Vietnam's Carbon Credit Market: The Latest Legal Regulations and Challenges
This article explains the current state of Vietnam's carbon credit regime and the government's latest moves toward legal regulation and market development. It organizes the key points companies should note regarding emissions trading, project registration systems, and foreign participation, offering practical information for Japanese-affiliated companies pursuing sustainability-focused management. NEXORA LAW FIRM has particular strength in legal support for ESG and environment-related projects, handling emissions-credit trading agreements, regulatory compliance checks, and support in negotiations with government authorities, and provides multi-faceted support for carbon business feasibility from both a legal and tax perspective.
The carbon credit market is one of the sustainable investment fields attracting global attention. In Vietnam in particular, carbon credit trading is becoming increasingly active alongside the strengthening of environmental policy. This article explains in detail the latest legal regulations, practical challenges, and investment opportunities surrounding Vietnam's carbon credit market.
To curb greenhouse gas (GHG) emissions, the Vietnamese government is progressively advancing the "development of a carbon market" and the "introduction of an emissions trading system (ETS)." Decree No. 06/2022/ND-CP, issued in 2022, clarified the framework for the domestic market, setting out the mechanisms for trading and exchanging carbon credits, registration procedures, and tax-related issues. Many issues nevertheless remain to be resolved, and companies and investors are advised to proceed carefully.
01 - The Current State of Vietnam's Carbon Credit Market
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The Potential Appeal of Vietnam's Carbon Credit Market
Vietnam holds significant potential for the development of a carbon credit market. From the standpoint of environmental protection, reducing greenhouse gas emissions also creates opportunities for companies and organizations to realize financial gains and drive technological innovation.
According to the Department of Climate Change under Vietnam's Ministry of Natural Resources and Environment (MONRE), Vietnam ranks fourth in the world by number of projects using the Clean Development Mechanism (CDM), with 258 projects and 13 CDM programs of activities approved by the UN CDM Executive Board. This has the potential to generate carbon credits equivalent to 140 million tons of CO2.
In addition to the CDM, there are also 17 Gold Standard-certified projects, under which more than three million credits have already been traded on the international market. Domestically, 24 projects assessed under the Vietnam Carbon Market (VCM) standard have generated more than 600,000 credits.
Furthermore, according to statistics from Vietnam's Ministry of Agriculture and Rural Development, the country has the potential to sell more than 57 million credits annually on the international market—pointing to significant possibilities as a new business field.
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The Carbon Credit Exchange and Offset Mechanism
To align with the international framework for carbon credit trading, the Vietnamese government has clarified rules on carbon credit trading and credit exchange mechanisms in Decree No. 06/2022/ND-CP.
Under this decree, organizations in Vietnam that wish to carry out programs or projects using carbon credits under an exchange/offset mechanism (a carbon credit scheme) based on the UN Framework Convention on Climate Change (UNFCCC) or other international agreements are required to apply to the Ministry of Natural Resources and Environment (MONRE). After the application, MONRE evaluates it and notifies its decision to approve or reject within a maximum of 38 working days.
Registration with, and annual reporting to, MONRE are also required for carbon credit programs or projects that fall outside the UNFCCC or other international-agreement frameworks.
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Track Record of Carbon Credit Schemes Introduced in Vietnam
Several carbon credit schemes have already been introduced in Vietnam, of which the following are representative.
Clean Development Mechanism (CDM)
- A mechanism introduced under the Kyoto Protocol framework
- Approximately 300 CDM projects have been registered and implemented in Vietnam through the UN
- Of these, more than 150 projects have generated and traded 40.2 million carbon credits
Joint Crediting Mechanism (JCM)
- A carbon-credit trading scheme developed through cooperation between Vietnam and Japan
- 14 JCM projects have already been approved and are in operation
- Used mainly in fields such as energy efficiency improvement, optimization of industrial processes, and agriculture/waste management
02 - Challenges Facing Vietnam's Carbon Credit Market
In practice, a number of challenges remain in developing the carbon credit market.
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Challenges in Greenhouse Gas (GHG) Inventory (Emissions Accounting)
On January 18, 2022, the Vietnamese government issued Decision No. 01/2022/QD-TTg, publishing a list of industries required to monitor and report GHG emissions. This covers six fields, including energy, industrial processes, agriculture, and waste management.
However, there are no concrete guidelines for accounting emissions in the agriculture, forestry, and land-use (AFOLU) sector, and it remains unclear which entities should be responsible for the accounting. In addition, according to statistics from Vietnam's Ministry of Industry and Trade, approximately 1,700 companies are subject to GHG emissions accounting requirements, but many face difficulty carrying out the accounting due to a lack of funding or specialized expertise.
