Vietnam is accelerating its progress in developing and supporting a strong carbon credit market locally, working towards the goal of achieving net zero carbon emissions by 2050.
What is Carbon Credit market?
According to UNDP, carbon markets are trading platforms where carbon credits are purchased and sold. One marketable carbon credit is comparable to one tonne of CO2 or the equivalent quantity of another greenhouse gas reduced, stored, or avoided. Carbon markets are usually classified into two types: compliance and voluntary.
Compliance markets are the result of any national, regional, and/or worldwide policy or regulatory obligation ( “cap-and-trade” regulations). According to Refinitiv, the entire market size in 2020 will be $261 billion, representing 10.3Gt CO2 equivalent traded on compliance markets.
Voluntary carbon markets, both national and international, relate to the voluntary issuing, purchase, and sale of carbon credits. The present supply of voluntary carbon credits comes mostly from commercial companies developing carbon projects or governments developing programmes recognised by carbon standards that result in emission reductions and/or removals. Demand comes from private people looking to offset their carbon footprints, organisations with corporate sustainability goals, and other players looking to profit by trading credits at a higher price.
The voluntary carbon offset market is smaller than the compliance market, but it is likely to increase significantly in the future years. It is available to people, businesses, and other organisations that desire to decrease or eliminate their carbon footprint but are not obligated by law to do so. The voluntary carbon market was valued at roughly $400 million in 2020, and predictions range the sector's value between $10 and $25 billion by 2030, depending on how actively governments across the world pursue their climate change commitments.
The potentials of Carbon Credit markets in Vietnam
The carbon credit market has a great potential for development and success, thanks to the strong commitment and clear strategy of the government.
According to Vietnam Forest Certification Office, currently, the total forest area of Vietnam is about 14.7 million hectares, the forest coverage is 42%, of which special-use forests are 2.2 million hectares, protection forests are 4.6 million hectares, and production forests are 7.8 million hectares (accounting for 53% of the total forest area). Currently, 60% of the total forest area is directly managed by the state, 40% of the state forest area is allocated to households, individuals and organizations for management. It is estimated that forests absorb an average of 69.8 million tons of carbon (CO2) each year, and natural forests and plantations store 612 million tons of carbon.
Certain provinces in Vietnam have great competitive advantages in this market. For example, Quang Nam is the first locality that has been approved by the Government to set up a pilot scheme for forest carbon credit business from reducing greenhouse gas emissions through combating deforestation and forest degradation, and sustainably managing forest resources within 5 years (2021 - 2025) (Decree 107/2022/ND-CP). According to calculations, with 680,000 hectares of forest, the coverage reaches 58.6%, of which there are 466,113 hectares of natural forest, Quang Nam has the ability to absorb more than 11.2 million tons of carbon in the period from 2018 to 2030, earning about 5 million USD each year from selling forest carbon credits. Currently, there are 5 foreign companies registered to buy back forest carbon licenses/credits, and the Netherlands - Vietnam Health Commission is negotiating with a business in the Netherlands to sell carbon credits for 10 USD per ton.
Thua Thien Hue is also a locality with relatively good forest coverage, reaching over 57% and is one of the 6 North Central provinces chosen by the Ministry of Agriculture and Rural Development and the Forest Carbon Partnership Fund to pilot the transfer of emission reduction results and financial management of the GHG emission reduction payment agreement in the North Central region, with the emission reduction that this area transfers is expected to be about 10.3 million tons of CO2e.
However, even though Vietnam has developed a policy framework for a number of years, there is still a lack of specific guidance, for example which activities should be counted as carbon emitters or sequestrations, or the Carbon programs are not yet fully commercial, subject to many conditions. It is also said that Vietnam still does not have a carbon tax, and transactions are mainly voluntary through programs and projects of the Government. If Vietnam does not have tools and policies on this issue, it will be difficult to achieve the goal of net zero emissions by 2050. The Government has recently issued a roadmap to develop the domestic carbon market with two phases. From 2022 until 2027, the Ministry of Natural Resources and Environment will coordinate with the Ministry of Finance to implement many activities, including developing relevant regulations to establish a trading floor for greenhouse gas emission quotas and carbon credits. domestic. The exchange will operate as a pilot in 2025, lasting for 3 years, and by 2027, it will review and evaluate its activities for official operation in 2028. In addition, the General Department of Forestry, the Ministry of Agriculture and Rural Development is gradually forming and building legal frameworks to help localities as well as forest owners to actively develop carbon transfer negotiation projects. Specifically, it is in the process of amending Decree 100 guiding the implementation of a number of articles of the Law on Forestry, which has added an article on buyer-seller activities and transferable activities, to develop projects and agencies to appraise, measure, verify and report. This is an important legal framework for the formation of a forest carbon market.
The target by the Vietnam's government is by 2030, to reduce total GHG emissions by 9%, equivalent to 83.9 million tons of CO2 and to increase by 27% when receiving international support (equivalent to 250.8 million tons of CO2). The Ministry of Industry and Trade targets to reduce 268.5 million tons of CO2 by 2030 in the fields of energy production and energy consumption in industry, the Ministry of Transport to reduce 37.5 million tons, the Ministry of Construction to reduce 74, 3 million tons, the Ministry of Natural Resources and Environment to reduce 53.7 million tons, the Ministry of Agriculture and Rural Development to reduce 129.8 million tons of CO2.