Vietnam is actively preparing to join the global carbon credit trading network by 2028. With significant potential for emissions reduction and a substantial supply of carbon credits, Vietnam is expected to play a crucial role in the international market. However, to succeed, Vietnam urgently needs to complete its legal framework, create an attractive investment environment, and ensure transparency and efficiency in carbon credit trading activities.
The Carbon Market and Carbon Credits
The carbon market emerged from the Kyoto Protocol on climate change, officially adopted by the United Nations in 1997, to address the needs of countries with surplus emission allowances to sell or buy from countries emitting more or less than their committed targets. This led to the creation of a new commodity: certificates for reducing/absorbing greenhouse gas emissions. As carbon is the equivalent of all greenhouse gasses, these transactions are collectively referred to as carbon trading, forming the carbon market or carbon credit market.
A carbon credit is a tradable permit that allows the holder to emit a specific quantity of carbon dioxide. Each credit is equivalent to one tonne of CO2, acting as a "license" to emit greenhouse gasses into the atmosphere.
Vietnam's Potential for Generating Carbon Credits
Vietnam possesses immense potential to become a carbon credit powerhouse. With abundant natural resources such as forests and diverse emission reduction projects, the country can supply millions of tonnes of carbon credits each year. This not only brings significant foreign exchange earnings but also contributes significantly to the global fight against climate change.
In a joint effort with the global community to combat climate change (in the spirit of the Kyoto Protocol), on October 22, 2020, Vietnam and the World Bank signed an agreement on the payment for emission reductions in the North Central region for the period 2018-2024. Accordingly, Vietnam will transfer to the WB 10.3 million tonnes of CO2 with a total value of US$51.5 million, equivalent to VND 1,200 billion.
According to the General Department of Forestry, the Ministry of Agriculture and Rural Development, Vietnam can sell 57 million carbon credits to the global market each year.
According to a report by the Department of Climate Change, Ministry of Natural Resources and Environment, Vietnam currently ranks fourth in the world in terms of the number of projects implemented under the Clean Development Mechanism (CDM), with the potential to supply nearly 140 million tonnes of CO2 equivalent. This figure clearly demonstrates the enormous potential of the carbon credit market in Vietnam.
Struggling to Trade "Special Commodities" Due to Lack of Legal Framework
Despite the great potential of the carbon credit market in Vietnam, trading an intangible asset like carbon credits still faces many legal challenges. The concept of carbon credits, especially forest carbon credits, is still relatively new and not clearly defined in the current legal system. This leads to many difficulties in determining ownership, trading, and managing this type of asset. Treating carbon credits as a special commodity that can be bought, sold, and transferred raises many questions about legality and enforceability.
Therefore, experts suggest that Vietnam needs to build a comprehensive legal framework for this market.
Building a Legal Framework for the Carbon Credit Trading Market
To maximize the potential of forests and renewable energy, Vietnam needs to urgently build a comprehensive and transparent legal framework for the carbon credit market. A complete legal framework will not only facilitate carbon credit trading but also attract investment, promote the development of emission reduction projects, and significantly contribute to the goal of achieving net-zero emissions by 2050.
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Carbon credits should be considered commodities
Recognizing carbon credits as a tradable asset is essential for developing the carbon market in Vietnam. Currently, regulations are unclear about whether carbon credits, especially forest carbon credits, can be considered forest products. This significantly hinders trading and investment activities related to carbon credits. To overcome this situation, it is necessary to soon complete the legal framework, recognizing carbon credits as a tradable asset.
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Determining ownership of carbon credits to limit disputes
The intangible and complex nature of determining ownership of carbon credits requires a clear and detailed legal framework. Establishing ownership not only helps to limit disputes but also encourages organizations and individuals to participate in emission reduction activities.
To achieve this goal, it is necessary to build a national carbon credit database, establish a process for verifying and issuing ownership certificates, and develop an effective dispute resolution mechanism. In addition, ensuring the rights of local communities, especially those directly involved in forest protection activities, is extremely important. A complete legal framework will not only facilitate carbon credit trading but also contribute to the country's sustainable development goals.
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Legalizing the process of building and operating carbon credits
The process of building and operating carbon credits, especially forest carbon credits, requires the participation of many organizations and agencies, but there is currently no unified and detailed regulation. This leads to a lack of transparency, erodes investor confidence, and limits the potential for international cooperation. To overcome this situation, Vietnam needs to soon develop a specific law on carbon credits, clearly defining standards, management agencies, monitoring mechanisms, and related procedures. Building a complete legal framework will not only facilitate the development of the carbon market but also contribute to the goal of reducing greenhouse gas emissions and achieving sustainable development.
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