Vietnam sets out to deal with carbon tax and market barriers

Vietnam is moving towards the challenging goal of becoming a high-income country by 2045 and achieving net-zero emissions by 2050. Meanwhile, the government has only indirectly taxed carbon through the environmental protection tax for enterprises producing and importing fossil fuels.

Vietnam sets out to deal with carbon tax and market barriers, illustration photo/ Le Toan

Enterprises in the northern province of Hai Duong, which is considered a major cement production centre of Vietnam, could feel the impact of a carbon tax the most. In 2019, VICEM Hoang Thach Cement Group accounted for 4 per cent of Vietnam’s output, at about 3.8 million tonnes. The use of limestone to produce commercial concrete has helped Hoang Thach create high-quality but also cheaper product lines.

However, Hoang Thach’s production line is also deemed as one of the bigger contributors to global warming, and cement production and greenhouse gas (GHG) emissions have always increased together.

The national GHG inventory, report released in 2021 conducted by the Ministry of Natural Resources and Environment in 2016, showed that the total emissions of the whole country were 316 million tonnes of CO2 equivalent. This figure is expected to increase to 928 million tonnes of CO2e by 2030 and 1.5 billion tonnes by 2050 under the business-as-usual scenario.

According to the report, since 2000, emissions from energy activities such as transportation, industry, and residential development increased rapidly, accounting for 65 per cent of total emissions in 2016. Compared with neighbouring countries in Southeast Asia, Vietnam’s emission intensity per unit of GDP is quite high, at about 0.35 kg CO2 per USD.

Experts criticise that the tax rate does not reflect the nature of carbon pricing if calculated per unit of GHG, as the tax rate for petrol is higher than for coal. International experience could help Vietnam flexibly apply carbon tax and market measures to optimise emissions reduction. This may allow businesses to be flexible and proactive in choosing measures to comply with emission quotas, thereby bringing about cost-effectiveness in emission reduction.

In Vietnam, carbon pricing tools have been gradually developing, including the environmental protection tax, an indirect tool that has been used for a long time, and the carbon market, a direct tool that will be applied in the future. Many domestic analysts believe that Vietnam is still struggling in determining the criteria in carbon pricing instead of considering factors for this tool to be effective, including a support mechanism for those who suffer from carbon emissions.

In theory, carbon pricing is an economic policy tool aimed at achieving emission reduction targets at the lowest cost by balancing emissions reduction costs across sectors and sources of GHG emissions.

The report State and Trends of Carbon Pricing 2022 by the World Bank from April states there are 68 carbon pricing tools in use globally, with three more tools in the pipeline. Carbon pricing is covering about 23 per cent of total GHGs globally.

Truong An Ha, an analyst at the Vietnam Energy Transition Initiative, said, “Building and operating a domestic carbon market will help Vietnam seize opportunities to reduce carbon emissions efficiently.”

The carbon market could also help Vietnam increase compatibility with international carbon pricing mechanisms and create opportunities to link with regional and international carbon markets, Ha added.

“However, building and operating a carbon market is a process. Vietnam must mobilise all resources to meet financial, technical, and human resource requirements, and apply innovative solutions that can become effective and feasible tools.”

Immediately after COP27 a month ago, more and more domestic analysts wanted to discuss the carbon market. They believe that, when the market is operational, each business will have an emission quota. Enterprises would have to calculate emissions reduction by producing fewer products or by using more modern technologies to reduce emissions.

Dr. Nguyen Phuong Nam, director general of Klinova Climate Innovation JSC said, “When businesses mobilise green credits and green bonds in the carbon market, the world recognises this as a strong enterprise and ensures the possibility of cooperation and development.”

In the short term, the carbon market may have negative impacts on business performances, but in the long term, it could offer more benefits to companies, Nam added.

Leveraging carbon markets for Vietnam’s climate commitments Vietnam has identified the importance of shifting away from traditional models of growth in order to sustain the development gains of recent decades. The country adopted its National Green Growth Strategy in 2021 and developed the Green Growth Action Plan the following year. In 2021, Vietnam made a commitment to bring net emissions to zero by the middle of the century.

Defining the crucial role for voluntary carbon markets With 2030 not that far away, if nations and companies are to accelerate towards their net-zero targets, voluntary carbon markets have an essential part to play.