New Carbon Credit and Greenhouse Gas Emission Quotas

The Vietnamese Government recognizes the development of a carbon market as a must-do to respond to climate change and to protect the environment. In January 2022, three new legal documents were issued regarding the mitigation of greenhouse gas emissions and the protection of the ozone layer (i.e., DECREE 06/2022/ND-CP of the Government, CIRCULAR 01/2022/TT-BTNMT of the Ministry of Natural Resources and Environment and DECISION 01/2022/QD-TTG of the Prime Minister).

Decree No. 06/2022/ND-CP

Decree No. 06/2022/ND-CP (“DECREE 06”) provides, among other things, a specific roadmap for the reduction of greenhouse gas (“GHG”) emissions, requirements on certain entities to conduct GHG inventory and to prepare plans for GHG re-duction, significant measures for mitigating the use of ozone-depleting substances, and an ambitious plan for establishing the domestic carbon market in Vietnam.

MITIGATION OF GHG EMISSIONS

All entities (i) having annual GHG emissions of 3,000 tons of CO2 equivalent or higher, or (ii) operating facilities in the following cases are subject to the GHG inventory mechanism provided under Decree 06. These entities are required to conduct GHG inventory and prepare GHG reduc-tion plans according to the following schedule:

By the end of 2025: To conduct a GHG inventory, to develop and implement plans for GHG reduction appropriate to the technical and management conditions of their facilities;
From 2026 to 2030: To conduct a GHG inventory, to develop and implement plans for GHG reduction according to the GHG emission quota allocated by the Ministry of Natural Resources and Environment (MONRE). The allocation of GHG emission quota will help such entities prepare for the trading of carbon credits on the future domestic carbon market.

ORGANIZATION AND DEVELOPMENT OF CARBON MARKET

The above entities will be allowed to participate in the domestic carbon market. Specifically, they can apply at MONRE for a certificate on carbon credits and greenhouse gas emission quotas for trading on the domestic carbon market.

Under the Law on Environmental Protection, the domestic carbon market is defined as the exchange of GHG emission quotas and carbon credits obtained from the participation in domestic and international carbon credit exchange and offsetting mechanisms. Decree 06 therefore sets out a specific roadmap for the domestic carbon market, including:

By the end of 2027: Elaborating regulations on the management of carbon credits; exchange of GHG emission quotas and carbon credits (i.e., the domestic emission trading system); and establishing and piloting the carbon credit exchanges from 2025);
From 2028: Officially operating the carbon credit emission trading system within the year 2028, promulgating regulations on the connection of the domestic emission trading system with the regional and global carbon markets (however, a specific timeline for connecting the Vietnam domestic carbon market to the regional and global market has not been set yet).

PROTECTION OF OZONE LAYER

Regarding the protection of the ozone layer, the Decree stipulates management responsibilities and a roadmap to eliminate ozone-depleting substances, controlled GHG (controlled substances) under the international agreement on the protection of the ozone layer to which Vietnam is a party.

Details of controlled substances are provided in Appendix III of CIRCULAR 01/2022/TT-BTNMT dated 7 January 2022 by the Ministry of Natural Resources and Environment.

DECISION 01/2022/QD-TTG issues a list of greenhouse gas emitting sectors and entities subject to the greenhouse gas inventory (“DECISION 01”). Accordingly, there are 21 sectors and 1912 entities subject to the greenhouse gas inventory and the preparation of GHG reduction plans following the roadmap. This list will be reviewed every two years.

Key Notes

It is suggested that the companies operating in the sectors of (i) energy, (ii) agriculture, (iii) waste management, (iv) land use and forestry, and (v) industrial processes check if they are listed in Decision 01 and thus subject to the GHG inventory and preparation of GHG reduction plans under Decree 06.

Even if this is not the case, we still recommend these companies to continuously follow up on these lists since it is scheduled be updated every two (02) years.

In addition, those companies should proactively control and apply necessary measures during their operation to reduce the GHG emissions to have an advantage when joining the carbon market later. Specifically, Decree 06 allows for companies to offset carbon credits from projects under the carbon exchange and balancing mechanisms against GHG emissions exceeding the GHG emission quotas allocated in the same commitment period.