Based on our recent publication “Carbon Projects and ASEAN: Opportunities and Challenges” we have set out the understanding of carbon credit transaction in general and the regulatory landscape and effort develop carbon market in Vietnam. In this publication, we will dive into the forest carbon project, its present, future, potential and relevant legal development in Vietnam.

What is forest carbon project?

Forest carbon project is a tool to combat climate changes by capturing and offsetting CO2 on global surface. It generates carbon credits for the financier or purchaser in return of the fund for forestation activities. In developing countries, forest carbon project often involves in voluntary market, in which United Nation Framework Conference of Climate Change’s Reducing Emissions from Deforestation and forest Degradation (“REDD+”) mechanism has widely been used. In general, forest carbon project credits sold for a higher price compared to renewable energy carbon project due to the project’s co-benefits for local or indigenous communities as well as biodiversity preservation and protection.

The present of forest carbon project

Vietnam rapid industrialization and urbanization has caused high deforestation and forest degradation, forest carbon project could be part of the solutions to ultimately achieve climate change mitigation. The rationale of such project in Vietnam is incentivizing forestation to demote deforestation activities and raise awareness of climate changes, both state and community level.

The legal framework of carbon ownership in Vietnam has not been explicitly defined. Carbon resource has been interpreted as an asset attached to the land, whereas land is under the ownership of all people managed by the state. Ministry of Agriculture and Rural Development (MARD) is the designated agency to manage forestland, thus, responsible to manage carbon resources of forestland. However, Law on Forestry recognized other parties as the “forest owners” if it conferred with the rights through land use right allocation or lease under the applicable laws, these forest owners are entitled to benefit from the carbon resource of the forestland. Forest owner’s benefit over carbon resource has been recognized in recent Sub-decree 06/2022/ND-CP dated 7 January 2022 on the Reduction of Greenhouse Gas Emission and Protection of the Ozone Layer (“Sub-decree 06”).

As of to date, there are a few REDD+ forest carbon projects in Vietnam with 2 of the Emission Reduction Purchase Agreements signed for the pilot regional territorial project. It funded Vietnam more than USD 50 million to mitigate deforestation and forest degradation. MARD has stated that Vietnam could sell 57 million carbon credit each year. Thus, we will see Vietnam full potential in forest carbon projects in the mere future.

The future of forest carbon project

Sub-decree 06, a power instrument to realize Vietnam’s Nationally Determined Contribution (NDC), has setting the forest owners the responsibility to develop forest carbon projects, and the entitlements of the forest owners to trade forest carbon project credits or offsets in domestic or international market. Sub-decree 06 has also set out the compulsory emission reduction establishments to report its emission and comply with emission quota starting from 2026. Such establishments that exceed the emission quota is allowed to offset with carbon credits, creating domestic demand over forest carbon project in Vietnam. Domestic carbon trading exchange is expected to go online within 5 years from to date. Despite the compulsory emission reduction will not be binding against the establishments until 2026, acquiring carbon offsets or credits now may allow the purchaser to negotiate a favorable pricing before the domestic demand comes into the market.

Land scarcity and urbanization in Vietnam challenges the forest carbon project development. As Vietnam may not see the peak of urban population growth in mere future, a new type of forest carbon project that involves urban spaces could be emerged in the market. City forest carbon project comes in place as the nature-based climate change solution in urban area. Such project credits have recorded the highest price among the other type of forest carbon project credits. One of the potential urban areas to develop city forest carbon project in Vietnam is Ho Chi Minh City due to its existing vegetation and potential impacts of such project to the city. As seen in the past, the value of such credit for each ton of CO2 traded for a higher price due to it provides the buyer greater environmental, social, and corporate governance (ESG) impact, such as better urban air quality and urban flood mitigation to the urban area.

The integration of city forest carbon project, alongside with other carbon projects, such as renewable energy and green building, could be integrated into green city plan. Vietnam has set to achieve nationwide sustainable urban development soon with the issuance of Resolution No.6-NQ/TW dated 24 January 2022 on Planning, Construction, Management, and Sustainable Development of Urban Areas in Vietnam until 2030, with Vision Toward 2045. City planner and developer of green city may consider the opportunity of developing the carbon projects to raise revenue from climate actions.

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