On 27 September, 2022, Vietnam Initiative for Energy Transition (VIETSE) organized the webinar “Carbon Pricing – Resource to shape Vietnam’s climate strategies“.
Over the past three decades, Vietnam’s economy has grown rapidly together with the increase in greenhouse gas emissions. According to the latest national GHG inventory in 2016, the country’s total emissions are 316 MtCO2e. Projected GHG emissions in the business-as-usual (BAU) scenario (that is without mitigation actions) will be 928 MtCO2e by 2030 and 1.5 GtCO2e by 2050. Since 2000, emissions from energy activities (including transport, industry and residentials) have grown rapidly, accounting for 65% of total emissions in 2016. Compared to neighboring countries in the region of Southeast Asia, the emission intensity per unit of GDP of Vietnam is quite high, about 0.35 kg CO2/USD.
To achieve the goal of becoming a high-income country by 2045 and achieving net zero emissions by 2050 as committed at COP26, Vietnam must face the challenge of development towards a low carbon economy but with a remarkable growth rate, and will need to mobilize all resources, apply innovative solutions, in which carbon pricing (including carbon tax and carbon market) is considered an effective and feasible instrument.
Currently, Vietnam has indirectly taxed carbon through the Environmental Protection Tax for fossil fuel producers and importers. This tax rate does not really reflect the nature of carbon pricing if calculated per unit of greenhouse gas when the tax rate for petrol (US$32-76/ton CO2) is much higher than for coal (US$0.22 – 0.42/ton CO2). International experience shows that both carbon tax and carbon market instrument can be flexibly applied in tandem to optimize emissions reductions. However, the carbon market is becoming more and more popular because it achieves more certain emission reduction results and allows businesses to be flexible and proactive in choosing measures to comply with emission quotas, bringing cost-effective in their reducing emissions.
The carbon market was first mentioned in the Prime Minister’s Decision 1775/QD-TTg in 2012. After that, the Central Party’s Resolution 24-NQ/TW in 2013 and the government’s Resolution 50-NQ/CP in 2021 also included establishing the carbon market in its mandates to respond to climate change and protect the environment. Most recently, the Law on Environmental Protection 2020 and Decree 06/2022/ND-CP on Regulations on mitigation of GHG emissions and protection of the ozone layer have materialized the roadmap for establishing a domesticcarbon quota exchange system. On January 18, 2022, the Prime Minister issued Decision No. 01/2022 on the list of industries/sub-sectors and establishments with an obligated inventory of GHG emissions, including 1662 establishments in the Industry and Trade sector, 70 establishments in the Transport sector, 104 establishments in the Construction sector, and 76 establishments in the Natural Resources and Environment sector.
In the current context of intensive economic integration, and while several countries throughout the world, including Vietnam, are making efforts to implement measures to reduce GHG emissions towards the goal of achieving net-zero by 2050, emission reduction has become a mandatory requirement for businesses, not only to reduce harm to the environment and towards sustainable development, but also to meet the green standards of the importing country.
On an international scale, the European Union (EU) and the United States, which are Vietnam’s major export markets, are proposing and preparing to pilot the implementation of the Carbon Border Adjustment Mechanism (CBAM). Accordingly, technical barriers, regulations related to emission reduction will be appied, demanding businesses of exporting countries to these markets to follow, and carbon tax will be imposed in case of not meeting the requirements. The pilot phase will start in 2023 (without actual tax payment) for industries of cement, aluminum, fertilizer, power generation, iron and steel, and from 2026, CBAM will be officially applied. The range of manufacturing industries that must comply with CBAM will continue to expand in the future, exposing many challenges for Vietnamese goods exported to EU and international markets. However, the operation of the carbon market will also be an advantage for Vietnam’s domestically produced products to increase their competitiveness in these markets.
Based on the analyse of the current situation and international lessons learned, the experts made recommendations on the development of the carbon market in Vietnam, including: (i) Clearly define the sanction mechanism for the cases of non-compliance to the allocated emission quotas; (ii) Set emission quotas in a harmonious way between emission reduction and economic growth targets, and develop a set of national emission factors for each specific field and activity, reflecting the current status of emissions in Vietnam; (iii) Establish emission quotas towards promoting businesses to apply emission reduction technologies in the near future; (iv) Pilot the emission quotas exchange with the sectors that are easy to measure and monitor such as electricity, industry, buildings etc. before expanding to other fields, and making appropriate adjustments to minimize unexpected impacts; (v) Clearly define the mechanism for using revenue from the carbon market to ensure the effective promotion of low-emission technologies, such as establishing funds and a specific and transparent mechanism to minimize the economic impact of the carbon market on vulnerable groups; (vi) Capacity building at all levels (carbon market management and operation agencies, governing sectors, emitters) on GHG inventory, measurement, monitoring, verification, quota exchange etc.
During the webinar, the panelists shared mutual agreement that with the current carbon intensity of the economy, Vietnam has great potential to form a carbon market and demonstrate its effectiveness in reducing emissions and moving towards net zero emissions target.
Carbon pricing is about making GHG emissions more expensive by imposing a price per tonne of CO2 equivalent released into the atmosphere. Revenue from emissions charging will be used to promote cleaner technologies and support vulnerable groups. According to World Bank statistics (2022), carbon pricing mechanisms are being applied in 46 countries and 36 subnational jurisdictions, accounting for 11.83 billion tons of CO2 (about 23.11% of total GHG emissions).
Mr. Wolfgang Mostert, International expert on energy and climate policy: Carbon pricing is an instrument of effectiveness and economic efficiency aimed at achieving emission reduction targets at the lowest possible cost by balancing the costs of emission reductions across sectors and emission sources, in which the carbon market plays an important role. However, but to be able to build and operate this carbon market is a long process, requiring a lot of investment in technology, human and financial resources.
Dr. Truong An Ha, Research Analyst (Vietnam Initiative for Energy Transition):By building and operating a domestic carbon market, Vietnam will seize opportunities to effectively reduce carbon emissions, increase compatibility with international carbon pricing mechanisms, open access to carbon markets in the world and in the region as well as increasing the competitiveness of Vietnamese products in the international market. Furthermore, the carbon market is also a resource generation mechanism to promote the development and application of low-emission technologies towards a carbon-neutral economy.
Vietnam Initiative for Energy Transition (VIETSE), founded in August 2018 in Hanoi, is an independent think tank, acting as a bridge between research and policy, with the mission to accelerate the transition of Vietnamese energy system in a sustainable and reliable manner. VIETSE’s institutional independence is rooted in the individual independence of its scholars. As a non-profit social enterprise, VIET commits to carry out activities for social and environmental objectives. For more information, visit our website http://vietse.vn