What do businesses need to prepare to participate in the carbon market?

Implement inventory reports and reduce GHG emissions

According to Ms. Dang Hong Hanh – Climate change policy expert – Executive Director of Energy and Environment Consulting Joint Stock Company (VNEEC), participants in the domestic carbon market are regulated. in Decree 06/2022/ND-CP dated January 7, 2022 on Regulations on GHG emission mitigation and ozone layer protection, obligations to conduct GHG inventory and GHG emission reduction for establishments according to the Decision Decree 01/2022/QD-TTg dated January 18, 2022 on the list of subjects implementing GHG emission mitigation and GHG inventory (updated every 2 years).

“So, the first thing businesses must know is whether they are on the list in Decision 01 and are obliged to report GHG emissions inventories or not? The list will be updated every 2 years. Therefore, businesses need to monitor to know if they are a mandatory component, then fulfill their reporting obligations,” Ms. Hanh shared.

Also according to Ms. Hanh, inventory and GHG emission reduction reports are different from environmental reports. In addition to relying on available parameters, businesses must also determine plans and resources for implementing emission reduction such as: how?

“Enterprises in the state sector that are required to reduce emissions will be subject to emission reduction limits. If businesses do not meet the requirements, they will be fined. Therefore, first, businesses must know where they stand, then have a strategy to reduce GHG emissions based on technology and investment plans of the business,” Ms. Hanh recommended.

In cases where enterprises cannot directly reduce GHG emissions, they can participate in the carbon market to exchange quotas or carbon credits to achieve the Government’s GHG emission reduction requirements but at low cost. rather than being fined.

“To help businesses make optimal decisions for their operations in the process of implementing GHG emission reduction obligations, within the framework of the Memorandum of Cooperation between the Department of Climate Change and the Management Office United Nations project (UNOPS) and the Southeast Asia Energy Transition Partnership Program (ETP), we provide training courses on carbon market knowledge for businesses, through which businesses make decisions. How to participate in the market to get the most benefit and optimization for yourself,” Ms. Hanh said.

How to choose a qualified consulting unit?

This is a question that many businesses ask and is also quite a challenging and difficult question, considered an obstacle for businesses to be able to implement emission reduction activities.

“Enterprises need to pay attention. Reporting higher or lower will have negative impacts on the enterprise’s obligation to reduce GHG emissions in the future. We only recommend that businesses try to report with the highest accuracy,” Ms. Hanh emphasized.

Ms. Hanh said that currently in Vietnam there are many consulting units that can do the job, but businesses must discuss and choose consulting units based on their experiences and activities.

According to Ms. Hanh, in the draft amendment to Decree 06/2022/ND-CP that will be submitted to the Government, it is known that there will be a request for a third party to evaluate the results of inventory and GHG emission reduction reports of participating enterprises. directly into the emissions trading system (ETS), so businesses must choose a consulting unit with optimal costs. Because if the advice is not accurate, the appraisal agency will require many modifications, at which time the business will incur additional costs and time.

Ms. Hanh noted that businesses, when choosing a consulting unit, must require binding their results in preparation for the business to ensure the appraisal requirements of the Government. Only when the business can do so will the responsibility of the consultant be determined. Consulting will be larger, instead of consulting to issue a report that the enterprise cannot protect with the authorities.

So is this an opportunity or a challenge?

According to Mr. Josh Margolis, Environmental Products Market Expert and CarbonSim Administrator, former Executive Director of the Environmental Defense Fund (EDF): The goal of businesses is to reduce GHG emissions and ETS is a tool to do it in a fair way in society. This helps ensure energy security, employment security (creating more jobs), environmental justice, and revenues generated through the ETS system can be used for conservation activities. public health, sustainable environmental protection for future generations.

Mr. Josh Margolis said that the carbon adjustment mechanism is an opportunity, not a challenge. With a carbon reduction strategy, the Government has the authority to implement programs that ensure enforcement through quotas and ensure results under the NDC.

Mr. Josh Margolis at a training course for Vietnamese businesses on carbon markets.

In relation to the ETS, this mechanism allows ETS participants to retain quota and offset credits for use in the following compliance year. Retention can promote investment in emission reduction measures and be flexible in the use of quotas while encouraging businesses to strictly comply, making it easier for financial institutions to provide capital for reduction initiatives. GHG emissions.

However, the question arises, in case businesses have to implement the European Carbon Border Adjustment Mechanism (CBAM mechanism) in 2026, while the domestic market will only operate in 2028, will businesses be affected? Is there any impact when the international carbon price is forecast to be higher than the domestic market?

Regarding this issue, Ms. Nguyen Hong Loan – Technical Support Consultant on EU CBAM Impact Assessment in Vietnam said: The CBAM mechanism is tax and fee-based, not a mechanism. quota and exchange. CBAM certificates must be purchased at European prices, not at Vietnamese prices and then offset or converted.

The purpose of CBAM is for businesses importing to Europe to be subject to the European carbon price to create fair competition between businesses in the EU and outside the EU in terms of costs. This is the technical barrier to protect European competition and prevent carbon leakage of European businesses shifting production to other countries and then bringing products back to the European market.

Ms. Nguyen Hong Loan answered businesses about the CBAM mechanism.

“In this case, businesses exporting to Europe must prove that they have paid part of the carbon cost in Vietnam, the tax authority will deduct that part, and the remaining part will be imported by the company’s goods import unit in Vietnam. The EU must pay to meet CBAM regulations,” Ms. Loan said.

Credit is a commodity, not a “gift falling from the sky”

Regarding the story of carbon credits, Ms. Dang Hong Hanh said that generating carbon credits from a project that helps reduce GHG emissions, capture or absorb carbon is not easy. First, the project must meet the very strict eligibility criteria of the carbon standards, one of which is “additionality”. A project is considered “additional” meaning that it would not be possible without the additional revenue from selling carbon credits.

Ms. Hanh pointed out that the trading of carbon credits is causing inaccurate misunderstandings in Vietnam. “I read an article in a newspaper with high traffic that said “People who sleep one night and wake up have credits”, this is a completely wrong understanding,” Ms. Hanh gave an example.

Mr. Josh Margolis guides businesses to participate in the simulated carbon market using the CarbonSim tool.

“Credit is not an international gift given to Vietnam but a new commodity, credit is due to project activities that create voluntary emission reductions, and a legal corridor to manage credits of -bon is being discussed by the management agency, to ensure operating conditions for the market are transparent, clear and fair,” Ms. Hanh emphasized.

Ms. Hanh analyzed that previously it was the Clean Development Mechanism (CDM), but now it is a voluntary mechanism. These credits do not “fall from the sky” but must be invested in technological transformation. To earn 5 dollars / 1 credit but it may cost us 6 dollars to create 1 credit.

“Creating a credit requires a third party to evaluate, register, verify to issue the credit as well as the cost of investing in the technology to create that credit,” Ms. Hanh emphasized.

According to Ms. Hanh, the carbon credit project from forests is the most complicated type of project after agriculture in being recognized and creating carbon credits, not simply multiplying the forest area. Rice and price mean money.

Regarding the carbon credit offset mechanism in ETS, Ms. Hanh explained that only credits generated from certain projects and registered according to the mechanism prescribed by the Government are allowed to be used. used for compensation. For example, in Vietnam, the Government allows 10% of an enterprise’s assigned limit to be offset with carbon credits, meaning that if an enterprise’s emission rights are 100%, the enterprise must ensure 90% compliance with carbon credits. quota, 10% of businesses are allowed to buy credits to compensate.

According to Industry and Trade Newspaper