Latest Trends and the Legal Framework of Vietnam's Carbon Credit Market
NEXORA LAW FIRM provides advanced legal advice in the fields of environment, renewable energy, and carbon trading, and has extensive experience supporting Japanese-affiliated companies in acquiring and utilizing carbon credits in connection with their entry into and investment in Vietnam. This article explains in detail the latest trends in Vietnam's carbon credit market and the legal framework governing registration, trading, and tax treatment. It offers timely information of practical value for investment and business decisions to readers interested in topics such as Vietnam's carbon credit market trends, the legal regime for carbon trading, carbon strategy for renewable energy companies, the difference between the VCM and CDM regimes, and the tax risks of registering carbon trades.
01 - What Is a Carbon Credit? A Key Tool for Reducing Greenhouse Gas Emissions
A carbon credit is a commercially tradable certificate representing a company's or organization's right to emit one ton of CO2 or its equivalent in greenhouse gases (GHGs). Under Article 3(35) of Vietnam's 2020 Law on Environmental Protection, this scheme serves as an important tool for managing GHG emissions across industry.
[How carbon credits work]
Each company or production facility is assigned a cap on GHG emissions. Where emissions exceed the cap, the company must either pay an environmental protection fee or purchase additional carbon credits to comply with environmental standards.
Where emissions fall below the benchmark, the company may sell its unused carbon credits on the market for economic gain. This drives active carbon credit trading between companies and promotes sustainable environmental measures.
[Role of the carbon credit exchange]
The carbon credit exchange is the central market platform for managing the sale and purchase of carbon credits between companies, trading of GHG emission allowances, auctions, lending and borrowing, returns, and transfers. Under Article 3(12) of Decree No. 06/2022/ND-CP, the exchange is intended to ensure transparency, promote optimal allocation of credits, and help companies adopt emissions-reduction measures more efficiently.
02 - Overview of the Carbon Credit Market
2.1. The Overall Picture of the Carbon Credit Market
The carbon credit market involves two main types of tradable instrument: "greenhouse gas (GHG) emission allowances" and "carbon credits."
(i) What is a GHG emission allowance?
A GHG emission allowance (emission right) refers to the amount of CO2 emissions a country, company, or individual is permitted to emit within a given period. Emissions are calculated in units of "one ton of CO2 (or CO2 equivalent)" and are managed through allocation by the government to companies.
Companies may emit CO2 within the scope of their allocated allowance, but must purchase additional allowances from other companies if they exceed it. Consequently, in the EU and the United States, where carbon markets have developed over many years, allowance prices have risen sharply. Companies that fail to make efforts to reduce emissions face substantial costs in purchasing emission rights.
(ii) What is a voluntary carbon credit?
The other tradable instrument, the "carbon credit," represents emissions reductions achieved by companies or organizations investing in GHG reduction projects—such as reforestation or the introduction of renewable energy—which are then certified by the government or an international body and traded on the market as carbon credits.
Carbon credits form a voluntary market, and their prices are relatively lower than those of emission allowances. This is because value varies depending on the reduction method—the type of technology and the scale of investment involved. For example, credits generated by a reforestation project and credits generated by high-tech emissions-reduction technology are priced differently.
(iii) Global carbon market trends
At present, 58 countries worldwide have introduced a carbon credit market, and a further 27 countries have adopted a carbon tax. Some countries combine both emissions trading and a carbon tax to implement a more comprehensive environmental policy.
As such, the carbon credit market is expanding globally, and companies that make use of this market can achieve not only compliance with environmental regulation but also sustainable economic activity and the development of new revenue models.
2.2. Vietnam's Carbon Credit Market
(i) Definition
Vietnam's domestic carbon credit market refers to trading activity based on GHG emission allowances and on domestic and international carbon credit exchange/offset mechanisms. Such trading is carried out in accordance with Vietnamese law and the international treaties to which Vietnam is a party.
(ii) Market participants
Participants in the carbon credit market include the following organizations and individuals:
Facilities subject to the government-designated GHG emissions inventory (based on the list of emitting entities determined by the Prime Minister)
Entities participating in domestic and international carbon credit exchange/offset mechanisms
Companies and individuals engaged in trading or investing in GHG emission allowances or carbon credits
(iii) Certification of carbon credits and emission allowances
Trading on the market requires certification of carbon credits and GHG emission allowances.
Applicants (companies or individuals) submit certification applications through the online administrative services system of the Ministry of Agriculture and Environment.
