CBAM and evolution of EU-Vietnam trade

By aligning early with the regulations (CBAM), Vietnamese companies can gain first-mover advantages, attracting green investments and fostering stronger partnerships with EU buyers who prioritise sustainability.

Stuart Livesey, co-chair, Green Growth Sector Committee, European Chamber of Commerce in Vietnam

For Vietnam, a key EU trading partner, 2024 is a crucial preparatory year for understanding and adapting to the requirements. Companies exporting to the EU need to familiarise themselves with CBAM regulations and methodologies for monitoring and reporting emissions. While only emissions reporting is required until the end of 2025, companies will need to begin purchasing carbon certificates from 2026, with costs reflecting the EU’s carbon pricing.

This shift underscores the importance for Vietnamese exporters to align their practices with the EU’s environmental regulations as steel and cement, for example, face notable challenges.

The EU is the second biggest importer of Vietnamese steel, importing 16 per cent of the steel that Vietnam exports globally. The steel industry, currently heavily dependent on carbon-intensive resources like coal, will face increasing pressure as the EU focuses on green steel production which is steel manufactured using renewable energy sources such as wind, solar, and hydrogen.

However, the CBAM will raise the cost of exporting to the EU, placing pressure on Vietnamese companies to adopt greener production processes. The cement industry encounters similar issues, as its carbon-intensive production methods put these exports at high risk under CBAM regulations.

The textile and garment industry, while not immediately subject to the CBAM, is preparing for potential inclusion. This sector, a crucial exporter to the EU, could gain a competitive advantage by proactively aligning with its standards, positioning itself favourably if and when it expands to cover these products.

The path forward for Vietnam under the CBAM is challenging yet promising. Engaging with industry associations, chambers of commerce, and EU-related business organisations will provide Vietnamese businesses with vital training, information, and networking opportunities.

The EU has also developed a range of resources and guidance documents to support companies in understanding and complying with its requirements. Adherence to these policies will be essential as other markets also consider implementing carbon mechanisms, extending beyond the EU to include markets like the UK, the US, and Canada.

Vietnam’s government is encouraged to support local businesses by providing guidance and resources to align their operations with the requirements, thus minimising potential disruptions in trade.

Another area of opportunity lies in Vietnam’s land use, particularly as it serves as a carbon sink, absorbing carbon and offsetting emissions. This natural capacity enhances Vietnam’s potential positive impact in the global market, especially under the CBAM’s framework, which emphasises a “polluter pays” principle.

As products enter the EU, their emissions are assessed and subjected to reporting and taxation to ensure compliance with EU standards. The EU Emissions Trading System provides a framework for this, setting caps on emissions and allowing companies to trade allowances to meet required standards.

Companies can acquire these allowances in several ways including auction, allocation based on sectoral needs, or direct purchase from. Vietnam’s renewable energy sector could also present an advantage here, enabling Vietnamese industries to capitalise on carbon credits generated from clean energy sources.

Compliance poses immediate challenges for Vietnamese exporters, particularly in terms of technical expertise and infrastructure needed to measure, report, and reduce emissions. Many companies, especially small- and medium-sized enterprises, may lack the resources and capacity to meet the CBAM’s rigorous monitoring and reporting requirements. In this regard, the Vietnamese government and industry associations are crucial in supporting companies to build these capabilities, ensuring they are prepared for the demands.

To fully capitalise on this, several strategic steps are essential for Vietnam. Capacity building and training are foundational. Vietnamese industries need comprehensive support to understand carbon accounting, emissions reduction, and compliance.

Collaboration between the government and private sector on training can equip companies with the skills necessary to navigate these new regulations. Additionally, investing in low-carbon tech will be essential for maintaining competitiveness. Industries must commit to technologies that reduce emissions, such as renewable energy sources or energy-efficient machinery. This investment is particularly critical for high-emission sectors like steel and cement.

Vietnam’s banking sector and foreign investors can play a pivotal role by creating financial products to support sustainable transformations. Finally, promoting cross-sector collaboration among industries such as steel, cement, and textiles could be beneficial. Forming collaborative industry groups with EU-based organisations may facilitate the adoption of CBAM-compliant practices and ease the transition process.

Leveraging trade policies and exemptions also presents a key strategy. The CBAM allows exemptions for goods produced in countries with equivalent carbon pricing or where a carbon price has already been paid during production.

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