Allocation of emission allowances: Challenges and opportunities for businesses

Vietnam is committed to achieving net zero emissions by 2050, so the allocation of emission allowances is both a requirement and an opportunity for businesses.

Vietnam aims to reduce at least 30% of total methane emissions by 2030 compared to 2020 levels in activities such as crop production, livestock farming, solid waste management, wastewater treatment, oil and gas exploitation, coal mining, and fossil fuel consumption.

Alongside this, Vietnam’s commitment to net-zero emissions by 2050 necessitates the allocation of emission allowances as a critical measure. This provides both a mandate and an opportunity for Vietnamese businesses to develop and implement strategies to meet these goals.

The Emissions Trading System (ETS) is a market-based tool employed by the Government to control and gradually reduce greenhouse gas (GHG) emissions in certain sectors, industries, or across the economy. The ETS operates on the principle of “Cap and Trade”.

Specifically, the Government will set a “cap”, representing the maximum allowable quantity of GHG emission allowances over a specified period, and allocate these allowances to entities. Businesses are only allowed to emit within their allocated allowances. If they need to exceed these limits, they must purchase additional allowances from entities with surplus on the ETS.

An allowance is the amount of greenhouse gas, converted to CO2 equivalent, that a facility is permitted to emit within a defined period, as authorized by the regulatory body.

Decision 13/2024/QD-TTg by the Prime Minister outlines 2,166 facilities across six sectors required to conduct greenhouse gas inventories starting from October 1, 2024, including:

– Energy: Energy production industry; energy consumption in industry, trade, services and civil use; coal mining; oil and natural gas extraction.

– Transportation: Energy consumption in transportation.

– Construction: Energy consumption in the construction industry; industrial processes in the production of building materials.

– Industrial processes: Chemical production; metallurgy; electronics manufacturing; use of ozone-depleting substance substitutes; production and use of other industrial products.

– Agriculture, forestry and land use: Animal husbandry; forestry and land use change; crop production; energy consumption in agriculture, forestry and fisheries; other sources of emissions in industry.

– Waste: Solid waste landfills; treatment of solid waste by biological methods; incineration and open burning of waste; wastewater treatment and discharge.

The allocation of emission allowances poses both challenges and opportunities for businesses. Success in adapting to this policy will depend on their capacity to manage emissions and invest in green, low-carbon technologies.

In a discussion on this matter, Mr. Nguyen Tien Hai, Director of Engineering, New Technology of Energy and Environment Consulting Joint Stock Company (VNEEC), said that the allocation of emission allowances will have an impact on the production and business activities of enterprises. Currently, most businesses have not yet accessed information about the methods of allocating allowances and do not have a correct and comprehensive understanding of GHG emission allowance allocation.

Therefore, according to Mr. Hai, many businesses believe that the allocation of emission allowances has a significant impact on the production and business activities:

When carrying out GHG emission inventory, businesses will have to pay the cost of compliance, leading to an increase in production costs: including the cost of technology investment, emission reduction measures to comply with the allocated emission cap. At the same time, if their emissions exceed the granted allowance, they may have to purchase additional allowances or offset credits from the market or be penalized if they exceed the granted cap.

Besides, investing in lower-emission technology or applying emission reduction measures is one of the proactive solutions that businesses can take to limit compliance costs.

Therefore, businesses are encouraged to invest in green technology, efficient production processes, and low carbon emissions to reduce emissions and avoid costs incurred due to exceeding allowances. This not only helps to save costs, but also promotes technological innovation and improves production efficiency.

Greenhouse gas inventories pose both challenges and opportunities for businesses

At the same time, Mr. Hai also said that businesses that are able to reduce emissions or apply effective emission reduction technologies will have a clear competitive advantage, because they can optimize compliance costs to the lowest level. Conversely, businesses that cannot reduce emissions will incur higher compliance costs, which reduces their profitability and competitiveness.

Improve brand image and reputation: The image of a business can be affected if they do not comply with emission cap regulations. Businesses that perform well in greenhouse gas inventory and implement emission reduction solutions will contribute to enhancing their market reputation and brand. This is especially important as consumers increasingly prefer products with positive environmental impacts.

Enterprises that conduct good greenhouse gas inventories contribute to enhancing their brand and reputation.

According to Mr. Hai, businesses may face legal risks if they do not comply with emission allowances. They may face penalties or be fined, even restricted in production. This can seriously affect their long-term business plan.

In particular, in some industries, if emission allowances are too strict or emission caps are too low, businesses will have to change their business strategies, such as switching to producing lower-emission products or restructuring production operations to optimize energy and resource use.

Allocation of emission allowances not only poses challenges for businesses, but also opens up many opportunities. Businesses that reduce greenhouse gas emissions below the prescribed limit can sell excess carbon credits to other businesses. Not only that, this is also an opportunity to access a new market – the international carbon market, creating opportunities for Vietnamese enterprises to export carbon credits.

Ha An – VTCNews