Vietnamese Regulations on Domestic Carbon Market

Article 139 of the 2020 Law on Environmental Protection ("LEP 2020") stipulates the domestic carbon market as follows: "The domestic carbon market includes activities of exchanging greenhouse gas emission quotas and carbon credits obtained from domestic and international carbon credit exchange and offset mechanisms in accordance with the law and international treaties to which the Socialist Republic of Vietnam is a member." From the above regulation, it can be seen that the domestic carbon market has the following characteristics: 

1. The objects traded in the carbon market are greenhouse gas emission quotas and carbon credits.

a. Greenhouse gas emission quotas

Definition: A greenhouse gas emission quota is the amount of greenhouse gases that a country, organization, or individual is allowed to emit within a specified period, calculated in tons of carbon dioxide (CO2) or tons of carbon dioxide (CO2) equivalent (according to Clause 33, Article 4 of the LEP 2020).

Basis for determining greenhouse gas emission quotas: 

Clause 3, Article 139 of the LEP 2020 stipulates as follows:

"3. The basis for determining greenhouse gas emission quotas includes:

a. National strategy on climate change and other related development strategies and plans;

b. Results of greenhouse gas inventory at the national, sectoral and facility levels included in the list specified in Clause 3, Article 91 of this Law;

c. Roadmap and measures for greenhouse gas emission reduction suitable to the country's conditions and international commitments."

Entities subject to greenhouse gas inventory and allocation of emission quotas:

After determining the total national greenhouse gas emission quota for each period and annually, the Ministry of Natural Resources and Environment will allocate greenhouse gas emission quotas to greenhouse gas emitting facilities that must conduct greenhouse gas inventory (as prescribed in Clause 1, Article 6 of Decree 06/2022/ND-CP: "1. Greenhouse gas emitting facilities that must conduct greenhouse gas inventory are facilities with annual greenhouse gas emissions of 3,000 tons of CO2 equivalent or more or fall into one of the following cases: a. Thermal power plants, industrial production facilities with a total annual energy consumption of 1,000 tons of oil equivalent (TOE) or more; b. Freight transport companies with a total annual fuel consumption of 1,000 TOE or more; c. Commercial buildings with a total annual energy consumption of 1,000 TOE or more; d. Solid waste treatment facilities with an annual operating capacity of 65,000 tons or more"). Details of greenhouse gas emitting facilities that must conduct greenhouse gas inventory are listed in detail in the Prime Minister's Decision 01/2022/QD-TTg on promulgating the list of sectors and facilities emitting greenhouse gases that must conduct greenhouse gas inventory. 

To implement the allocation of greenhouse gas emission quotas, Article 12 of Decree 06/2022/ND-CP stipulates as follows:

"1. Based on the greenhouse gas emission reduction targets and roadmap specified in Article 7 of this Decree and the results of the latest greenhouse gas inventory of the facilities specified in Clause 1, Article 5 of this Decree, the Ministry of Natural Resources and Environment shall submit to the Prime Minister for promulgation the total greenhouse gas emission quota, the rate of reserve and auction quotas for the 2026-2030 period and annually.

2. Based on the total greenhouse gas emission quota specified in Clause 1 of this Article, the results of the latest greenhouse gas inventory and the situation of greenhouse gas emission reduction at the facility level, the Ministry of Natural Resources and Environment shall take charge of, and coordinate with the relevant ministries in charge of sectors to develop and promulgate greenhouse gas emission norms per unit of product for types of production, business facilities, and allocate greenhouse gas emission quotas to the facilities specified in Clause 1, Article 5 of this Decree for the 2026-2030 period and annually….”

Competence to allocate greenhouse gas emission quotas:

Clause 10, Article 139 of the LEP 2010 stipulates: "The Ministry of Natural Resources and Environment shall organize the allocation of greenhouse gas emission quotas to subjects as prescribed in Clause 2 of this Article...". Thus, the greenhouse gas emission quotas of greenhouse gas emitting facilities that must conduct greenhouse gas inventory (as prescribed in Decision 01/2022/QD-TTg) are allocated by the Ministry of Natural Resources and Environment.

b. Carbon credits

A carbon credit is a commercially tradable certificate that represents the right to emit one ton of carbon dioxide (CO2) or one ton of CO2 equivalent (Clause 35, Article 3 of the 2020 LEP). Carbon credits circulating in the carbon market must be carbon credits obtained from domestic and international carbon credit exchange and offset mechanisms in accordance with the law and international treaties to which Vietnam is a member.

