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Vietnam on road to development of carbon market

The Ministry of Natural Resources and Environment, in coordination with the World Bank, held a Final Workshop for the “Vietnam Partnership for Market Readiness” project in Hanoi on December 29. 

After 5 years of implementation, up to now, the project has made basic preparations, paving the way for the formulation of carbon market policies.

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Chairs of the workshop


The project “Vietnam Partnership for Market Readiness” (referred to as VN-PMR Project) was started in 2015, funded by the World Bank with the participation of Ministry of Planning and Investment, Ministry of Finance, Ministry of Industry and Trade, Ministry of Construction. Within the framework of VN-PMR project, there have been many in-depth studies to propose carbon market policies and tools, including crediting mechanism, emission trading scheme (ETS), carbon tax/fee and green certificate. These are carbon pricing instruments that are market-based and follow the “polluter pays” principle. Accordingly, emission facilities are responsible for the costs of emitting greenhouse gas (GHG) into the atmosphere.

Vietnam's GHG emissions per capita have increased 6 times

Speaking at the Workshop, Dr. Tang The Cuong, Director General of the Department of Climate Change (Ministry of Natural Resources and Environment), said that according to international organizations, Vietnam's greenhouse gas emissions per capita have increased 6 times compared to the level of early 1990s. Vietnam currently emits a total of about 285 million tonnes of CO2eq. This figure, according to the business as usual scenario, calculated by the Ministry of Natural Resources and Environment in coordination with ministries, sectors and local agencies, will reach 927.9 tons of CO2eq by 2030.

In the updated Nationally Determined Contribution (NDC) submitted to the Secretariat of the United Nations Framework Convention on Climate Change last September, Vietnam will reduce 9% of its total emissions by 2030 with domestic resources and could reduce up to 27% with international support. To achieve this goal, the required financial resources amount to tens of billions of dollars. One of the measures to mobilize public resources in a transparent and flexible manner is carbon pricing, including carbon taxes, crediting mechanisms, and emission trading scheme, in order to implement greenhouse gas emission reduction measures.

The VN-PMR project is set out with the aim of strengthening capacity, developing and disseminating state management policies and tools for nationally appropriate mitigation actions (NAMAs), forming market-based instruments, piloting a NAMA to generate carbon credits and developing a roadmap for national and international carbon market. A number of options for applying carbon pricing instruments to sectors are proposed, in parallel with completed preliminary assessment of impacts on Vietnam's socio-economic conditions for the policy makers.

Representative of the Ministry of Industry and Trade, Ms. Luu Linh Huong said that within the project component of solid waste management, the Ministry of Construction has calculated the current emission situation and projected emission scenarios to 2030 for 4 types of treatment technologies, including: landfilling, composting, incineration, burning for power generation with the potential to reduce more than 42 million tons CO2eq. The crediting framework has two main approaches. Sector-based approach will be improved with new investment in landfill replacement treatment technology and crediting determined and managed by local agencies. For the advanced approach focusing the investment in technology to avoid CH4 emissions, the investors are permitted to register projects and credits for trading.


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Experts, scientists and representatives from ministries and businesses attend the workshop



Pilots for potential credits in Hanoi, Hai Phong, and Binh Duong show that burning for power generation projects are feasible. In Binh Duong, it is proposed to increase compost production. The Ministry of Construction also proposed a two-stage roadmap for the crediting mechanism. Phase 1 (2021-2025) will complete the crediting framework design and facilitate the development of legal, institutional arrangements and capacity building. There will be pilots in 3-5 more cities outside the 3 above mentioned areas. Phase 2 will expand the implementation of the crediting mechanism on a national scale.

Promoting the development of domestic market

According to Mr. Nguyen Tuan Anh, Deputy Director General of the Department of Science, Education, Natural Resources and Environment (Ministry of Planning and Investment), the analysis shows that, instead of a single source of investment, a model combining financial mobilization tools are considered to be the most feasible. Ministry of Planning and Investment recommends a carbon pricing instrusment (from 2026) incorporated green bond as the two core mechanisms to mobilize private finance for Vietnam. Both mechanisms show exceptional potential for traction and growth in Vietnam.

Other mechanisms include structured green funds (domestic and international), commercial lending such as syndicated lending, renewable energy targeting, foreign direct investment (FDI) and remittances are also the appropriate channels and tools to strengthen private finance to achieve Vietnam's NDC. The success of each mechanism requires the promotion of both public and private participation, and the development of incentives and transparent governance.

