Carbon exchange adds new component to green finance ecosystem

Carbon exchange adds new component to green finance ecosystem

The newly launched domestic carbon exchange offers a market-based mechanism for emissions reduction, with its success hinging on integrating carbon pricing with green credit and capital markets to mobilise investment at scale.

Vietnam's green transition has entered a new phase with the official launch of the domestic carbon exchange on June 29. The platform creates a mechanism for trading greenhouse gas emissions allowances and eligible carbon credits, adding a new component to the green finance ecosystem.

The launch comes as financing needs continue to rise. The World Bank’s Vietnam Country Climate and Development Report, published in 2022, estimated that Vietnam would require an additional $368 billion in investment through 2040 to pursue a climate-resilient and net-zero development pathway. Of this, approximately $114 billion was estimated to be needed for decarbonisation.

These figures underline the scale of the challenge facing policymakers, financial institutions and businesses. The question is no longer simply how to mobilise more capital, but how to ensure that financing reaches viable projects and that measurable emissions reductions can generate economic value.

Vietnam’s banking sector has continued to expand its green lending portfolio. According to figures reported by the State Bank of Vietnam (SBV) on March 27, outstanding green credit reached nearly $30 billion at the end of 2025, accounting for approximately 4.19 per cent of total outstanding credit. Green credit grew by 14.62 per cent in 2025, following growth of 9.5 per cent in 2024.

Pham Thi Thanh Tung, deputy head of the SBV’s Credit Department for Economic Sectors, highlighted the need for a consistent framework to classify green activities.

“The absence of a national green taxonomy had made it more difficult for credit institutions to identify eligible projects and develop appropriate lending policies. A common classification framework would provide a clearer basis for project assessment and help banks allocate financing more effectively. Such consistency would also support the development of financial products linked to measurable environmental outcomes,” she added.

The latest figures demonstrate progress, but green credit still represents a relatively small share of the banking system’s overall lending.

The carbon market could help bridge part of this financing gap by assigning economic value to verified emissions reductions. Businesses may benefit from lower energy consumption, reduced exposure to emissions-compliance costs or additional revenue from selling eligible carbon credits.

However, potential carbon revenue should not automatically be treated as a reliable source of project cash flow. Before credits can support investment decisions, emissions reductions must be measured against credible baselines, independently verified and issued under applicable rules. Clear ownership rights, transparent trading procedures and reliable settlement arrangements are equally important.

At the launch of Vietnam’s domestic carbon exchange on June 29, State Securities Commission (SSC) chairwoman Vu Thi Chan Phuong explained that establishing the exchange was only the starting point.

“What is more important is to build and develop a carbon market that operates in a stable, transparent, efficient, and sustainable manner,” stated Phuong. She also called for effective market supervision, transparent access for participants and continued improvements to the regulatory framework.

“These priorities are relevant to building investor confidence and ensuring that carbon trading develops within a reliable market infrastructure,” she added.

Her remarks underscore the importance of market integrity and effective supervision. For investors, the existence of a trading platform is not sufficient on its own; confidence also depends on the quality of the underlying carbon assets, the transparency of transactions and the consistency of regulatory oversight.

The timing of financing presents another challenge. Businesses need capital for project preparation, equipment procurement and technology upgrades well before emissions reductions can be verified and converted into tradable credits. Carbon revenue may arrive only after verification, issuance or the completion of a sale.

This gap creates opportunities for appropriately structured bridge financing, guarantees and blended finance arrangements. Such mechanisms can distribute risks among project developers, lenders, investors and public-sector institutions while projects establish a record of verified environmental performance.

For banks, carbon revenues should be assessed separately from cash flow generated by core business operations. Credit assessments need to consider the likelihood of credit issuance, potential price volatility, verification costs and contractual commitments. Carbon credits should not be treated as guaranteed collateral or a substitute for sustainable operating cash flow.

A similar approach applies to capital markets. Comparable emissions data, consistent disclosure and independent verification can help investors assess whether projected environmental benefits are credible and whether the associated financial returns justify the risks.

Singapore offers a regional reference point for integrating carbon pricing with regulation. Its carbon tax reached approximately $35 per tonne of CO₂ equivalent in 2026, with a target range of $39 to $62 per tonne by 2030. Eligible international carbon credits can be used to offset up to 5 per cent of taxable emissions, subject to regulatory requirements.

For Vietnam, the broader lesson is that pricing mechanisms, quality standards and financial infrastructure need to develop together. The domestic exchange can provide a trading mechanism, but reliable emissions data and predictable rules will determine how effectively carbon value can influence decisions.

VIR