2. The operating mechanism of the carbon market is the exchange and offset mechanism

a. For the exchange of greenhouse gas emission quotas

Clauses 4 and 5, Article 139 of the 2020 LEP stipulate as follows:

"4. Greenhouse gas emitting facilities are only allowed to emit greenhouse gases within the allocated quota; in case of demand for emissions exceeding the allocated quota, they must purchase quotas from other entities through the domestic carbon market.

5. Greenhouse gas emitting facilities that reduce greenhouse gas emissions or do not use up the allocated emission quota may resell them to other entities in need through the domestic carbon market.

...

7. Greenhouse gas emitting facilities participating in the domestic carbon market shall exchange, auction, borrow, lend, pay, transfer emission quotas and carbon credits; implement domestic and international carbon credit exchange and offset mechanisms in accordance with the law and international treaties to which the Socialist Republic of Vietnam is a member."

According to the above regulations, greenhouse gas emitting facilities have the right to emit within their owned (allocated) quota. If they emit more, they will have to buy quotas from other greenhouse gas emitting facilities. Conversely, in case the facility reduces greenhouse gas emissions or does not use up the allocated emission quota, it may be resold to other entities through the carbon market. This will motivate businesses to move towards green production and low emissions by actively choosing options that suit their conditions and business production situation. For example, for businesses with the potential to reduce emissions greatly at low cost, they can immediately invest in technology transformation to reduce emissions, and thereby increase revenue from selling excess quotas. Conversely, businesses that need more significant costs to reduce emissions can buy quotas from other units that have excess quotas.

b. For the exchange and offsetting of carbon credits

Clause 5, Article 3 of Decree 06/2022/ND-CP explains the carbon credit exchange and offset mechanism as follows: "The carbon credit exchange and offset mechanism are mechanisms for registering and implementing greenhouse gas emission reduction programs and projects and generating carbon credits according to methods recognized internationally or by Vietnam. Carbon credits from programs and projects are exchanged on the carbon market or offset for greenhouse gas emissions exceeding the allocated quota."

Pursuant to Article 20 of Decree 06/2022/ND-CP, the registration of programs and projects under the carbon credit exchange and offset mechanism is guided as follows:

"1. Entities that develop and implement programs and projects under the carbon credit exchange and offset mechanism

a) Vietnamese organizations that need to develop and implement programs and projects;

b) Foreign organizations that need to develop and implement programs and projects in Vietnam.

2. The entities specified in Clause 1 of this Article that implement programs and projects under the carbon credit exchange and offset mechanism within the framework of the United Nations Framework Convention on Climate Change, international treaties and agreements to which the Socialist Republic of Vietnam is a member shall submit registration dossiers requesting approval of the programs and projects to the Ministry of Natural Resources and Environment in one of the following forms: direct submission, online submission or submission through postal services. The dossier requesting project approval includes:

a) Application form for program and project approval according to Form No. 03 of Appendix V issued with this Decree;

b) Program and project documents developed in accordance with the guidance of the Ministry of Natural Resources and Environment in accordance with the provisions of the United Nations Framework Convention on Climate Change, international treaties and agreements to which the Socialist Republic of Vietnam is a member;  

c) Technical report or appraisal report of the program or project by an independent appraisal agency in accordance with the guidance of the Ministry of Natural Resources and Environment in accordance with the provisions of the United Nations Framework Convention on Climate Change, international treaties and agreements to which the Socialist Republic of Vietnam is a member;  

d) Copies from the original or certified copies of licenses and documents related to the professional activities of the program and project in accordance with current regulations.

