Vietnam’s Carbon Pricing Plan: Reducing Carbon Emissions from Air Travel and Other Sources by 2050

Like many countries, Vietnam has been working toward tackling climate change by reducing harmful gases released into the air. The objective is “zero harmful emissions” by 2050. Major investments are being set up to explore cleaner power generation, especially wind and solar energy.

Vietnam plans to phase out the use of coal in favor of clean energy systems through the development of more wind farms and solar panels. They plan to double the problematic sector power supply between 31 and 38 gigawatts by 2030. Just to put this in perspective, one gigawatt is enough electricity to power hundreds of thousands of homes.

To speed up the realization of its clean energy goals, Vietnam is applying carbon pricing and emissions trading schemes. Carbon pricing is like a price tag on pollution, forcing companies that create pollution to pay for it, causing them to reduce their pollution. But Vietnam knows it can not do this alone. They have sought help from the wealthier nations, saying they need funds, new technologies, and expertise from foreign investors to reach these ambitious goals.

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What is Carbon Pricing?

Carbon pricing means citizens pay for carbon pollution as a part of the basic process whereby the release of greenhouse gases into the atmosphere has been monetarily worked out. This can be done in two ways.

First is implementing a carbon tax – polluters pay a fixed amount for each unit of pollution they cause and discharge into the atmosphere.

Another thing would be emissions trading – a cap-and-trade system. It is a system that would usually set up allowances for how much a polluter can emit. If a polluter (say Company A) exceeds his allowance and another (Company B) is under the limit, Company A buys the allowance that Company B interstate exceeded their set limit.

Such strategies have been taken across the world. In 2022, the World Bank stated: “There were 68 carbon pricing systems placed into operation, including both carbon tax and emissions trading systems”. Together, these systems cover some 23% of global greenhouse gas emissions. 

Carbon Pricing Brings Vietnam Closer to a Decarbonized Economy

Due to the rapid economic growth of Vietnam, the increase in energy consumption is remarkably noticeable. A consequential increase in gas emissions that harm the environment has put Vietnam in the second position of the most polluted countries in Southeast Asia as of 2023.

To address this hazard while keeping the economy strong, Vietnam drafted a new environmental law. The law provides for a trading system for carbon emissions among companies. This has been elaborated through Decree 06/2022/ND-CP. To put it very simply, it holds that polluting companies must pay for the pollution they have caused.

To ensure the functionality of the system, several tools will now be developed in Vietnam: one for the tracking and monitoring of emissions and their verification, and one for the investment in the national record. The projection is that the largest emitters will be brought under policy order, towards which SMEs will join soon.

By making it costly, it will diminish harmful gases and clear the air, which is good for people’s health. Second, it will tackle climate change challenges, hence restoring environmental integrity. Third, the system could bring in revenues to the government and encourage firms to adopt cleaner technology. Fourth, with such rules, according to World Bank reports, Vietnam will be attractive to foreign investors, hence giving a competitive edge to Vietnamese products in global markets. 

The Importance of Carbon Pricing for Vietnam

In 2022, Vietnam made a big step forward in the fight against climate change by legalizing carbon trading under a new environmental law. Consider carbon trading as a system by which companies pay for the pollution they emit. Research from Australia National University verified that even modest charges on fossil fuels-fossil fuel emissions between US$1.85 to US$3.86 per ton, increasing rates by 10% each year would cut fossil fuel emissions by 5.5-11.2% by 2030.

A trading system may be an easier sell politically. An effective mechanism for the regulation may do better to actively monitor pollution levels. It will also require constructive engagement with individuals and businesses to communicate the merits of paying for carbon pollution.

Carbon pricing does not just help the environment; it can also be used to rebuild Vietnam’s infrastructure and make its firms globally competitive. It can also allow Vietnam to avoid paying more in penalties for trade with other countries, especially under agreements such as that with the European Union.

Such a process is also positive for stimulating the use of renewable energy such as solar and wind power-which is especially meaningful, given the ongoing struggle to fund and build coal power plants. While Vietnam is already taking steps in this direction, its neighboring Thailand and Malaysia are also contemplating similar measures. They have set up voluntary carbon trading systems and are giving thought to carbon taxes.

