Vietnam launches emissions trading pilot amid doubts over effectiveness

Vietnam to launch carbon market pilot, allowing up to 30% of emissions to be offset through carbon credits. (Photo: iStock)

Vietnam has taken a significant step in developing its carbon market, unveiling pilot emissions trading plans for three major carbon-intensive industries. The plan outlines how emissions allowances will be distributed and sets a limit on carbon offset usage. However, experts caution that the allocation of free allowances and the underdeveloped national carbon registry system may hinder short-term emissions reduction efforts.

30% offset cap exceeds limits in Singapore and Taiwan

Following multiple rounds of negotiation and revision, the Vietnamese government officially approved new legislation on June 9, offering more clarity on its emissions trading scheme (ETS). The three-year pilot program is scheduled to launch in August, starting with the steel, cement, and thermal power sectors.

In its first phase, the program will cover industries responsible for roughly 50% of the country’s emissions. The second phase, beginning in 2029, will expand to include freight transport and commercial buildings.

Under the current plan, emissions allowances will be allocated for free until 2029. The allowances for 2025–2026 will be announced by the end of 2025, with future allocations released on June 30 of 2027 and 2029, respectively. Companies exceeding their emissions quotas can purchase allowances through the carbon market, while those with surplus can sell them. The use of domestic and international carbon offsets is capped at 30% of a company’s emissions—significantly higher than the 10% cap in places like Singapore and Taiwan.

According to Mai Duong, an analyst at carbon market research firm Veyt, Vietnam's relatively high offset cap is designed to ease the burden on businesses and encourage market participation. She noted that nature-based carbon credits are currently priced lower than allowances, making them an attractive option for companies.

Vietnam’s emissions trading pilot will launch in August, initially covering the steel, cement, and thermal power sectors.（Photo：iStock）

Market launch nears but supporting measures still lacking

Despite these developments, Duong pointed out that Vietnam’s use of an intensity-based allocation system—basing allowances on emissions per unit of production—may not provide strong incentives for actual emissions reductions. Critics argue that focusing solely on improving carbon intensity, without setting absolute emissions caps, could lead companies to increase production, ultimately undercutting climate goals. Similar intensity-based approaches are used in China and Australia.

Vietnam’s national carbon registry system is still under development, and an official trading platform has yet to be announced. These gaps raise concerns about the pilot program’s effectiveness. Industry stakeholders have also highlighted that Vietnam’s emissions allowance allocation process—coordinated across multiple ministries—differs from the single-agency approach used in most other countries, which could affect the program’s execution and oversight.

The new law also allows companies with allowance deficits to borrow up to 15% of their total quota from the next compliance period to meet current obligations, provided this is done before the end of 2030.

Duong emphasized that the pilot program may have limited impact on emissions reduction in the short term but sees long-term potential for carbon trading to become a key tool in Vietnam’s decarbonization strategy. Sam Nunn, principal consultant at carbon consultancy Reset Carbon, echoed this sentiment, adding that the real test will come as carbon pricing and allocation mechanisms evolve.

Three key forces shaping Vietnam’s carbon market future

In a country still heavily reliant on coal, Vietnam’s launch of a pilot carbon market marks a critical step toward its 2050 net-zero goal. According to carbon market analyst Sherry Hu from RECCESSARY, the pilot can help businesses build foundational carbon risk management practices. It is expected to strengthen emissions accounting and decarbonization assessments within carbon-intensive industries, and lay the groundwork for broader policy applications across other sectors.

However, Vietnam’s allowance of up to 30% emissions offset through carbon credits poses two major risks. First, if companies rely solely on credit purchases instead of improving energy efficiency or upgrading technologies, their incentives for genuine decarbonization may weaken. Second, inconsistencies in voluntary carbon credit quality—if not properly regulated—could undermine the actual climate impact and fuel accusations of greenwashing.

Sherry Hu stressed the importance of strict oversight, greater transparency, and a phased reduction of the offset cap. Aligning internal abatement efforts with high-quality carbon credits will be crucial for a robust market foundation.

Looking ahead, Sherry Hu identified three key developments that will shape the future of Vietnam’s carbon market:

1. Driving a regional carbon pricing trend in Southeast Asia
Vietnam joins Indonesia, Singapore, and Thailand in initiating carbon pricing, signaling a clear regional momentum. For export-driven economies like Vietnam, a well-structured carbon market can mitigate external regulatory risks—such as the EU’s Carbon Border Adjustment Mechanism (CBAM)—and strengthen positioning within global green supply chains.

2. Market credibility hinges on transparency and enforcement
The success of Vietnam’s carbon market will depend heavily on institutional transparency and enforcement. Fair allocation of allowances, reliable data, and process clarity are essential for building trust among businesses and investors.

3. Carbon pricing will determine market effectiveness
Whether the carbon market delivers on its objectives will largely hinge on price signals. If carbon prices set during the pilot phase fail to reflect the true cost of emissions reductions, companies may lack motivation for meaningful action, and international investor interest could wane. As Vietnam has yet to reveal its pricing mechanism—whether through auctions, free allocations, or trading—this will remain a crucial metric to monitor.

Source: S&P Global、Bloomberg、Reuters