Lawyer in Vietnam Dr. Oliver Massmann - Domestic carbon markets in Vietnam and backup by EUVNFTA and CPTPP

1. Domestic carbon markets in Vietnam and backup by EUVNFTA and CPTPP
Following the issuance of the 2020 Law on Environment Protection, which takes effect from 01 January
2022, there have been three newly adopted documents regarding the reduction of greenhouse gas
emissions and protection of the ozone layer. These are aimed at completing Vietnam’s regulatory
framework in the sector and reaffirm Vietnam’s commitment to achieve net-zero carbon emissions by
2050 in the COP26.
These documents include:
• Decree No. 06/2022/ND-CP on the mitigation of Green House Gas (‘GHG’) and protection of
Ozone Layer issued by the Government on 07 January 2022 (‘Decree No. 06’);
• Decision No. 01/2022/QD-TTg on issuing the List greenhouse gas emitting sectors and
establishments subject to greenhouse gas inventory issued by the Prime Minister on 18 January
2022 (‘Decision No. 01’); and
• Circular No. 01/2022/TT-BTNMT on detailing the Law on Environment Protection on responses to
climate change.
These legal documents are essential for improving 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 of eligible carbon credit and GHG emission quotas exchanged on domestic
carbon market; (ii) Registration of programs and projects according to carbon exchange and offsetting
mechanisms; (iii) Registering and reporting use of controlled substances; and (iv) Requirements of
allocation, adjustment, and increase of controlled substance manufacture/import quotas.
According to Decision No. 01, there are 21 sectors and 1,912 establishments subject to 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.
Establishments in the list are allowed to participate in the domestic carbon market by applying for a
certificate on carbon credits and greenhouse gas emission quotas for trading on the domestic carbon
market. The MONRE is responsible for issuing the certificate within 15 working days from the receipt of
requests by establishments.
The idea of carbon credit exchange comes from the Kyoto Protocol which Vietnam ratified in 2002. In
particular, the Clean Development Mechanism (‘CDM’) allows developing countries who have signed onto
the UNFCCC Kyoto Protocol to pursue projects to reduce GHG emissions and earn certified emission
reduction credits, which can then be sold to developed countries with obligations under the Kyoto
Protocol. The Kyoto Protocol offers other two mechanisms, namely Joint Implementation, which allows
developed countries to carry out greenhouse gas reducing projects in developing countries, and Emissions
Trading, which allows countries with carbon credits to spare to sell them to countries needing to meet a
target.
According to the MONRE’s Agency for Meteorology Hydrology and Climate Change (‘AMHCC’), as of
February 2021, Vietnam’s CDM project types include dumping ground gas recovery (7 per cent), methane
recovery (27 per cent), afforestation and reforestation (4 per cent), wind power (4 per cent),
hydroelectricity (54 per cent), and others (4 per cent). Vietnam ranks 11th
and 8th
in the world in terms of
registered CDM projects and certified emission reduction respectively.
Decree No. 06 aims at establishment of a domestic carbon trade exchange (‘CTX’) with the roadmap to
2028. The CTX will create an official exchange for recognition and trading of carbon credit, which is

2. popular in developed countries. The Ministry of Industry and Trade is in charge of establishing and
developing the CTX and adopting financial management regime of the system. Meanwhile, the MONRE
shall chair and coordinate with relevant ministries to operate the CTX on a trial basis from 2025 and
officially bring it into operation from 2028 together with connection to other markets. The CTX shall focus
on the trading or offset activities of carbon credit generated from projects/programs under domestic law
and international treaty. The CTX may provide with GHG emission quota allocated for manufacturer.
Energy is by far the largest greenhouse gas emitter in Vietnam, accounting for about 65 percent of total
carbon emissions, particularly carbon dioxide. Vietnam is committed to gradually shifting from fossil fuels
to renewable energy sources, particularly solar and wind power. This commitment is reflected in the latest
draft Power Development Plan VIII (‘PDP 8’) developed by the Ministry of Industry and Trade regarding
the national electricity development plan for the 2021-2030 period, with a vision to 2050. The not-yet-
adopted plan aims to drastically reduce coal power, sharply increase onshore and offshore wind power;
not to continue solar power development, and develop LNG to replace polluted coal power and
hydroelectric power sources.
We examine Vietnam’s commitments with regard to energy development under the Comprehensive and
Progressive Trans-Pacific Partnership (‘CPTPP’) and the EU-Vietnam Free Trade Agreement (‘EVFTA’) as
below.
EVFTA
Under Chapter 7 on Non-tariff barriers to trade and investment in renewable energy generation, Vietnam
commits to promoting, developing and increasing the generation of energy from renewable and
sustainable sources, particularly through facilitating trade and investment. Specific commitments include:
• refrain from adopting measures providing for local content requirements or any other offset
affecting the other Party’s products, service suppliers, investors or enterprises;
• refrain from adopting measures requiring to form a partnership with local companies, unless
those partnerships are deemed necessary for technical reasons and that Vietnam can
demonstrate those reasons upon request of the other Party;
• ensure that any measures concerning the authorization, certification and licensing procedures
that are applied, in particular, to equipment, plants and associated transmission network
infrastructures, are objective, transparent, non-arbitrary and do not discriminate among
applicants from the Parties;
• ensure that administrative fees and charges are transparent and non-discriminating.
Vietnam has not made any commitments in the EVFTA on:
• production, transmission and distribution of electricity on private-owned line;
• production of gas and transmission of gas through a private-owned tube; and
• production of hot water and steam, distribution of hot water and steam through private-owned
line.
For all service and non-service lines related to energy, at least 20% of managers, executives and specialists
must be Vietnamese citizens, unless those positions cannot be replaced by Vietnamese citizens. However,
a minimum of three non-Vietnamese managers, executives and experts are allowed per business.
CPTPP

3. Under the CPTPP, Vietnam commits its transition to a low emissions and resilient economy. Vietnam shall
cooperate with other CPTPPP countries to address energy efficiency, development of cost-effective, low
emissions technologies and alternative, clean and renewable energy sources; sustainable transport and
sustainable urban infrastructure development; addressing deforestation and forest degradation;
emissions monitoring; market and nonmarket mechanisms; low emissions, resilient development and
sharing of information and experiences.
Regarding power development, foreign investment to own or operate power transmission facilities in
Vietnam may not be permitted. Vietnam Electricity Corporation (‘EVN’) is currently the sole authorized
owner and operator of power transmission facilities in Vietnam.
In addition, Vietnam reserves the right to adopt or maintain any measure with respect to investment in
hydroelectricity and nuclear power.
Regarding Services incidental to energy distribution (CPC 887), Vietnam does not allow foreign services
suppliers to supply such services cross-border and Vietnam also does not allow foreign investment in this
sector.
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Please do not hesitate to contact Dr. Oliver Massmann at omassmann@duanemorris.com if you have any
questions. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.