The government last week asked the Ministry of Finance (MoF) to complete the government’s scheme on establishing and developing the carbon market in Vietnam in 2025.

Quotas set limits on how much greenhouse gas facilities are allowed to emit, Photo: Shutterstock

In October, the government mandated the MoF to work with the Ministry of Natural Resources and Environment (MoNRE), and relevant ministries to review legal documents on founding and operating a carbon credit market to be formulated as soon as possible.

Under the latest draft, the market will contribute to reducing greenhouse gas (GHG) emissions under the country’s Nationally Determined Contribution, with low costs for enterprises and society. The scheme will create a new capital flow for decreasing GHG emissions, boost green transition, and develop low-carbon technologies, all while boosting the competitiveness of Vietnamese businesses.

During the next three years, Vietnam will carry out a nationwide pilot for its carbon market, but will not sell carbon credits abroad. In this period, the market will operate exclusively within the country, with all carbon emission quotas to be allocated without auctions, focusing on sectors with the highest emissions.

The official launch of Vietnam’s carbon market is expected to take place in 2029 when the government will auction a portion of carbon emission quotas. By then, the country will have improved the legal system for connecting its carbon market with international markets.

According to the MoNRE, those can be traded on the exchange markets include carbon credits obtained from programmes and projects under domestic and international carbon credit exchange and offset mechanisms, with GHG emission quotas aimed to strengthen regulations to reduce emissions and protect the environment.

However, Lam Nguyen Hoang Thao, senior associate at Russin & Vecchi, told VIR that one of the challenges Vietnam could encounter was the significant lack of sellers and buyers in its carbon market.

“To address this issue, international markets have successfully implemented strategies such as awareness and education campaigns to inform potential project developers about the benefits of carbon trading, as well as regulatory and financial incentives that encourage participation from both sides,” Thao said. “In addition, establishing online trading platforms has facilitated transactions by connecting buyers and sellers more efficiently.”

With financial incentives, currently, a number of banks have started offering preferential interest rates for green projects. These can range from zero to 8 per cent, in comparison to normal loan interest rates typically ranging 8-12 per cent. In particular, TPBank applies an interest rate of zero for renewable and clean energy projects, sustainable transport, agriculture, water and waste management, green construction, and real estate.

“Those projects, once validated by certification organisations such as Gold Standard and the Global Carbon Council, can then generate carbon credits for trading on carbon exchange markets,” Thao said.

According to the MoNRE, businesses in Vietnam must make thorough preparations by reporting their carbon inventory and partaking in carbon credit exchanges.

Companies emitting 3,000 tonnes of CO2-equivalent annually must conduct GHG inventories. More specifically, thermal power plants, industrial manufacturing facilities, freight transport companies, commercial buildings consuming over 1,000 tonnes of oil equivalent, solid waste treatment facilities processing over 65,000 tonnes of waste annually, and livestock operations with more than 1,000 cows or 3,000 pigs, must do the same.

Over 2,100 facilities that have been listed must conduct inventories and submit their reports to the respective provincial people’s committees for review by late April 2025. Amendments can be made to the report, but the final inventories shall be submitted to the MoNRE by December 2025.

From 2025 to 2030, the MoNRE will begin allocating GHG emission quotas to companies and determining the reserved-auctioned quota ratio. One unit of GHG emission quotas is equal to one tonne of CO2-equivalent.

“These quotas will set limits on how much GHG each facility is permitted to emit. Companies must develop and implement comprehensive plans to reduce their emissions in line with the quotas allocated,” Thao said. “These plans will be crucial as only a maximum of 10 per cent of their allocated emission quotas can be met through the purchase of credits from carbon credit markets, pushing companies to focus primarily on internal reductions.”

She suggested that companies can consider solutions for internal reductions such as investing in heat recovery systems, wastewater treatment for reuse, new machinery and equipment to reduce electricity consumption, using biomass to replace traditional fuel, or installing solar panels for production purposes.