Vietnam’s plan is specific. By 2028, it wants to set up a fully functioning carbon trading system where businesses that can not reduce emissions sufficiently will either buy allowances or be fined.

Read More: Vietnam Renewable Energy: Advantages and Growth in the Green Energy Industry

The Roadmap to a Carbon Pricing Market

Since 2016, the World Bank has supported Vietnam in developing a carbon pricing system to reduce greenhouse gas emissions by making polluters pay for environmental damage.

With funding and expertise, the World Bank helped Vietnam conduct a feasibility study on carbon pricing, covering data collection, policy development, infrastructure, and pilot programs in the steel and waste sectors. This collaboration led to the passage of a law establishing an emissions trading system, allowing companies to buy and sell pollution permits, creating a market-driven incentive for emissions reduction.

As countries like China address the relationship between energy consumption, carbon emissions, and economic growth, Vietnam’s carbon pricing initiative represents a key step toward sustainable development. The World Bank will continue assisting Vietnam in policy development, capacity building, and pilot program expansion, ensuring effective implementation of its low-carbon economic transition.

Preparing Your Business for Upcoming Regulatory Changes

Businesses can prepare for these regulatory developments by taking the following three practical steps:

1. Measure GHG emissions:

The first step for a business is to ascertain its greenhouse gas (GHG) emissions. This will involve both direct emissions from internal operations and indirect emissions from the supply chain. Technology platforms should enable companies to quickly gather and organize emissions numbers from their suppliers and partners.

2. Locate places where emission is higher:

Business needs to find the activities causing the maximum number of emissions. While many types of emissions exist, in most cases, only a few sources capture the huge chunk. For instance, in the agricultural sector, the bulk of emissions come from purchases of goods and services, while in manufacturing, sustained use of manufactured products has the largest impact. Identification of the so-called “hotspots” will lead businesses toward sharpening their focus on areas where improvements can have the most significant impact.

3. Lower the levels of emissions:

Businesses should attempt various ways to inch emissions downwards, make alternative emissions reduction strategies against one another, and carefully scrutinize their product components and production techniques to identify how they can move towards becoming less damaging. Finally, industries should keep getting better over time by collecting and documenting progress in order to learn from and enhance their emissions-reduction strategies. 

Preparing Your Business for Upcoming Regulatory Changes

To successfully set up their new factory in Vietnam, Innovative Lighting considered it very important to chart the convoluted Vietnamese path to regulatory compliance. They did a partnership with InCorp Vietnam, a leader in market entry and corporate services.

InCorp Vietnam did a great deal to bring Innovative Lighting into an evolving regulatory environment. These services were characterized in this aspect: 

• Comprehensive Market Research: InCorp Vietnam undertook a detailed investigation to understand the precise regulations and requirements for Innovative Lighting’s industry and operations in Vietnam. This provided a unique opportunity to understand the legal and operational framework under which the company would operate.
• Location of the Factory: They helped to locate the best options for factories in industrial parks close to Ho Chi Minh City, considering the distance from existing infrastructure, available labor supply, and compliance with local zoning and environmental regulations.
• Smooth Communication: InCorp Vietnam rendered vital translation services to narrow the communication gap between Innovative Lighting, Vietnamese authorities, local partners, and other stakeholders. This made communication more easy throughout the process of factory establishment.

With InCorp Vietnam’s expertise, Innovative Lighting could actively resolve incidents with authorities on any potential regulatory issues before launching into the Vietnamese market. Such early proactive measures mitigated possible disruption and gave the company an opportunity for a successful, viable long-term operation in the highly competitive Vietnamese market. 

How Can InCorp Vietnam Help?

When it comes to entering the investment scene in Vietnam, things may be a bit slow, especially when it comes to compliance with the dynamic and evolving carbon emission restrictions. However, the alternative energy sector presents an exciting prospect for investment. Luckily, InCorp Vietnam’s full range of business solutions will guide you to not only register the company but also to comply with the necessary legal procedures. After you register your company with us, we can assist with HR and accounting services as well as provide the services necessary to ensure successful licensing and compliance for paying corporate carbon taxes.