Practical applications of carbon credits in the economy. Part XVII: The carbon credit market offers significant benefits to businesses

DNHN - According to Mr. Nguyễn Võ Trường An, CEO of ASEAN Carbon Credit Exchange Joint Stock Company and Director of Innovation - Creativity at TC Group, the carbon credit market provides significant benefits to businesses.

How is the carbon credit market developing in Vietnam? To what extent are businesses interested in and participating in this market, Mr. An?

Mr. Nguyễn Võ Trường An: The carbon credit market in Vietnam is still very new and not fully recognized by many people and businesses. In the past two years, information about carbon credits has begun to attract more attention. Since 2018, some of the first carbon credit projects in Vietnam have been registered with international validation organizations such as Vera and Wortender. However, at that time, the carbon credit mechanism was not well-known, and almost no domestic businesses had access to it.

Now, foreign investment funds have started to cooperate with businesses that have projects capable of generating carbon credits, especially in renewable energy sectors such as wind and solar power. These funds often invest capital to register carbon credit projects and then hold trading rights for the credits from these projects, paying a fee to the project owners. Currently, the number of these projects is limited and mostly belongs to foreign investment funds.

Therefore, ASEAN Carbon Credit Exchange Joint Stock Company (CCTPA) has launched a carbon credit exchange with the goal of developing a voluntary, transparent carbon credit market connected with international exchanges, to increase liquidity for carbon credits in Vietnam. However, with the current number of credits available, the trading volume still does not meet the demand. In the initial stage, CCTPA focuses on consulting and supporting organizations, units, and individuals to register carbon credit projects in the international market.

What are the main benefits and challenges that businesses face when participating in the Vietnamese carbon credit market, in your opinion?

Mr. Nguyễn Võ Trường An: Participating in the carbon credit market offers businesses significant benefits. Firstly, businesses can reduce compliance costs by using carbon credits to offset excess emissions rather than investing in internal emission reduction technologies. Secondly, participating in the carbon credit market not only enhances the company's reputation but also demonstrates its commitment to environmental protection and sustainable development.

Furthermore, this market encourages investment in green technologies and emission reduction projects, thereby improving environmental performance and competitiveness. Businesses can also generate revenue from selling carbon credits and expand international cooperation opportunities, building valuable partnerships. These benefits help businesses not only improve their sustainable operations but also take advantage of new business opportunities.

Currently, the carbon credit market in Vietnam faces four main challenges. The first is the issue of legal mechanisms. Although carbon credits have been mentioned in the 2020 Environmental Law and related decrees and circulars, current regulations are still not clear enough to guide the creation and trading of carbon credits domestically and internationally, causing hesitation from businesses and projects.

The second challenge is human resources. Implementing carbon credit projects requires a team of experts and skilled personnel, from project design to validation and reporting after receiving credits. Currently, specialized human resources are still limited.

The third challenge is supply and demand difficulties. The carbon credit market in Vietnam is still young and lacks liquidity. To achieve high value, there needs to be a large supply and demand along with continuous trading. Currently, due to the market's underdevelopment, meeting supply and demand requirements remains challenging.

Finally, there are challenges related to technology and finance. Investing in green transition requires significant costs, and green technologies are often more expensive than other technologies. This creates substantial financial pressure on businesses and projects wanting to participate in the carbon credit market.

To address the current challenges in the carbon credit market in Vietnam, could you share specific solutions, particularly regarding human resource training and the application of automation technology?

Mr. Nguyễn Võ Trường An: To address the current challenges in the carbon credit field in Vietnam, two main solutions need to be implemented. First, training is very important. We need to continuously organize specialized training courses and leverage international cooperation from organizations such as Vera and Wonterder, as well as NGOs on climate change. These organizations are willing to support Vietnam in training experts for ministries, localities, and businesses, thereby improving the quality of human resources in this field.

Second, applying digital technology and automating processes is necessary. In the past, greenhouse gas emission reporting required manual calculations and spreadsheets, leading to many errors and time consumption. Today, automated software has been developed to process this data more efficiently. These tools can automatically generate reports based on fuel and production material invoices, saving effort and time. Government agencies should leverage this technology to shorten verification processes and enhance efficiency.

We are currently proposing to several localities, especially key economic areas in the South, to apply this technology in industrial parks. Factories in these parks could use software to automatically input data into the industrial park management system, thus connecting and managing more effectively. This technology has become popular worldwide in recent years and will be a useful tool for improving management and emission reporting processes in Vietnam.

Currently, according to Decision No. 01 of 2022 by the Prime Minister, 1,912 businesses are required to submit greenhouse gas inventory reports. Among them, large electricity-consuming businesses are required to submit this report by March 31, 2025.

Could you further elaborate on the specific challenges banks face in evaluating and managing carbon credit financing in Vietnam, and what steps are necessary to overcome these difficulties?