3. Evaluation and approval of programs and projects under the carbon credit exchange and offset mechanism within the framework of the United Nations Framework Convention on Climate Change, international treaties and agreements to which the Socialist Republic of Vietnam is a member.

a) Within 05 working days from the date of receiving the application dossier, the Ministry of Natural Resources and Environment shall notify the organization of one of the following cases: acceptance of a valid dossier; request for supplementation and completion of the dossier or rejection if the dossier is invalid. The time limit for supplementing and completing the application dossier is no more than 15 working days from the date of written notice of the request for supplementation and completion of the dossier;  

b) Within 30 working days from the date of receiving a valid application dossier, the Ministry of Natural Resources and Environment shall organize the evaluation of the application dossier for program and project approval through soliciting opinions from relevant agencies. The agency consulted shall be responsible for responding in writing within a maximum of 07 working days from the date of receiving the written request for comments enclosed with the dossier;

c) Within 03 working days from the date of having the evaluation results, the Minister of Natural Resources and Environment shall consider and decide to approve the program and project and notify the requesting organization; in case of disapproval, the reasons must be clearly stated.

4. The Minister of Natural Resources and Environment shall issue regulations on the organization of evaluation of programs and projects under the carbon credit exchange and offset mechanism within the framework of the United Nations Framework Convention on Climate Change, designate the specialized climate change management agency as the standing agency for evaluation.

5. The entities specified in Clause 1 of this Article that implement programs and projects under the carbon credit exchange and offset mechanism outside the framework of the United Nations Framework Convention on Climate Change, international treaties and agreements to which the Socialist Republic of Vietnam is a member in Vietnam shall be responsible for:

a) When registering the program or project, send the registration information to the Ministry of Natural Resources and Environment according to Form No. 04 of Appendix V issued with this Decree; 

b) In the process of implementing the program or project, regularly provide information on the implementation situation to the Ministry of Natural Resources and Environment before December 31 every year according to Form No. 05 of Appendix V issued with this Decree.". 

In addition to the entities that develop and implement programs and projects under the carbon credit exchange and offset mechanism mentioned above, Article 8 of Decree 06/2022/ND-CP also stipulates that the following entities may participate in the carbon credit exchange and offset mechanism:

"1. Organizations, households, individuals, and residential communities that are assigned forests, leased forests by the State; allocated land, leased land for forest planting; self-restoration and development of forests; receiving transfer, donation, or inheritance of forests in accordance with the law, are responsible for developing and implementing sustainable forest management measures, protecting and increasing the coverage rate, biomass and quality of forests to increase greenhouse gas absorption capacity.

2. The entities specified in Clause 1 of this Article may participate in domestic and international carbon credit exchange and offset mechanisms in accordance with the law and international treaties to which the Socialist Republic of Vietnam is a member."

Accordingly, planting forests and developing forests can generate carbon credits (called forest carbon credits) derived from the amount of CO2 or CO2e generated from REDD + [1] activities. Forest owners can convert the area of forest they are managing and protecting into the amount of CO2 absorbed, thereby converting it into carbon credits and can sell these credits in the carbon market.

3. Entities participating in the domestic carbon market

Article 16 of Decree 06/2022/ND-CP stipulates the entities participating in the domestic carbon market as follows:

"1. Facilities subject to the provisions of Clause 1, Article 5 of this Decree.

2. Organizations participating in the implementation of domestic and international carbon credit exchange and offset mechanisms in accordance with the law and international treaties to which the Socialist Republic of Vietnam is a member.

3. Other organizations and individuals related to investment and business activities of greenhouse gas emission quotas and carbon credits in the carbon market."

Thus, the entities participating in the domestic carbon market include:

• Facilities included in the list of sectors and facilities emitting greenhouse gases that must conduct greenhouse gas inventory promulgated by the Prime Minister. Currently, there are 6 sectors that must conduct greenhouse gas inventory according to Decision 01/2022/QD-TTg, including: energy; transportation; construction of industrial processes; agriculture, forestry and land use; waste;

• Organizations participating in the implementation of domestic and international carbon credit exchange and offset mechanisms in accordance with the law and international treaties to which Vietnam is a member (including but not limited to organizations, households, individuals, and residential communities that are assigned forests, leased forests by the State; allocated land, leased land for forest planting; self-restoration and development of forests; receiving transfer, donation, or inheritance of forests in accordance with the law);

• Other organizations and individuals related to investment and business activities of greenhouse gas emission quotas and carbon credits in the carbon market.