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The Unresolved Issue of a National Greenhouse Gas Emissions Cap
Vietnam has yet to clearly establish a national cap on GHG emissions, and emission allocations for individual companies have not been determined.
If this situation continues, it will remain unclear how much emissions reduction is expected of any given company, making it difficult to formulate long-term environmental strategy. The absence of company-level emission caps also risks an unstable supply-demand balance in the carbon credit market, leading to sharp price volatility.
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Insufficient Development of the ETS (Emissions Trading System) and Carbon Pricing
Many countries have introduced an Emissions Trading System (ETS) to reduce GHG emissions and protect the environment. In the European Union and China, for example, companies must purchase emission allowances (carbon credits) from the government in order to emit carbon. This allows governments to raise revenue through the carbon market, which can then be channeled into environmental measures.
Vietnam, by contrast, has not yet established a clear regime governing the use of revenue from the carbon market. While the government could in principle sell carbon credits, there are no guidelines on how such proceeds should be used. This leaves the foundation for a sustainable carbon market underdeveloped, making it difficult for companies to formulate long-term investment plans.
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Insufficient Digital Infrastructure and Data Management
The carbon credit market requires accurate measurement and management of emissions. However, Vietnam's digital infrastructure for this purpose remains underdeveloped, and many companies face technical and financial challenges in properly monitoring and reporting their emissions.
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Classification of Carbon Credits as an Asset — Uncertain Legal Status
Vietnam currently has no legal basis clearly classifying carbon credits (carbon emission rights) as a specific type of asset. For the value of a carbon credit to be firmly established, it must have the status of an "asset" that is legally recognized and protected.
Under Vietnam's Civil Code (Article 105 of the 2015 Civil Code), "assets" (tai san) are defined as including objects (vat), money (tien), valuable papers (giay to co gia), and property rights (quyen tai san). Assets are further classified as "immovable property" (bat dong san) and "movable property" (dong san).
Based on this definition, the legal status of a carbon credit can be considered as follows:
A carbon credit is not an "object" (Articles 110-114 of the Civil Code)
A carbon credit is not "currency" (under the State Bank of Vietnam Law)
A carbon credit is not a "valuable paper" (it does not meet the requirements under banking law)
For this reason, under the current legal framework, it is considered possible to provisionally classify a carbon credit as a type of "property right" (quyen tai san), and specifically as an "other property right" (quyen tai san khac).
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Tax Issues Relating to Carbon Credit Transactions
Carbon credits are assets bought and sold on the market, and transactions in them generate gains or losses. Accordingly, the application of value-added tax (VAT) and corporate income tax (CIT) should be considered for the transfer or trading of carbon credits. Under current Vietnamese law, however, the tax treatment of carbon credit transactions is not clearly established.
Internationally, some countries have already developed a tax framework, and several of these examples could serve as a useful reference for Vietnam.
Approaches to taxing carbon credits vary by country. Below are examples from major jurisdictions.
Country | Tax treatment
France, Germany, Belgium, Poland | VAT applies to carbon credit transactions
Australia | Legitimately acquired carbon credits are not subject to VAT; the acquisition cost of carbon credits is tax-deductible, but the deduction applies only in the year of sale
New Zealand | The acquisition cost of carbon credits is not tax-deductible; gains on sale are taxable, and the "acquisition cost basis" is applied as the valuation method
Australia (alternative valuation method) | A market-price-based valuation method may also be applied
As shown above, different countries take different approaches, and it is worth noting that the method of taxation differs by transaction stage (acquisition, holding, or sale).
Vietnam's carbon credit market is a field expected to grow rapidly, but its legal framework is still a work in progress at this stage, and many companies and investors are advised to proceed cautiously. In particular, many issues remain to be resolved regarding the legal status of carbon credits, their tax treatment, and improving transparency in the domestic market.
That said, Vietnam has the potential to become a key hub for sustainable development in Asia, and as the carbon credit market matures, investment opportunities will likely expand further. By keeping abreast of the latest market developments and formulating an appropriate strategy, companies can capture new business opportunities to generate revenue while reducing their environmental footprint.
Going forward, it will be important to monitor the progress of Vietnamese government policy, market developments, and linkages with international carbon trading in order to formulate an optimal investment strategy. Companies and investors considering entering the Vietnamese market are strongly encouraged to keep up with the latest regulations and seek advice from specialists.