Mr. Nguyễn Võ Trường An: Currently, there are three main challenges we face in this field. First is the issue of legal framework, as mentioned, which involves providing financial resources to invest in green technology and emission reduction, which is costly. Without support from financial institutions such as banks or financial businesses, carrying out these projects will be difficult. Many banks want to provide funding for green projects, but due to gaps in the legal framework, for example, some banks have shared that businesses need to reduce emissions during their operations to meet international standards. In practice, when businesses reduce emissions, they will receive corresponding carbon credits. However, the major issue now is that financial investment in this technology requires substantial capital, and borrowing financial resources requires collateral and future financial planning. Therefore, carbon credits could become a revenue source to offset loans, but naturally, in assessing and managing carbon credits, banks are facing difficulties due to the lack of accurate evaluation mechanisms in Vietnam.

In terms of the legal framework and banks' lending mechanisms, there are still many limitations, leading to very limited borrowing. Current green funding is primarily allocated to renewable energy projects, with collateral being the project assets, equipment, and land rights of the project, rather than the rights to produce carbon credits. Most banks are facing many difficulties and challenges in determining the value of carbon credits.

Additionally, issues related to human resources and technology are also becoming significant challenges in the transition to a green business model. However, if we can address issues related to the legal framework and finance, it will certainly open up pathways for sustainable development. For issues related to tools and human resources, international cooperation for technology transfer from multinational corporations and countries worldwide will be key to helping us develop effectively in this field.

Could you explain how factors such as supply and demand, application areas, and project quality affect the price of carbon credits? Additionally, what is the role of validation organizations in determining the value of carbon credits, and how do they impact the global market?

Mr. Nguyễn Võ Trường An: Currently, the price of carbon credits is influenced by various factors, with the most important being supply and demand in the market. When demand increases, the price of carbon credits typically rises; conversely, when demand decreases, the price falls.

In particular, the price of carbon credits also depends on the field and quality of the projects. Globally, there are over 150 types of carbon credits, classified based on the validation organization and application area, such as forestry, land use, or renewable energy. For example, the aviation industry has recently proposed a specific type of carbon credit for itself. Validation organizations, usually NGOs, play a crucial role in determining the value of carbon credits. Most carbon credit transactions are carried out based on agreements between the two parties, ensuring mutual agreement.

With the significant potential of the carbon credit market in Vietnam, especially given that the current price of carbon credits is still low and there is no fully developed market, what steps are necessary to develop and enhance the value of carbon credits in Vietnam?

Mr. Nguyễn Võ Trường An: Currently, China and Vietnam have the lowest carbon credit prices among countries with significant carbon credit potential. Vietnam, with its vast agricultural area, rich forests, and some developing industrial sectors, has not fully implemented emission reduction measures. Therefore, the potential for developing the carbon credit market in Vietnam is very large. The current low price of carbon credits is mainly because we do not have a fully developed market.

Currently, as we know, carbon credit trading in Vietnam is mainly funded by the World Bank, with a price of 5 USD per ton. However, forestation projects in six Northwestern provinces have not yet issued real carbon credits. The World Bank only buys the rights to carbon credit exploitation based on feasibility reports, predicting that the forest area and impact technology will yield about 10 million carbon credits. Therefore, the World Bank spends 5 USD per ton of emission reduction to purchase the rights to exploit, while the actual project has not yet been able to issue carbon credits.

With the Net Zero commitment by 2050 and the current state of the carbon credit market, what steps should Vietnam take to effectively leverage the potential of carbon credits and attract investment for green technology?

Mr. Nguyễn Võ Trường An: When the Prime Minister made the commitment at COP 26, we had a specific roadmap for implementing national commitments. Commitments at each COP require countries to contribute to the NDC (Nationally Determined Contribution) before engaging in carbon credit trading. For example, for the reforestation project in the six northern provinces, the World Bank has paid for 10 million carbon credits, of which over 50% have been transferred to Vietnam to contribute to the NDC, emphasizing the importance of contributing to the NDC first.

The current low carbon credit prices in China are due to the country's law, which stipulates that carbon credits from domestic projects can only be traded internally and cannot be bought or sold on international markets or with joint ventures. Therefore, carbon credit prices in China are lower than those in Vietnam.

Vietnam has committed to achieving Net Zero by 2050, with 25 years remaining to achieve this goal. Although the time is not too long, we need to prioritize economic development and attract investment in green technology, with carbon credits being an important tool. In the next 10 years, we should promote the development of carbon credits and maintain transactions on the voluntary international market to attract capital and investment in green technology, especially waste treatment technology.

It is advisable to register carbon credit lifecycles for less than 10 years so that every 10 years a new project needs to be registered, ensuring that carbon credits are not lost and can continue to be traded on the international market. This strategy will help us ensure contributions to the national NDC and attract green capital for reinvestment in sustainable economic activities.

Thank you very much!

Phan Chinh