Effective and sustainable
carbon market development
for Vietnam
Vietnam Initiative for Energy Transition
National Dialogue
Sustainable Energy Transition, Governance, Finance and Technology
Hanoi,
Hanoi, 2222-23 November
November 20222022
Contents
1. Carbon pricing principle
2. International experiences on carbon market
3. Roadmap to develop carbon market in Vietnam
4. SWOT analysis
5. Recommendations
2
3
A way to put a price on a tonne of GHG emitted
Making emissions more expensive
Generate revenue and create incentives for cleaner technologies
4
By 2022:
• 46 nations applied
carbon pricing.
• 11.83 GtCO2 (23.11%
global GHG emissions)
Carbon tax covered.
Carbon market
• ~6% of total global GHG
emissions are taxed today
• Government sets a price • Government sets a cap on
(in 28 countries)
for each tCO2e emitted. the total GHG emissions.
• Market determines • Market determines the • ~17% of total global GHG
quantity emitted. price. emissions priced by carbon
market (38 countries)
Source: World Bank Carbon Pricing Dashboard 5
Government
Option to comply with the allocated
allowances: Seeting emissions cap
• Invest in emissions reduction Allowances Allowances
Alllocation Allocations
technologies Shortage
• Buy more allowances from auction Surplus
Plant A Plant B
Free allocation
• Buy carbon credits (normally
restricted at a small percentage of
total allowances)
Actual emissions
Sell allowances Buy allowances
• Pay the fine for emissions exceeding
allocated allowances
Trade
6
7
Help reduce GHG emissions
• EU-ETS has succeeded in reducing GHG emissions in its 03 phases. Emissions from
ETS’ sectors has reduced 42.8% by mid-2021 compared to 2005 level.
• Piloting ETS at provicical level in China helped reducing emissions by 16,7%, reduce
emissions intensity by 9.7% in 2013 – 2015 period.
Create driver and financial flow to clean technologies
• EU-ETS’s revenue reached 31 billion Euro in 2021.
• Korean ETS’s revenue was 257.7 million USD in 2021 and cumulative revenue from
2015 reached 667.5 million USD.
8
• Provide signal guarantee that carbon price will increase annually (roadmap to gradually reduce
emissions cap) will encourage market participants to invest in emission reduction technologies earlier.
• Flexible mechanism such as banking and borrowing allowance to support market participants in
selection of suitable options for complying with allocated allowances.
• Positive market interventions have been applied in Korea -ETS và EU-ETS to stabilize carbon market:
• Market stability reserve (store surplus allowances when carbon price dip, or release more allowances when
price increase too high);
• Allowances floor/ceiling price.
• Use of revenue mechanism to promote clean technologies and climate protection activities
• 75% total cumulative revenue of EU-ETS in 2013 – 2020 period (68 billion Euro) was used for climate protection
activities.
• Revenue from EU-ETS, aside from going to national and EU budgets, is also used for Innovation Fund and
Modernisation Fund, which established to fund innovation project on low-carbon technologies and modernization
of power sectors as well as improving energy efficiency.
9
10
• Fast-growing economy and social
development
• High carbon-intensity
Carbon pricing could provide
• Projected continuous rise of emissions incitations and revenue to
• Market economy policy reduce GHG.
• Strong commitment for Net-zero by 2050
11
• Legalized the establishment of Vietnam’s carbon
Environment Law 2020 market
PM’s Decree 06/2022 on GHG • Introduce a general roadmap for carbon market
reduction and ozone protection development
12
• Develop regulations on management of carbon credits, ETS, regulations on operation
of exchanges.
Phase 1 • Piloting credit exchange and ETS.
• Establishment & organization of pilot operation of carbon credit trading in 2027.
2022-2027 • Implementing activities to strengthen capacity, raise awareness about carbon market
development.
Phase 2 • The organization operates the official carbon credit exchange.
• Regulating activities of connecting and exchanging carbon credits in the country with
From 2028 regional and world carbon markets.
Source: Decree 06/2022/ND-CP on mitigation of greenhouse gas (GHG) emissions and protection of ozone layer 35
• Sectors and facilities in the list issued by Prime
Minister that are mandated to conduct GHG inventory
Scope and allocated with emission allowances
o Facilities emit > 300O tCO2/y
o Facilities consume > 1000 TOE/y
• Borrowing of allowances
Flexibility • Banking of allowances
mechanims • Use of carbon credits (max 10% total allocated
allowances )
Responsible for • MONRE
developing
market • MOF
14
Mechanism to set the annual national emissions cap
Mechanism to allocate allowances
Level of fine for non-compliance
Market stabilization mechanism
Mechanism for the use of revenue
15
16
Strength Weekness
• The Government has set specific emission reduction targets • The scope of facilities that are mandated to conduct GHG inventory is
• Experiences in joining international carbon credits mechanisms (CDM, quite large → challenges in implementation and increase allowance
REDD+, JCM…) transaction cost.
• Experience with stock exchange market
• TA and financial supports from international communities to build ETS
SWOT
Carbon market
Opportunities Threat
• Create drivers for facilities to invest in emission reduction • High costs to establish the system
technologies. • MRV system is not yet ready (in development by related authorities);.
• Compatibility with international mechanism (i.e. Carbon border • Requirements on capacity building for market participants on GHG
adjustment). inventory methodology, MRV at the national/sector/sub-
• Raise revenue which can be spent on mitigating effects pollution. sector/production facility level.
17
18
• Emissions cap setting and allowances allocation should harmonize the mitigation goal and
economic development. This is a difficult and critical balance-finding exercise that requires:
• Reliable emissions data;
• Detailed a mechanism for inventory following a standardized and updated methodology, ensuring
accuracy and compatibility with international markets;
• National-specific Emission factors for sectors to be issued and updated regularly to ensure the
accuracy of inventory;
• Managing anticipations that caps will only decrease.
19
• Need to determine mechanisms to use the carbon market’s revenue to promote low-carbon
technologies as well as the mechanisms for non-compliance to ensure transparency of the market.
• Use of revenue mechanism should be able to separate the revenue stream from carbon market, set
up fund to finance supporting programs for emissions reduction technologies, initiatives and
activities.
• Pilotting phase should start with sectors that are easier for measuring emissions and emission
reduction: power, industry, building then gradually extend to other sectors like road transport,
shipping, aviation…This also allows for evaluating the unwanted impacts on the economy and
necessary adjustments to mitigate them.
• Capacity building needs to be conducted at all levels: carbon market management and operation
authorities, sectors and facilities on GHG inventory, MRV, auctioning, allowances exchange…
20
21
