Part 2: Carbon credit and GHG emission

    

From 1 October 2023, the Carbon Border Adjustment Mechanism (“CBAM”) in Regulation (EU) 2023/956 of the European Union (the “EU”) enters the transitional period. In this period, the CBAM requires EU importers to report at the end of each quarter carbon emissions embedded in their goods imported to the EU market. 

      

Though no additional financial adjustment is imposed on EU importers in this period, by the end of 2025 EU importers who import goods from third countries will be required to buy CBAM certificates in order to pay for the “carbon price” they would have paid under EU law. If a non-EU producer has already paid a carbon price in a third country, such cost can be deducted under the CBAM. Imports of goods from all non-EU countries are covered by the CBAM.

     

Vietnam is an outward processing destination for a large number of EU corporations to set up production facilities to produce goods which are then exported back to the EU market. With the commencement of the transitional period of the CBAM from 1 October 2023, EU producers in Vietnam accordingly may be required to provide some information on exported goods and carbon emissions for the productions of such goods to assist EU importers in complying with the CBAM. 

    

If an importer fails to comply with the CBAM reporting obligation, the competent authority in the EU member state where the goods are imported shall impose an effective, proportionate and dissuasive penalty on such importer. 

    

The legal framework on mitigating carbon emissions in Vietnam is in its early stages, mainly incorporated in Decree No. 06/2022/NĐ-CP (the “Decree 06”), Circular 01/2022/TT-BTNMT, and Decision 01/2022/QD-TTg. At the moment, carbon emission quotas have not been officially imposed on carbon emitters in Vietnam. The Vietnamese government schedules to implement carbon emissions quotas allocation and carbon credit mechanism in the course from 2026 to 2030. 

     

There is certain legal basis to believe that “carbon price” may exist in Vietnam in form of auction prices like with the current method in the EU Emissions Trading System. 

    

In fact, the Vietnamese government are also considering other methods for the collection of carbon price, such as tax, levy or fees. The implementation of such methods in Vietnam is expected to commence from 2026, concurrently with the commencement of the definitive period of the CBAM in the EU.

   

In the EU, before the end of the CBAM transitional period, the EU Commission will develop a secondary legislation to design the rules and processes to take into account the effective carbon price paid abroad. At that time, carbon prices paid in Vietnam can be deducted from the EU importers’ cost of buying CBAM certificates in the EU.

    

In the EU, the CBAM, in its transitional period, only applies to the following goods: cement, iron and steel, aluminum, fertilizers, hydrogen, electricity. Once fully phased in, the CBAM will cover more than 50 % of the emissions of industry sectors listed in the EU Emissions Trading System. 

    

In Vietnam, carbon emitters are obliged to conduct a GHG (carbon) inventory as required in Article 6 of Decree 06 which would cover almost all production activities such as facilities with annual GHG emissions of at least 3,000 tons of CO2 equivalent, cargo transport companies with total annual fuel consumption of at least 1,000 tons of oil, etc.

   

Most imported goods subject to the CBAM reporting requirement also fall into the categories requiring GHG (carbon) inventory. As such, producers with experience in conducting a GHG (carbon) inventory report in Vietnam can better support EU importers in providing accurate data on carbon emissions in the production of imported goods as required by the CBAM. 

   

It is suggested that the EU importers of goods including cement, iron and steel, aluminum, fertilizer, hydrogen, electricity should work closely with export manufacturers/producers in Vietnam to collect the  required information regarding carbon emissions embedded in the productions of such goods to fulfill their report obligation under the CBAM.

    

In addition, producers manufactures in Vietnam who export goods to the EU, should proactively follow Vietnamese legal updates on carbon credit mechanism to promptly apply deductions in carbon price calculations once Vietnam issues an official guidance on this matter.