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Vietnam is one of the top emerging markets in Southeast Asia and among the fastest-growing economies around the world. As the country treads on the path of development, the government is trying to shape the Vietnam carbon market, in a bid to reduce greenhouse gas emissions as well as keep an eye on key polluters in the country.
The latest bid to regularise carbon trading in the country comes after global businesses have turned to Vietnam to set up manufacturing bases. Vietnam’s strategic location, advantages in shipping, cheap labour and production costs have been a major pull for foreign investors and companies. This bodes well for Vietnam as FDI has been key to the country’s growth. As of December 2021, FDI made up 61.7% ($241.6 bn) of the total valid registered investment capital in the country.
Shaping the Vietnam carbon market
Over the past year, Vietnam asked 1,912 corporations to survey their emissions and come up with a plan to reduce them. This included businesses such as Seoul Semiconductor, Piaggio, Panasonic, Nestle and Masan, among others.
The country will first set up a domestic carbon trade market before it allows companies to connect with international platforms to buy carbon credits. However, Vietnam will release accurate details of the plan later this year.
Carbon credits have been produced and sold in the country previously but developing its own carbon trade market has become a priority now due to Vietnam’s commitment to the Paris Agreement.
European Union saw the first international emissions trading market starting in 2005, and it is now the biggest with 45% of all European emissions as well as three-quarters of global carbon emissions sold in the region. As per data from World Bank, over 40 countries and more than 20 cities, states and provinces use carbon pricing mechanisms that facilitate emissions trading and carbon taxation.
Vietnam already supplies the carbon market
Vietnam’s plan is to implement a cap-and-trade system where it would start penalising businesses for not meeting their emissions target. On the other hand, the Ministry of Industry and Trade estimates that the country can make over $250 mn annually by selling carbon credits to international organizations. The country already supplies the carbon market with emission reduction certificates, as defined under the guidelines of the Clean Development Mechanism (CDM) of the Kyoto Protocol (1997, the precursor of the Paris Agreement.)
Vietnam’s Ministry of Natural Resources and Environment is developing a Draft Decree regulating greenhouse gas emission reduction, including regulations for developing the carbon market in the future for domestic and foreign carbon credit exchanges.
The steps to reach this goal include mapping greenhouse gas emissions, and developing a monitoring, reporting and verification system to keep up with international standards. Vietnam aims to launch a pilot of the carbon trading market in 2025 and make a full launch by 2028. It has committed to reducing greenhouse gas emissions by 9% by 2030.
In February, Vietnam’s Prime Minister Pham Minh Chinh met with UK Minister Alok Kumar Sharma, the Chairman of COP26, and asked for support in setting up the domestic carbon trading market. A key discussion was establishing a ‘Renewable Energy Center’ to provide training, aid technology transfer, share governance practices and assess the current status of greenhouse gas emissions by enterprises in Vietnam.
Who are the culprits?
Vietnam wants to go carbon neutral by 2050, even as the country is already facing alarming levels of pollution. Vietnam’s steel factories are the biggest polluters in the country, and official estimates state that by 2025 the steel industry will contribute 17% of the total emissions of the country. The main reason is the dependence of these steel factories on fossil fuels for electricity, said the Ministry of Industry and Trade.
Vietnam is among the top 20 plastic polluters in the world. In 2021, the Vietnam Waste Assessment and Brand Audit Report, published by a consortium of NGOs universities and businesses, found that Coca Cola, Pepsico and Nestle were the top 3 plastic polluters in the country.
Apple, Samsung, Target, Mulberry and some other firms had lobbied Vietnam to buy solar power directly from producers instead of connecting to the outdated electricity grid. Electricity production is one of the top reasons for greenhouse gas emissions, and an old grid causes a loss of power.
Coffee company Nestle has been turning coffee waste into biofuel and is turning to regenerative agriculture – a practice to offset carbon emissions. The company wants to go net-zero by 2050.
German automaker Mercedes-Benz, which has a manufacturing plant in Ho Chi Minh city, wants to go carbon neutral by 2039. Electronic maker Panasonic told Nikkei it supports the new regulation, while brewer Carlsberg is participating in implementation.
An incident to remember
Vietnam’s strict environmental policies and need for developing a carbon market for responsible manufacturing somewhat stem from the 2016 industrial accident at the Formosa Plastics plant. The environmental debacle had hit 200km of coastline and killed over 100 tonnes of fish.
The incident took place due to a misguided and cheap production process that generates more emissions. This is precisely why the new carbon pricing mechanism makes sense.
However, Greenpeace has called the development an accounting scam. “Offsetting smothers ambition and gives polluters a way to avoid making genuine, substantive, timely emissions cuts,” said Greenpeace International Executive Director Jennifer Morgan.
