Carbon Border Adjustment Mechanism (CBAM) for imported goods since October 1, 2023. Officially applied in various sectors from 2026, the mechanism will impact many of Vietnam’s export sectors. Forestry is one of only a few industries that produce negative greenhouse gas emissions. While many other manufacturing industries view reducing emissions as a challenge, the wood industry sees it as an opportunity, since it possesses large planted forests where carbon credits are created, according to Mr. Man.
“Vietnam currently has 14 million ha of forests, which, if wellmanaged, can generate carbon credits through carbon absorption activities, significantly increasing economic value,” he continued. “If we know how to effectively exploit this source of carbon credits, the wood industry will not only contribute to the net-zero goal but also increase economic efficiency from green finance for forest growers.”
Associate Professor Nguyen Dinh Tho, Director of the Institute of Strategy and Policy on Natural Resources and Environment, said the global regulatory framework states it is necessary to improve global carbon absorption to obtain carbon credits. He suggested that to create these carbon credits, businesses must integrate environmental, social, governance (ESG) practices into their operations and report on their greenhouse gas emissions.
“There is huge potential for generating carbon credits for wood businesses,” said Mr. Nguyen Ngoc Tung, Director General of the Vinacarbon Climate Impact Fund, a private investment fund targeting companies and projects that can create carbon credits. “Timber plays a role in absorbing and storing carbon. Wood can be used as a substitute for other high-emitting materials in the construction industry, such as concrete, plastic, and metal.”
Of the more than 14 million ha of forests in Vietnam, nearly half are production forests. If wood businesses understand that investing sustainably and reducing emissions is a necessary trend to follow, their revenue would not only come from wood processing and forestry but also from investment in large timber forests. It takes time and money to invest in large timber forests, of course, but economic efficiency from forestry products will be higher by three to four-fold compared to exploiting young forests. The longer a tree’s lifespan is, the more revenue a company can obtain from carbon credits.
Mr. Tung added that changing habits in handling what is left over from timber harvests can also generate carbon credits. Normally, after a harvest, anything left over is collected and burned, which not only affects the environment but is also a clear waste of resources. In reality, this can be used as raw materials for production of products such as biomass coal used in agriculture or in waste treatment.
According to many agricultural experts, reducing emissions requires that wood businesses comply with international regulations on sustainable forest management and exploitation, which would also increase their competitiveness and ability to penetrate into large markets, bringing in higher value for wood exports.
Some suggest that the State continue completing related mechanisms and policies to encourage businesses to take part in sustainable forest management and promote the consumption of certified timber and wooden products.
It is also necessary to have mechanisms to objectively and equally monitor all organizations and individuals involved in producing and consuming certified wood materials and wooden products, while supporting capacity building by stakeholders implementing sustainable forest management and greenhouse gas emission reduction activities in order to gain high efficiency. ■