Domestic carbon markets in Vietnam and support by EUVNFTA and CPTPP

Following the publication of the Environmental Protection Act 2020, which comes into force on January 1, 2022, three new documents have been adopted relating to the reduction of greenhouse gas emissions and the protection of the water layer. ‘ozone. These aim to complete Vietnam’s regulatory framework in the sector and reaffirm Vietnam’s commitment to achieve net zero carbon emissions by 2050 at COP26. These documents include:

• Decree No. 06/2022/ND-CP on Greenhouse Gas (“GHG”) Mitigation and Ozone Layer Protection issued by the Government on January 07, 2022 (“Decree No. 06” );

• Decision No. 01/2022/QD-TTg issuing the List of greenhouse gas emitting sectors and establishments subject to a greenhouse gas inventory taken by the Prime Minister on January 18, 2022 (“Decision No. 01″); and

• Circular n° 01/2022/TT-BTNMT detailing the environmental protection law on responses to climate change.

These legal documents are essential to improve the effectiveness and efficiency of state management on climate change with four (04) administrative procedures for mitigating GHG emissions and protecting the ozone layer: (i) Certification eligible carbon credits and GHG emission allowances traded on the domestic carbon market; (ii) Registration of programs and projects according to carbon trading and offsetting mechanisms; (iii) Recording and reporting of the use of controlled substances; and (iv) requirements for allocating, adjusting and increasing quotas for the manufacture/import of controlled substances. According to Decision No. 01, there are 21 sectors and 1,912 establishments subject to the greenhouse gas inventory. This list will be reviewed and updated every two years by the Ministry of Natural Resources and Environment (“MONRE”), line ministries and local government.

Institutions on the list are allowed to participate in the national carbon market by applying for a certificate on carbon credits and greenhouse gas emission allowances for trading on the national carbon market. The MONRE is responsible for issuing the certificate within 15 working days of receipt of the requests by the establishments.

The idea of ​​carbon credit trading comes from the Kyoto Protocol which Vietnam ratified in 2002. In particular, the Clean Development Mechanism (‘CDM’) allows developing countries that have signed the Kyoto Protocol to UNFCCC to pursue projects aimed at reducing GHG emissions and obtaining certified certificates. emission reduction credits, which can then be sold to developed countries with obligations under the Kyoto Protocol. The Kyoto Protocol proposes two other mechanisms, namely joint implementation, which allows developed countries to carry out greenhouse gas reduction projects in developing countries, and emissions trading, which allows countries with carbon credits to resell them to countries that have to reach a target.

According to the Agency for Meteorology, Hydrology and Climate Change (AMHCC) of MONRE, as of February 2021, Vietnam’s CDM project types include dumping of underground gas recovery (7%), methane recovery (27%), afforestation and reforestation (4%), wind power (4%), hydroelectricity (54%) and other (4%). Vietnam ranks 11th and 8th respectively in the world in terms of registered CDM projects and certified emission reductions.

Executive Order No. 06 aims to establish a National Carbon Trading Exchange (“CTX”) with the roadmap to 2028. The CTX will establish an official exchange for the recognition and trading of carbon credits, which is popular in developped countries. The Ministry of Industry and Commerce is responsible for establishing and developing the CTX and adopting the system’s financial management regime. Meanwhile, MONRE will chair and coordinate with relevant ministries to operate CTX on a trial basis from 2025 and officially put it into operation from 2028 with connection to other markets. The CTX will focus on trading or offsetting carbon credits generated by projects/programs under national law and international treaties. The CTX can provide a GHG emission quota allocated to the manufacturer.

Energy is by far the biggest emitter of greenhouse gases in Vietnam, accounting for around 65% of total carbon emissions, especially carbon dioxide. Vietnam has pledged to gradually shift from fossil fuels to renewable energy sources, especially solar and wind power. This commitment is reflected in the latest Draft Electricity Development Plan VIII (“PDP 8”) prepared by the Ministry of Industry and Commerce regarding the National Electricity Development Plan for the period 2021-2030 , with a vision for 2050. The not-yet-adopted plan aims to drastically reduce coal-fired power, sharply increase onshore and offshore wind power; not to pursue the development of solar energy and to develop LNG to replace polluted coal and hydroelectric energy sources.

Below we examine Vietnam’s energy development commitments under the Comprehensive and Progressive Trans-Pacific Partnership (“CPTPP”) and the EU-Vietnam Free Trade Agreement (“EVFTA”).

EVFTA

Under Chapter 7 on Non-Tariff Barriers to Trade and Investment in Renewable Energy Generation, Vietnam is committed to promoting, developing and increasing energy generation from renewable and sustainable sources, including facilitating trade and investment. Specific commitments include:

• refrain from adopting measures providing for local content requirements or any other compensation affecting the products, service providers, investors or companies of the other party;

• Refrain from adopting measures requiring the establishment of partnerships with local companies, unless such partnerships are deemed necessary for technical reasons and Vietnam can demonstrate these reasons at the request of the other Party;

• ensure that all measures concerning authorization, certification and licensing procedures which apply, in particular, to equipment, installations and associated transport network infrastructure, are objective, transparent, non-arbitrary and non-discriminatory between the candidates of the Parties;

• ensure that administrative fees and charges are transparent and non-discriminatory. Vietnam has made no commitments in the EVFTA regarding:

• production, transport and distribution of electricity on a private line;

• gas production and gas transport through a private tube; and

• production of hot water and steam, distribution of hot water and steam by private line.

For all energy-related service and non-service lines, at least 20% of managers, executives and specialists must be Vietnamese citizens, unless these positions can be replaced by Vietnamese citizens. However, a minimum of three non-Vietnamese managers, executives and experts are allowed per company.

CPTPP

Under the CPTPP, Vietnam is embarking on its transition to a low-emission and resilient economy. Vietnam cooperates with other CPTPPP countries to address energy efficiency, development of cost-effective low-emission technologies and alternative, clean and renewable energy sources; sustainable transport and sustainable development of urban infrastructure; fight against deforestation and forest degradation; emission monitoring; market and non-market mechanisms; low emissions, resilient development and sharing of information and experiences.

Regarding electricity development, foreign investment to own or operate electricity transmission facilities in Vietnam may not be permitted. Vietnam Electricity Corporation (“EVN”) is currently the only licensed owner and operator of electricity transmission facilities in Vietnam.

In addition, Vietnam reserves the right to adopt or maintain any measure relating to investments in hydroelectricity and nuclear energy.

Regarding services incidental to energy distribution (CPC 887), Vietnam does not allow foreign service providers to provide such cross-border services, nor does Vietnam allow foreign investment in this sector. .

About Terry Simmons

Check Also

Pass-Through Fees to Waive the Electricity Tariff for Certain Solar Projects: Report

New Delhi: The decision of the Ministry of New and Renewable Energy to consider the …