Vietnam is exploring an emissions trading system (ETS) as a key tool to support its transition to a low-carbon economy, particularly within the thermal power sector. The ETS is expected to give businesses greater flexibility in achieving greenhouse gas (GHG) reduction targets, allowing them to choose between investing in cleaner technology or purchasing carbon credits.
The initiative stems from the technical assistance programme Development and Impacts Assessment of Carbon Credit and Allowance Governance Mechanism in Vietnam, conducted by Green Climate Innovation in partnership with Energy and Environment Consultancy JSC, South Pole Group, and a team of national and international experts. The programme assessed governance options for Vietnam’s ETS pilot phase, covering areas such as coverage, cap-setting, allowance allocation, and the use of carbon credits for offsetting. Nine scenarios were evaluated, aligned with the country’s unconditional and conditional Nationally Determined Contribution (NDC) targets and the Just Energy Transition Partnership (JETP) goal.
The study found that under an ETS allowing offset use of up to 30 per cent, total compliance costs for meeting the unconditional NDC target could drop from USD420.5 million to USD68.9 million. For the conditional NDC target, costs could decrease from USD1.297 billion to USD879.8 million. The ETS is also projected to mitigate GDP and consumption losses while reducing inflationary pressures. The coal-fired power sector remains the main purchaser of carbon credits, accounting for 85–90 per cent of market transactions. Credit prices vary depending on offset limits and mitigation targets, ranging from USD0.90–USD2.00 per credit under the unconditional NDC scenario to USD3.40–USD3.70 under the conditional NDC scenario.
The study recommends a phased approach to ETS implementation. In the short term (2025–2028), offset limits of 30 per cent and a 50 per cent retention of credits for domestic compliance will be applied to ensure market stability. In the medium term (post-2028), offset limits would gradually reduce to 20 while cap-setting aligns with conditional NDC targets, maintaining at least 50 per cent of credits for domestic use. From 2030 onwards, the system would move toward full compatibility with Vietnam’s most ambitious climate goals, reducing offset limits to 10 per cent and international credit retention to 30 per cent, with revenues reinvested in hard-to-abate sectors and supporting a just transition.
The ETS pilot is expected to play a pivotal role in balancing economic feasibility, social equity, and environmental ambition, helping Vietnam achieve sustainable GHG reduction targets while promoting cleaner energy adoption.