Vietnam: Vietnam's Policy For Decarbonization

The effects of climate change are deeply felt in Vietnam.  CO₂ emissions are a defined danger.  The consequences are no longer theoretical or distant.  Beyond Vietnam the growing effects on health and the direct effects on climate are visible everywhere (floods, hurricanes, droughts, rise in sea-level, wildfires, intrusion of salt water, etc). And beyond the present there are, we fear, unknown and perhaps irremediable consequences. 

In response to climate change, many countries adopt various measures to mitigate and slow its effects. The Paris Agreement was signed in 2016 by many countries including Vietnam.  To date there are 195 signatories.  The objective of the Paris Agreement is to reduce CO₂ emissions as soon as possible and to reach net-zero by the middle of the 21^st century.  Vietnam has issued a number of internal legislative documents toward achieving the goal of the Paris Agreement.  Vietnam's path is set out in the Law on Environmental Protection; more detail is set out in Decree 06¹, Decision 01² and Decision 896³.

Vietnam's roadmap to reduce CO₂. In a somewhat surprising move, Vietnam committed to reduce its CO₂ emission to 0% by 2050. It did so at the COP26 Summit which included the participation of all 195 countries. During the first phase (from 2022 to 2030), the Government has set a target to reduce at least 564 million tons of CO₂. This target is set out in Decree 06, and it is fairly aggressive. It requires key sectors and industries that discharge CO₂ to reduce emissions_.  Decree 06 allocates CO₂ reduction among sectors as follows: 

Decree 06 assigns the MOIT to achieve half of the national target (by reducing 268.5 tons of CO₂ up to 2030)_.  In this connection, and as part of this plan, the MOIT has drafted its national master plan for power development which is known as “PDP8”. Among other things, the reduction of CO₂ emissions is included in PDP8 as an important objective. Under the latest draft of PDP8⁴, the development of new coal fired plants will cease after 2030. Renewable energy (wind and solar) is encouraged. Under the latest draft of PDP8, the electricity generated from zero-carbon sources (including wind, solar, biomass, and hydropower projects) are projected to reach 42.5% of the total volume of electricity being generated in 2030. Interestingly, the development of nuclear power plants has been re-considered and included in the PDP8. That is, Vietnam could develop small-scaled and safe nuclear power plants in the future.

Decree 06 also requires manufacturers and companies operating in various sectors to apply measures to capture and to reduce C0₂, and/or to pay for C0₂ that exceeds the permitted quota. This requirement will take effect in 2026.  For now, only manufacturers and companies (“C0₂-Generators”)--which generate 3,000 tons of C0₂ or more per year--are required to comply with Decree 06.  The list of particular manufacturers and companies can be found in Decision 01 (about 2,000 of them). This list will be updated from time to time.       

Carbon tax.  Carbon tax is a kind of indirect tax imposed on users of fossil fuel. It has been introduced in EU countries and in other developed countries. Vietnam has learned from these countries. For the first time, in 2019, Vietnam applied a similar tax called “environmental tax” imposed on users of fossil fuel.  Specific tax amounts for each kind of fuel are set out in the following table⁵. 

The imposition of an environmental tax has not resulted in any significant improvement. People and industries continue to emit CO₂ into the atmosphere. The environmental tax is seen only as a partial measure to decarbonize. Perhaps, the behavior of fossil-fuel users will change more if this environmental tax is increased. For instance, once diesel and gas become more expensive as a result of an increase in the environmental tax, people may begin to switch to electric vehicles, or power generators may begin to switch to use zero-C0₂ sources in order to produce their electricity (instead of using coal and gas). Although tax increases can generate increased revenue for the Government, it will often affect the economic growth and income of the public.  In any event, appropriate taxes and their application must be fairly considered.

Carbon quota. Carbon quotas are an additional way to price carbon. The carbon quotas apply only to C0₂-Generators.  The Government will set a limit on how much carbon can be released (the cap) and will issue permits that allow C0₂-Generators to release up to that cap. There will be allocation among sectors and companies. Permits will be issued free of charge. There will be a mechanism whereby permits can be auctioned. The MONRE is responsible to submit the national emissions quotas and quotas for auction for the period from 2026 to 2030 to the Prime Minister for approval. Based on an approved quota, the MONRE in cooperation with other ministries will allocate an emissions quota to each C0₂-Generator. If these C0₂-Generators want to increase the “cap”, they can purchase carbon credits from other holders of carbon credits, or these C0₂-Generators may want to engage in activities or programs that are entitled to be issued carbon credits or to find ways to reduce their own emissions.  That, of course, is the objective. There are three years for these C0₂-Generators to have appropriate plans and measures to reduce C0₂; otherwise they will have financial obligations (by purchasing carbon credits) to pay for CO₂ which they release into the atmosphere.

Carbon market. Decree 06 sets a target of 2025 to create a mechanism and platform to exchange and to trade carbon credits. It aims to form a carbon market within Vietnam by 2028.  At that time carbon credits can be traded and set-off against emissions quotas that exceed the permitted quota. Since the off-set by each C0₂-Generator is limited to 10% of the permitted quota, purchasing carbon credits is only a temporary solution.  It is early to know how the market will operate, and how C0₂-Generators will be affected. This depends on several factors: market conditions, development of technology, and the Government's policy for a quota and auction mechanism. The Government and responsible ministries will need to elaborate further.

Decarbonization requires the application of various measures such as: taxes, quotas, administrative measures, penalties, energy savings and efficiency, reforestation, and the generation of energy from zero-carbon sources. A carbon tax is simpler than an emissions quota and emissions trading system. These measures, however, even when combined, are not sufficient. The development of clean energy is more effective and sustainable and is the affirmative goal. The development of technology will expedite decarbonization.          

Footnotes

1 Decree 06/2022/ND-CP of the Government dated January 7, 2022 (“Decree 06”).

2 Decision 01/2022/QD-TTg of the Prime Minister dated January 18, 2022 (“Decision 01”).

3 Decision 896/QD-TTg of the Prime Minister dated July 26, 2022 (“Decision 896”).

4 Source: MOIT's report no. 3787/BCT-Dl dated July 4, 2022.

5 Due to the global oil and gas crisis, during 2022 the Government temporarily reduced the environmental tax imposed on oil and gas.

6 US$1=VND24,000

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.