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Representatives from ministries represent the project implementation at the workshop



According to Mr. Hoang Van Tam, representative of the Ministry of Industry and Trade, during the implementation of the VN-PMR project in the steel production sector, many businesses, especially foreign-invested enterprises, are ready to undertake activities to participate in the future carbon market in Vietnam. This is a good sign and a basis to develop the market in the near future.

Article 139 of the Law on Environmental Protection (2020) provides the organization and development of the carbon market in Vietnam. The VN-PMR project has also contributed to the development of contents on national and sectoral emission reduction target regulations, and allocation of GHG reduction targets for sectors; national and sectoral greenhouse gas inventory, regulations on the facilities and industries that will participate in the ETS; identification of sub-sectors to participate in the ETS and total greenhouse gas emissions of ETS participants. The project also raised awareness and enhanced capacity for stakeholders to participate in ETS in the future, including capacity for GHG inventory and MRV.

According to Mr. Luong Quang Huy, Head of the Division of Greenhouse Gas Emission Reduction and Ozone Layer Protection (Department of Climate Change), in order to have a basis for concretizing the formation of carbon markets under the Law, from now to 2025, the Ministry of Natural Resources and Environment and the related ministries will continue to synchronously conduct a comprehensive assessment of the impacts on the economy - society - environment, as well as on the operation of the business; to learn from experiences of countries around the world, to develop legal documents suitable to socio-economic development conditions of Vietnam, as well as international regulations. These actions help to ensure that Vietnam will have a relatively comprehensive system, starting with pilot activities, moving towards fully operational carbon market and connecting with the international market in the future.

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An overview of the workshop


Currently, the draft Decree regulating greenhouse gas emission reduction, ozone layer protection and carbon market to guide the implementation of the Law on Environmental Protection has basically outlined the ministrial responsibilities on inventory; measurement, reporting and verification (MRV) system; and the establishment of a domestic ETS which clearly defines responsibilities and benefits (in the form of some tax incentives, investment ...) of relevant stakeholders.

In addition, it is expected that the Government will issue a Decision on the list of sectors and facilities to conduct GHG inventory in 2021. These are the facilities that will later join the ETS. The project has also proposed a specific roadmap for the implementation of voluntary ETS transactions by 2027 and mandatory transactions from 2029.

At the Workshop, Director General of the Department of Climate Change expressed his appreciation for the active cooperation and participation of relevant agencies, international and national consultants who participated in the implementation of important components of project, contributing to the gradual formation of state management documents on carbon pricing and future development of carbon markets. However, developing and operating a carbon market is a process that requires significant  investment in technology, human resources and finance.


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Participants watch the project's activity exhibition on the sidelines of the workshop


With the presence of focal agencies participating in the project, representatives of ministries, sectors, experts, scientists, business associations at the Workshop, representative of the Ministry of Natural Resources and Environment proposed that in the coming time, related agencies should continue to cooperate to implement many relevant activities, specifically:

- Firstly, to apply project results to specify the contents in the Law on Environmental Protection 2020, including a focus on transparency of inventory data and mitigation of greenhouse gas at all levels.

- Secondly, from the lessons, experiences and pilot results of the project, it is necessary to propose prioritized contents to develop management tools to implement carbon pricing in accordance with socio-economic developments of the country and of specific sectors.

- Thirdly, ministries and agencies should continue to strengthen international cooperation, fullfil international commitments on climate change and take advantage of regional and international partnerships to learn and share practical experience in developing, operating and managing carbon markets, connecting with markets around the world.

- Fourthly, from the experience of implementing PMR program on a global scale, the application of carbon pricing instrument to socio-economic development should be studied, in order to propose a method to contribute to the implementation of Vietnam's NDC.

- Fifthly, relevant agencies including agencies that have participated in the VN-PMR project, and the transportation sector should join in to develop and implement the PMI program initiated by the World Bank. 

“Up to now, there have been 46 countries and 35 territories that have applied carbon pricing with the participation of tens of thousands of large business groups. Revenue in 2019 is up to USD 45 billion and over 12 billion tons of CO2, equivalent to 22.3% of total global emissions are regulated”.

Director General Tang The Cuong said that Vietnam will continue to participate in the “Partnership Market Implementation” (PMI) Program initiated by the World Bank to formulate and develop carbon markets in the future as this is the next phase of VN-PMR project to implement market-based instruments at the participating countries of the Program. VNA

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