The Ministry of Natural Resources and Environment approves trading in emission allowances and carbon credits that meet the following requirements:
- Credits generated by projects under domestic or international carbon credit exchange mechanisms
- GHG emission allowances (determined based on the country's emissions-reduction targets, inventory results, and facility-level emissions-reduction status)
Certification procedure:
Companies and individuals submit a certification application (Form 1) online under Decree No. 06/2022/ND-CP.
Within 15 working days of accepting the application, the Ministry of Natural Resources and Environment reviews it and issues a certification certificate; if rejected, the reasons must be stated.
(iv) Allocation of GHG emission allowances
The government determines emission allowances for the 2026-2030 period and for each individual year, and allocates them to facilities subject to the GHG emissions inventory. Allocation is determined based on the following factors:
The national and sector-level GHG emissions inventory
Company-level emissions inventory
The latest emissions-reduction targets and plans
Criteria under Prime Minister's Decision No. 01/2022/QD-TTg
(v) Trading of emission allowances and carbon credits
Under Decree No. 06/2022, trading of carbon credits is carried out through the carbon credit trading market (the emission-allowance trading market).
Tradable activities:
- Auction of emission allowances: companies may purchase additional emission allowances at auction, on top of those allocated by the government.
- Transfer (carry-forward) of emission allowances: unused allowances from the previous year may be carried forward to subsequent years.
- Borrowing of emission allowances: allowances for the following year may be used in advance.
- Use of carbon credits: carbon credits obtained through a project may be used to offset excess emissions (subject to a cap of 10% of the total emission allowance).
Additional regulatory requirements:
- Where a company ceases operations, dissolves, or goes bankrupt, the government automatically reclaims its allocated emission allowances.
- Companies are encouraged to voluntarily return unused emission allowances to the government (contributing to the achievement of the national GHG reduction target).
- At the end of each commitment period, an obligation arises to pay for any excess emissions (if unpaid, the amount is deducted from the following period's allowance).
03 - Legal Development and the Growth Strategy for Vietnam's Carbon Credit Market
3.1. Roadmap and Timeline for Development of the Carbon Credit Market
Under Decree No. 06/2022, Vietnam's carbon credit market is currently being developed in three phases.
[Development schedule for the carbon credit market]
(i) Preparation phase (2021-2025)
Developing rules for managing carbon credits and the trading mechanism
Clarifying trading rules for GHG emission allowances and carbon credits
Formulating operating rules for the carbon credit trading market
Piloting domestic and international carbon credit exchange/offset mechanisms
Conducting pilots in sectors with strong potential
Formulating trading rules consistent with the international agreements to which Vietnam is a party
Strengthening market participants' capabilities and awareness
Conducting education and training programs for companies
(ii) Pilot operation phase (2026-2027)
Piloting the carbon credit trading market
Trialing the trading platform and identifying issues
Adjusting the price-formation mechanism and trading rules
(iii) Full operation phase (2028 onward)
Formal launch of the carbon credit market (2028)
Full introduction of an emissions trading system (ETS) for companies
Establishing an environment in which all covered companies and organizations can trade
Connecting the domestic market with international markets
Integration with ASEAN and global carbon credit markets
Application of international carbon offset mechanisms
3.2. Growth Strategy for the Carbon Credit Market
To ensure the stable operation and growth of Vietnam's carbon credit market, the following three policy directions have been set out.
(i) Positioning carbon credits as a "commodity"
Recognizing carbon credits not merely as a tool for environmental measures, but as an asset that can be traded on the market
Treating carbon credits as a financial instrument is expected to promote investment and improve market liquidity
(ii) Clarifying ownership of carbon credits to prevent disputes
Clearly defining ownership of issued carbon credits
Guaranteeing the legal rights of companies and individuals that acquire carbon credits
Introducing proof of ownership, transaction-history records, and third-party auditing
(iii) Legislating the process for issuing and trading carbon credits
Codifying the rules for registration, trading, and circulation of carbon credits
Specifying in detail the issuance procedure, certification process, and trading methods
Ensuring market transparency and preventing fraudulent trading
The Vietnamese government is progressively developing its legal framework toward the full-scale operation of the carbon credit market in 2028.
Stable market operation requires treating carbon credits as an asset, clarifying ownership, and codifying trading rules.
To adapt to upcoming market changes, companies should prepare in the following three areas:
Strengthening GHG emissions monitoring: developing an internal emissions management system
Carbon credit acquisition strategy: formulating a plan for voluntary emissions reduction and credit purchases
Gathering market information and adapting to the rules: keeping abreast of Vietnam's legal system and its links with international markets
Alongside the tightening of environmental regulation, the carbon credit market holds significant potential as a source of new business opportunities.