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Since 2015, Vietnam has been the leading producer and consumer of finished steel products in the ASEAN region. However, with the European Union's imminent imposition of carbon tariffs, local industry players admit that it is "impossible" for the country's steel industry to decarbonize in the short term due to challenges such as capital shortages, energy, and technology transitions.
According to officia statistics, Vietnam exported 11.1 million tons of steel products in 2023, a 32% increase from the previous year. The export value grew by 4.5% to reach USD 8.35 billion, with the EU being the second-largest export market, following ASEAN. Therefore, the EU's Carbon Border Adjustment Mechanism (CBAM) is expected to have a significant impact on Vietnam.
CBAM is a carbon pricing mechanism targeting high-carbon products exported to the EU, aiming to force industries to reduce carbon emissions by levying carbon tariffs. The steel industry will be one of the first major targets of this mechanism. The Strategic and Policy Research Institute under the Ministry of Industry and Trade (MoIT) of Vietnam estimates that CBAM could lead to a 4% reduction in Vietnam's steel exports, a 0.8% decrease in production capacity, and a decline in product competitiveness.
The steel industry is a major contributor to Vietnam's carbon emissions, which are expected to increase in the coming years. By 2025, the industry's carbon emissions are projected to reach 122 million tons, rising to 132 million tons by 2030, accounting for 17% of the country's total emissions.
Jennifer Pham, a regional advisor for sustainable supply chains at the Danish Embassy in Vietnam, stated that if Vietnam's steel industry cannot decarbonize in the long term, it will be challenging to increase exports to the EU. "CBAM will affect product prices and competitiveness, so exporters must fully understand it," she added.
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Le Quan, Deputy General Manager of the state-owned Vietnam Steel Corporation, bluntly stated that Vietnamese steel factories cannot achieve decarbonization within ten years, citing challenges including capital, technology, and the use of energy in heating furnaces.
According to the Organisation for Economic Co-operation and Development (OECD), only 1% of the steel produced globally under net-zero commitments is made using high-tech processes. The OECD estimates that USD 1.5 trillion would be needed globally to achieve decarbonization in the steel industry.
Hoang Duc Anh, a representative from the Industrial Bureau under the Ministry of Industry and Trade, acknowledged the difficulty in managing and reducing emissions in Vietnam's steel industry. "Almost all factories do not use modern technology but rely on coal heating, which causes environmental pollution," he said. This makes it premature to talk about raising funds for decarbonization.
Additionally, the recognition of "green steel" requires zero carbon emissions throughout the production process, including raw materials and fuel, further complicating Vietnam's steel industry's transition.
Research from Morgan Stanley indicates that the cost of decarbonizing the European steel industry using green hydrogen is USD 1,200 per ton. For a steel company with an average annual output of about 5 million tons, the capital expenditure would be USD 6 billion, which poses an even greater pressure on Vietnamese companies.
Source: Vietnam Investment Review、VnEconomy
