A new legal basis for emissions reduction obligations, MRV, and carbon market development

The Law on Environmental Protection (LEP) was passed In November 2020. The LEP sets a new legal basis for environmental protection in Vietnam, compliance with international treaties, such as the Paris Climate Agreement and the Montreal Protocol, and the establishment of a carbon market. While the LEP comes into force on 1 January 2022, 2021 is crucial for developing subsequent legislation. Towards this end, the Government of Vietnam has developed a Decree on both greenhouse gas emissions reduction and ozone layer protection (“Draft GHG Decree”), as well as a “Circular on elaborating the Implementation of a Number of Articles of the Law on Environmental Protection on Climate Change Response”.

The Draft GHG Decree
The Draft GHG Decree specifies the chapter on Climate Change in the Law, which is part of Vietnam’s roadmap for implementing the Paris Agreement. It defines the scope of obligations for greenhouse gas emissions reduction measures and ozone depleting substances by 2030, based on Vietnam’s NDC targets and the Montreal Protocol. It also allocates different responsibilities and stipulates the cornerstones for monitoring, verification, and reporting (MRV) of emissions and mitigation efforts. Furthermore, it sets the foundation for the development of a domestic carbon market. Overall, the Ministry of Natural Resources and Environment (MONRE) was given a comprehensive mandate regarding governance of the Decree.

The section on GHG emissions reduction
Facilities that emit more than 3,000 tons of carbon dioxide equivalent (CO2e) and exceed a certain threshold of annual energy consumption will be subject to regular GHG inventories and reporting. These facilities include energy generating plants, industrial production facilities, commercial buildings, or road freight transport companies. From 2026, a quota system will be established whereby MONRE will be responsible for the initial allocation of allowances.

Carbon market development
The Draft GHG Decree also stipulates establishment of a domestic carbon market in Vietnam. From 2026, facilities subject to GHG mitigation and MRV as specified in Annex 1 of the Draft GHG Decree will be able to trade allowances within a domestic cap-and-trade scheme. Other organizations and individuals may also qualify to participate in this carbon market. MONRE is mandated to outline the potential carbon trading scheme and will prepare links to international carbon markets after 2021.

The Draft Circular
In the draft Circular, MONRE specifies further modalities and provisions on responsibilities, obligations, and procedures when implementing the Decree on GHG emissions reduction. Emphasis is placed on the verification of sectoral GHG inventories and tracking emissions reductions. Also, one chapter is devoted to guidelines for the selection and identification of indicators reflecting climate change vulnerability and risks, while another addresses instructions for the use of controlled ozone depleting substances and greenhouse gases.
Both the Draft GHG Decree and the Circular are, like the LEP 2020, expected to take effect on 1 January 2022.