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Carbon credits are certificates that can be traded commercially and represent the right to emit a certain amount of CO2 or another amount of CO2-equivalent greenhouse gasses. One credit is equivalent to 1 ton of CO2 or 1 ton of CO2 equivalent.

The carbon credit trading market is an economic mechanism to reduce CO2 emissions by setting emission limits and allowing companies to buy and sell carbon credits.

Accordingly, each enterprise and manufacturing factory has a given amount of greenhouse gas emissions released into the environment. If it is higher than the given quota, they will have to buy more carbon credits to avoid violating general regulations on environmental protection. On the contrary, if the actual emission is less than the limit, they can sell their unused carbon credits to others.

According to the Ministry of Agriculture and Rural Development, buying and selling emission reduction credits on the market is an advanced method that is now being implemented by more and more countries, thus helping form a carbon market, also known as the exchange market for greenhouse gas emission reduction credits. This is a market where the goods bought and sold are the amount of greenhouse gasses that are reduced or absorbed. The parties involved in buying/selling can be businesses exchanging with each other, or between domestic entities and international entities (possibly financial institutions or businesses).

In fact, in the past few years, Vietnam has successfully sold carbon credits for up to US$60 million. In particular, the Vietnam Livestock Biogas Program has been implemented in 53 provinces, with 181,683 biogas plants built to date, benefiting 1 million people in rural areas. Through this program, Vietnam has sold 3,072,265 carbon credit units for US$8.1 million. In 2023, Vietnam successfully transferred more than 10 million carbon credits and earned more than US$50 million. This is the premise for many organizations, individuals and localities to care about the carbon credit market, which has rich potential.

According to the assessment, Vietnam's agricultural sector, from livestock, crop cultivation to forestry, has the potential to shift to cultivation and production to reduce greenhouse gas emissions, with solutions for circular agricultural production, ecological agriculture and organic agriculture. The agricultural sector has the potential to provide about 57 million carbon credits a year (equivalent to 57 million metric tons of emissions reduction), which can be sold to international organizations for nearly US$300 million a year.

Nonetheless, Vietnam currently mainly participates in the voluntary carbon market where selling prices are low, only US$5 a credit, because it has not signed any bilateral agreements, so it cannot sell carbon credits in the mandatory market where a selling price is up to hundreds of USD a credit. The voluntary market is the easiest to join, but there will be a time limit for assessment. If the deadline is passed, the system will automatically return the carbon credit to zero. The mandatory market does not have to adjust the quota while the voluntary market adjusts it every year. Many countries, including Vietnam, have gradually increased this quota as a way to demonstrate responsibility in the Nationally Determined Contributions (NDC), the voluntary commitment of each country.

To sell carbon credits in the voluntary form, each country must create carbon above the NDC level. Importantly, participating in the carbon credit market is pricing carbon. There are three international pricing systems, but only two can be used in Vietnam, namely the quota trading system and the carbon credit mechanism.

Vietnam chooses to operate the carbon market to reduce greenhouse gas emissions, moving towards a compliant carbon market with a trading exchange where relevant entities must comply. The main trade on the carbon exchange is the greenhouse gas emission quota applied to each corporate entity and carbon credits are only the offset items.

The Government issued Decree 06/2022/ND-CP on mitigation of greenhouse gas emissions and protection of the ozone layer. This decree specifically stipulates the development roadmap and the implementation timing of the domestic carbon market.

Accordingly, by the end of 2027, regulations on carbon credit management, greenhouse gas emission quota and carbon credit trading will be formed; regulations on the operation of the carbon credit exchange will be established; a pilot carbon credit exchange and offset mechanism will be implemented in potential sectors and guidelines for the implementation of the domestic and international carbon credit exchanges and offset mechanisms will be applied in accordance with the laws and international treaties to which Vietnam is signatory.

In particular, in 2025, a carbon credit exchange will be established and operated on a pilot basis; capacity building activities will be implemented and awareness of carbon market development will be raised. The Ministry of Natural Resources and Environment will submit the total emission quota for each period to the Prime Minister for application, thereby allocating carbon emission quotas to companies subject to greenhouse gas emission inventories.

The official carbon credit exchange will be put into operation from 2028. There will be regulations on the activities of connecting and exchanging domestic carbon credits with regional and global carbon markets.

Carbon credits are not only a tool for environmental management and protection, but also a business and development opportunity. Participating in the carbon credit market not only brings business benefits but also contributes to the sustainable development of society. These great benefits are the goals of the Government and Vietnamese companies in the future.