Key considerations for businesses on allowance allocation and carbon credits in Vietnam

Currently, 70 countries and territories have implemented carbon pricing mechanisms, contributing to the reduction of approximately 11 billion tons of CO2 emissions—equivalent to 20% of global emissions. Vietnam is aligning with this trend by preparing to establish a domestic carbon market.

Ms. Dang Hong Hanh, Co-founder and Managing Director of Energy and Environmental Consultancy Joint Stock Company (VNEEC).

According to the Department of Climate Change (DCC), the Environmental Protection Law of 2020 introduced regulations on emission trading system. By June 2025, Vietnam will begin allocating allowances and piloting the Emissions Trading System (ETS), creating new opportunities for businesses..

To gain further insights, we spoke with Ms. Dang Hong Hanh, Co-founder and Managing Director of VNEEC.

Reporter: Could you explain the current regulations on the ETS and the carbon market in Vietnam?

Ms. Dang Hong Hanh: A carbon credit represents the right to emit one ton of CO2 or an equivalent amount of other greenhouse gases (GHGs). One ton of CO2 equivalent (CO2e) is considered one carbon credit. These credits are traded on the carbon market. Carbon pricing refers to the cost that businesses must pay for emitting GHGs. In the past, emissions were not subject to fees, but now, if businesses exceed their allocated limits, they must bear additional costs. This pricing mechanism encourages businesses to adopt more effective emission reduction measures, making carbon pricing a crucial tool in reducing GHG emissions.

According to the World Bank, carbon pricing allows businesses to flexibly implement emission reduction solutions, helping them meet national commitments at approximately 30% lower costs. In Vietnam, carbon pricing consists of two main components. In the mandatory market, the government imposes an emissions cap on certain enterprises. Starting from October 1, 2024, 2,166 businesses will be subject to these regulations. If they exceed their emission limits, they must purchase additional credits from the market or use pre-allocated carbon credits for offsetting.

Under Decree 06/2022, businesses in the mandatory carbon credit market are allowed to use credits to offset their allocated emissions cap, but the excess cannot exceed 10% of their total allowance. For example, if a company has an emission cap of 100 tons of CO2, it can exceed this limit by only 10%, purchasing a maximum of 10 credits, with each credit representing 1 ton of CO2. However, the government has yet to specify which types of carbon credits are eligible for use in this case. This is a pressing issue that requires clarification and amendment in Decree 06 or related legal guidelines to establish a clear framework for eligible offset credits.

In the voluntary carbon market, any investor with a project—such as renewable energy, wastewater treatment, or other green initiatives—can participate, as long as their technology effectively reduces GHG emissions. These carbon credits can be sold or traded. The government needs to set standards to support the registration of such projects, ensuring a consistent quality benchmark. Therefore, businesses must distinguish between different types of allowances and carbon credits.

Enhancing awareness about the ETS and the carbon market in Vietnam.

Reporter: What are Vietnam’s potential advantages in developing carbon credits, and which sectors are currently most engaged in this market?

Ms. Dang Hong Hanh: Carbon credits are not new to Vietnam. We were an early participant in the Clean Development Mechanism (CDM) and ranked fourth globally in the number of registered CDM projects. Since 2006, many businesses have seized opportunities in the voluntary market, primarily serving international demand. Vietnam is recognized as a country with significant carbon credit generation potential.

Previously, the renewable energy sector was the primary source of tradable carbon credits. Today, forestry activities—such as afforestation and forest protection—also have great potential for generating credits. Additionally, sectors like livestock farming, agriculture, forestry, and waste management are increasingly contributing to carbon credit generation, driven by international demand.

The domestic carbon credit market, however, is largely dependent on demand from the mandatory market (allowance allocation) and voluntary demand from businesses. Currently, there has been no comprehensive assessment of the demand for carbon credits in the mandatory market or the potential of Vietnamese enterprises to comply with emission reduction regulations. While Vietnam has demonstrated its carbon credit potential through international mechanisms in the past, I hope that future regulations for the domestic market will be clearer and more specific, providing a more viable market signal.

The process of obtaining carbon credits involves stringent criteria, requiring significant time, financial investment, and third-party verification.

Reporter: What are the key requirements for generating carbon credits through emission reduction activities?

Ms. Dang Hong Hanh: Since the Environmental Protection Law came into effect, awareness of the carbon credit market has increased significantly. However, there is a common misconception that any emission reduction activity can generate and sell carbon credits. Some misleading information even suggests that farmers can “earn money overnight” from carbon credit sales.

In reality, for carbon credits to be tradable, emission reduction projects must be registered under international standards. These standards require independent third-party validation from globally recognized entities. The process of obtaining carbon credits involves strict criteria, substantial financial costs, and verification fees.

Although many businesses have potential, generating carbon credits—whether from forestry or other projects—requires a complex and costly process. On average, registering and issuing carbon credits takes 1.5 to 2 years. This means that businesses cannot expect immediate returns, and projects must be large enough to justify the associated costs.

Regarding forestry projects, there are many misconceptions about their potential for generating carbon credits. While activities such as afforestation and forest conservation can generate credits, they must adhere to rigorous sustainability criteria. For example, if the harvesting cycle of a forest is extended from 5 to 10 years, credits can only be generated from the additional sequestration achieved during that period. However, if the forest suffers damage, the credits may not be sustainable.

Currently, no Vietnamese forestry projects have been registered for carbon credits under international standards. Existing collaborations with the World Bank are limited to emission reduction agreements rather than internationally certified carbon credits. Comparing the prices of these credits with commercial credits in the EU market is inaccurate—similar to comparing locally grown bananas with export-quality grapes that meet stringent criteria. Businesses must have a clear understanding of opportunities and access accurate information to maximize their potential.

Reporter: Thank you very much for your insights!

Dong Nghi – Tap chi Doanh nghiep va kinh te xanh