Vietnam is projected to emit over 900 million tonnes of greenhouse gases under standard scenarios, photo Le Toan

Vietnam has room to acquire hundreds of millions of US dollars from international carbon trading and emission reduction exchanges, generating benefits for businesses and supporting the nation’s green goals.

The Vietnamese government, in late August, approved the transfer of one million tonnes of CO2 emission reductions generated from plantation forests in the north-central region to the International Bank for Reconstruction and Development (IBRD), a member of the World Bank Group.

The credits form part of the 5.9 million tonnes of surplus CO2 reductions remaining after Vietnam’s initial transfer under the first phase of its Emission Reductions Payment Agreement, which generated revenues of $51.5 million.

Under the agreement, about 95 per cent of these credits will be returned to Vietnam to support its Nationally Determined Contributions (NDCs), the country’s greenhouse gas (GHG) reduction commitments submitted biennially to the United Nations under the Paris Agreement.

The transfer price is based on the payment terms signed five years ago between Vietnam and the IBRD. With the previous average rate of $5 per tonne, the additional one million credits could bring in an estimated $5 million.

Funds raised will be allocated to forest owners, local commune authorities, and organisations tasked with managing natural forests across some provinces involved in the programme, including Thanh Hoa, Ha Tinh, Quang Tri, and Hue. A portion will also support groups engaged in forest protection, sustainable livelihoods, and income improvement for local communities.

Deputy Minister of Agriculture and Environment Nguyen Quoc Tri described this as only the beginning. “Calculations show that Vietnam could sell around 40 million more credits. At $5 per unit, this could bring in $200 million, comparable to the annual public investment of many sectors,” he said.

According to ministry leaders, Vietnam must quickly establish domestic capacity in research, assessment, and the issuance of carbon credits in line with international standards, rather than relying on external institutions.

To evaluate the impact of international carbon credit trading, experts at Green Climate Innovation (GreenCIC), the project’s consulting firm, modelled nine different scenarios, focusing on two key factors: the portfolio of mitigation measures eligible for transfer and the percentage of credits retained to meet national targets.

At a consultation workshop on assessing the impact of Vietnam’s carbon credit trading and emission reduction results in the international market, organised on August 20 by the Southeast Asia Energy Transition Partnership in collaboration with the Department of Climate Change under the Ministry of Agriculture and Environment (MoAE), experts of GreenCIC showed that the 20 mitigation measures (S20) scenario allows only 20 mitigation measures under the conditional NDC target to participate in trading, with a maximum trading limit of 90 per cent.

Meanwhile, if Vietnam adopts the 56 mitigation measures (S56) scenario with a 50 per cent retention rate, the economy could gain an average of 0.43 per cent of GDP annually between 2025 and 2030. This substantial figure, equivalent to billions of US dollars, would also stimulate investment, consumption, and job creation.

“The total carbon credit demand of partner countries is projected at 444.6 million tCO2 for the period 2025-2030. Under the scenario with S20 and a 90 per cent trading cap, Vietnam can supply only 26.6 million credits, meeting about 6 per cent of the projected demand from partners. In the S56 scenario, the demand coverage could reach up to 100 per cent if a 70 per cent trading cap is applied,” said Ho Cong Hoa, representative of the Academy of Policy and Development.

“With a trading limit of 70-90 per cent, the ratio is 0.95 - for every $1 of investment cost, the enterprise will gain 95 US cents in profit. Thanks to the carbon market, enterprises can optimise their choices in production and business activities, enhance their competitiveness, and fulfil their social responsibilities towards environmental and climate change issues,” Hoa added.

Assoc. Prof. Dr. Nguyen Dinh Tho, deputy director of the MoAE’s Institute of Strategy and Policy on Agriculture and Environment, said Vietnam’s net-zero ambitions are more ambitious than many other developing economies competing directly with Vietnam.

Under its NDCs, Vietnam is projected to emit over 900 million tonnes of GHGs under the business-as-usual scenario. In its updated NDCs in 2022, the country committed to a reduction of 15.8 per cent, with the potential to raise this to 43.5 per cent or just 45 million tonnes of CO2 if international support is forthcoming.

“This clearly shows that delivering on the NDCs cannot be achieved without concrete financial solutions. Without mobilising such resources, commitments will be difficult to realise. The carbon market is therefore regarded as one of the critical tools to meet these pledges,” Tho said.