Clause 2, Article 12 of Decree 06/2022/ND-CP stipulates that the Ministry of Natural Resources and Environment will coordinate with management ministries to allocate emission quotas to facilities, based on “greenhouse gas emission norms per unit of product.”
Read more: What is an emission quota?
However, practical research from the ETS in the world shows that determining the Emissions Allowance of each product requires full and comprehensive greenhouse gas emission data from companies reporting to the management agency. This will be a big challenge for Vietnam, when the greenhouse gas inventory is in the early stages of implementation. Lack of information, inaccurate and inconsistent data are inevitable.
Therefore, according to the draft amendment to Decree 06, the Government plans to change the method of allocating quotas. Specifically, in the first phase, quotas will be allocated based on the history of GHG emissions of establishments, then they will be allocated according to emission standards per unit of product for industries/sectors with full information and data.
This change is necessary for Vietnam in the early stages of ETS implementation. Experience from EU ETS and Korea ETS will be a solid basis for implementing this appropriate change.
EU ETS of the European Union
During the period from its inception (2005) to 2012, the EU allocated GHG emission quotas according to historical emissions.
During the period from 2012 to present, the EU has been allocating quotas according to the GHG emission standards of each industry/sector. The emission standards are determined based on the average data of the most efficient production facilities in that industry/sector.
The formula applied:
Historical emission allocation quota = Average emissions of base years * Adjustment factor
Emission quota allocation = Emission quota value * Past production output * Adjustment factor
In which, the Adjustment Factor is calculated based on the level of carbon leakage and the GHG emission reduction target announced annually by the European Commission.
Korea ETS
During the period 2015-2017, Korea allocated GHG emission quotas based on historical emissions (average of 03 years 2011-2013).
During the period from 2016 to present, Korea has combined two methods: allocation based on historical emissions for industries/sectors with incomplete emission data and allocation based on emission standards per unit of product for industries with complete data.
The formula applied:
Historical Emission Allocation Quota = Average Emissions of Base Years * Adjustment Factor * Carbon Leakage Factor
Emissions quota allocation = Quota value * Past production output * Adjustment factor * Carbon leakage factor
The carbon leakage factor is 1.0 for sectors considered to be at risk of carbon leakage and 0,9 for other sectors. The adjustment factor is intended to help the government avoid over-allocating quotas to facilities, which would undermine the system's greenhouse gas emission reduction target.
Vietnam ETS (expected)
In the first phase of ETS implementation, Vietnam will allocate quotas based on the GHG emission history of facilities, then proceed to allocate according to emission standards per product unit for industries/sectors with full information and data.
Calculation method based on emission intensity per unit of product
Quota allocated to facility = Greenhouse gas emission intensity per unit of product x Output x Adjustment factor
Calculation method based on historical emissions
Quota allocated to the facility = Emission data based on the average GHG inventory results of the facility for the last 03 years x Adjustment factor