Vietnam lays groundwork for carbon market development

Vietnam lays groundwork for carbon market development

Vietnam is laying the groundwork for a domestic carbon market as it seeks to meet its climate commitments and strengthen export competitiveness. Chi Dao, senior research manager at B&Company Vietnam, explores the progress made in building the legal and institutional foundations for market development.

Rather than launching a fully functioning carbon trading market immediately, Vietnam is taking a phased approach by strengthening emissions management, carbon governance, and trading infrastructure to prepare for market operation in the coming years.

Vietnam is promoting the development of a domestic carbon market amid rising climate and international trade pressures. The nation is committed to reducing greenhouse gas (GHG) emissions by 15.8 per cent through domestic resources and up to 43.5 per cent with international support by 2030, while also targeting net-zero emissions by 2050.

At the same time, mechanisms such as the EU’s Carbon Border Adjustment Mechanism are increasingly linking carbon management to trade and export competitiveness.

However, at the current stage, Vietnam is primarily building the legal and institutional foundation for the carbon market rather than a fully operational trading market. As a result, the current focus is less on transaction volume and more on establishing a comprehensive legal structure for emissions management, carbon trading, and compliance mechanisms.

Vietnam’s carbon market framework has been developed through multiple layers of policies and regulations covering emissions management, compliance mechanisms, trading infrastructure, and international carbon exchange mechanisms.

The process began with the 2020 Law on Environmental Protection, which for the first time introduced the concept of developing a domestic carbon market in Vietnam. Although largely directional, the law established the legal basis for later mechanisms involving emissions quotas and carbon credits.

Building on this foundation, Decree No.06/2022/ND-CP established the core framework for GHG management, including inventories, emissions quota allocation, carbon credit management, and measurement, reporting, and verification (MRV) systems for major emitting facilities. This marked a shift from emissions reporting towards compliance-based emissions management.

In parallel, Decision No.01/2022/QD-TTg defined the list of sectors and facilities required to conduct GHG inventories across major emitting industries. This effectively created the initial compliance boundary for future emissions regulation and carbon market participation.

Vietnam later refined this framework through two additional decrees, which introduced greater flexibility in quota management and carbon credit usage. However, carbon credit usage remains capped to ensure that actual emissions reduction remains the primary compliance mechanism rather than offset reliance. Together, these revisions show that Vietnam’s carbon governance framework is still evolving alongside implementation capacity and market conditions.

Alongside emissions management rules, Vietnam also established a phased roadmap for carbon market development. A pilot phase was defined from 2025-2028 before full market operation begins in 2029, reflecting a gradual approach focused on capacity building and system testing. In practice, the pilot phase is expected to remain relatively policy-driven due to limited participation and administrative quota allocation.

The market transaction framework was later formalised through legislation on the domestic carbon exchange. It establishes the core infrastructure required for carbon transactions, including registration, trading, ownership transfer, settlement, and registry management.

A notable feature of Vietnam’s approach is the decision to leverage existing securities infrastructure rather than establish a separate environmental exchange system. The Ministry of Agriculture and Environment manages the national carbon registry, while the Hanoi Stock Exchange and the Vietnam Securities Depository and Clearing Corporation operate trading, depository, and settlement functions.

This structure suggests that carbon units are gradually being standardised under centralised regulatory management, although they are not yet treated as financial assets in the same sense as stocks or bonds. Over time, this framework may allow carbon to increasingly influence compliance costs, capital allocation, and industrial competitiveness.

In addition to the domestic market, Vietnam has also started building a legal framework for international carbon exchange. Decree No.112/2026/ND-CP on the international exchange of GHG emissions reductions and carbon credits represents an important step in this direction.

While earlier regulations primarily focused on domestic mechanisms, Decree 112 signals Vietnam’s longer-term orientation towards participation in cross-border carbon mechanisms under Article 6 of the Paris Agreement. The decree also introduces principles related to Article 6.2 cooperation, including the international transfer of emissions reductions, accounting requirements for corresponding adjustments, and mechanisms intended to prevent double counting in emissions reporting and carbon credit usage.

This suggests that Vietnam is gradually aligning its carbon market governance framework with internationally recognised carbon accounting and emissions transfer standards.

From a policy perspective, this indicates that Vietnam is gradually preparing for future integration with international carbon credit flows and cross-border trading mechanisms.

Although the legal foundation has been substantially strengthened, the greatest challenge now lies in implementation capacity. A carbon market can only function effectively if emissions data are reliable, MRV systems operate consistently, and regulatory oversight remains effective. In addition, during the early stages, the number of participating industries and enterprises will remain limited, meaning market liquidity is likely to remain relatively low.

As a result, the current stage can be viewed as a transition from legal framework development towards testing actual operational capacity.

Vietnam has largely established a relatively comprehensive regulatory architecture for its carbon market through multiple layers of policy development, ranging from emissions management and compliance mechanisms to market infrastructure and international carbon exchange regulations.

As the market remains in its pilot stage, the significance of current regulations lies less in immediate trading scale than in the establishment of the institutional foundation necessary for carbon to be managed, priced, and traded within Vietnam’s broader economic governance system.

Over time, this framework may gradually reshape compliance costs, investment decisions, and export competitiveness across emissions-intensive industries.

VIR