Blog

Notable changes in the draft new Decree on GHG emission reduction & Carbon market (Part 2)

Notable changes in the draft new Decree on GHG emission reduction & Carbon market (Part 2)

Decree 06/2022/ND-CP regulating greenhouse gas emission reduction and ozone layer protection is an important legal document in implementing the Law on Environmental Protection 2020 and Vietnam's commitment to the Net Zero target by 2050. After 02 years of active implementation, the Ministry of Natural Resources and Environment has continued to adjust and supplement more details to make the content of the Decree closer to reality and easier to implement. At the same time, the adjustment and supplementation will strengthen the solid legal foundation for stakeholders on the green transformation journey. 

The Ministry of Justice is in the process of reviewing the new draft before the Government officially approves and promulgates it. GREEN IN has reviewed and analyzed based on the Draft Decree amending Decree 06/2022/ND-CP and the Policy Impact Assessment Report publicly posted on the Ministry of Justice's Electronic Information Portal on July 04, 07. 

Notable changes related to the regulations on Carbon Market (Compliance) - ETS include:

1. Adjustment on Carbon Market participants (compliance) 

[Reason] Decree 06 is currently providing general regulations on 03 groups of subjects that are allowed to participate in transactions on the carbon market, without specific regulations on which subjects are allowed to trade what. Learning from international experience, the Ministry of Natural Resources and Environment finds it necessary to distinguish between subjects that are allowed to trade emission quotas and subjects that are allowed to trade carbon credits. 

[Change] Article 16 of the new draft Decree clarifies the subjects participating in emission quota exchange and the subjects participating in credit exchange, specifically: 

  • For quotas, only establishments allocated quotas participate in the exchange. 
  • For carbon credits, all Vietnamese individuals, organizations and foreign organizations are allowed to participate in transactions. 

2. Clearly define the type of Carbon Credits traded on the Carbon Market (compliance) 

According to Decree 06, there are 02 main types of goods traded on Vietnam's Carbon Market (compliance): Emission Quotas and Carbon Credits. 

However, one point that investors need to pay special attention to is that not all carbon credits are traded on the market. The new draft Decree stipulates that only certified carbon credits for greenhouse gas emission reductions obtained from January 01, 01 from programs and projects under the mechanisms specified in Clauses 2021 and 1,2, Article 20 of the Decree are traded.  

3. Adjust regulations on procedures for certifying quotas and carbon credits traded on the market 

[Reason] Decree 06 stipulates that both quotas and credits must be registered with the Ministry of Natural Resources and Environment for trading. However, in reality, quotas are state-issued goods, so it is not necessary to carry out this confirmation procedure. 

[Change] Article 18 of the new draft Decree has simplified the confirmation procedure for greenhouse gas emission quotas. At the same time, it has added content on the operation of the National Registration System to serve the management of greenhouse gas emission quotas and carbon credits. 

4. Supplement detailed regulations on transactions such as exchange, transfer, borrowing, quota repayment and use of credits for offset 

[Reason] Decree 06 only provides general regulations on transactions implemented in the carbon market, such as auctions, transfers, borrowing, quota repayments and using credits for offset, but does not provide specific regulations for implementation.  

[Change] Article 19 of the new draft Decree adds more detailed content on timing and procedures for returning, exchanging, transferring, borrowing, returning quotas and using credits for offset, specifically: 

  • [Exchange] Facilities allocated quotas have the right to buy and sell emission quotas with each other by matching orders on the Exchange or by contractual agreement;

  • [Payment] The facility must submit the minimum quota amount equal to the GHG inventory results in the compliance year (denoted as N) to the National Registration System, before December 31 of year N+12;

  • [Borrow] From now until 2030, facilities are allowed to borrow the quota allocated for the next period to pay back the current compliance period. The amount borrowed is limited to 15% of the allocated quota and cannot be used to buy or resell on the Carbon Exchange;

  • [Transfer] From now until 2030, establishments are allowed to transfer the remaining quota of the current compliance period to the next compliance period; 

  • [Carbon credit offset] The facility is allowed to use carbon credits (under the Mechanism in Article 20) to offset the allocated quota, limited to not exceeding 10% of the total allocated quota;
  • [Carbon Credit Exchange] Facilities are allowed to exchange carbon credits through order matching on the Exchange or by agreement;
  • [Quota Exchange] The facility is allowed to exchange quotas through order matching on the Exchange. With the agreement form, the facility must submit a request for quota adjustment to the Ministry of Natural Resources and Environment. Note, the quota purchase contract must be notarized. 

[Unclear Point] Article 19.3.c stipulates that if the facility does not have enough quota to pay, it must purchase additional carbon credits from forests on the Carbon Exchange to offset. So, whether other types of carbon credits (not from forests) legally issued under Article 20 of this Decree cannot also be used for offset or not? 

Another point worth noting that many people may overlook is that the Draft stipulates that Quota Purchase and Sale Contracts must be notarized. However, the Draft does not mention whether Carbon Credit Purchase and Sale Contracts must be notarized or not. 

5. Adjust regulations on approving carbon credit projects; fields where projects are implemented are allowed to participate in the domestic and international carbon credit exchange and offset mechanism. 

[Reason] Decree 06 currently does not specify the registration procedures and types of projects eligible to participate in the Carbon Credit Exchange and Offset Mechanism, so it does not ensure effective implementation. 

[Change] Article 20 is amended and supplemented to clarify the regulations on the procedures for implementing and approving carbon credit projects, including 04 steps: (i) Registering methodology; (ii) Registering project ideas; (iii) Registering projects; (iv) Issuing credits. 

At the same time, supplement the list of fields and types of projects that can implement carbon credit projects participating in the domestic and international carbon credit exchange and offset mechanism.  

Supplementing regulations on procedures for approving the Letter of Acceptance for transferring emission reduction results internationally (according to Article 6 of the Paris Agreement). 

6. Additional clarification on the types of carbon credit projects that are eligible to participate in the exchange and offset mechanism under Article 6 of the Paris Agreement 

Many countries and international investors are looking forward to cooperating with the Vietnamese Government and enterprises to implement carbon credit projects. Stakeholders should pay special attention to 32 types of projects eligible to participate in this mechanism, listed in Appendix V attached to the draft Decree, specifically: 

1. Improve energy efficiency in industrial sub-sectors (except for 03 sub-sectors of brick, cement and steel production) 

2. Converting transport mode from road to rail 

3. Converting transport modes from road to inland waterways and coastal routes 

4. Use electric buses 

5. Use high efficiency electrical equipment in service, commerce including cooling and refrigeration 

6. Onshore wind power development 

7. Offshore wind power development 

8. Development of biomass thermal power 

9. Waste-to-energy development 

10. Development of hybrid gas turbines using LNG 

11. Development of ultra-supercritical thermal power technology 

12. Improving the diet of dairy cows (1000 cows) 

13. Improve cattle diet (1000 heads) 

14. Improve buffalo diet (1000 heads) 

15. Circulation of agricultural waste (by-products of TT to make HC fertilizer) (1000 tons) 

16. Replace nitrogen fertilizers with slow-release fertilizers, controlled-release fertilizers and common nitrogen fertilizers (1000 ha) 

17. Alternate Wet and Dry Irrigation and SRI (half Infrastructure) (1000 ha) 

18. Alternate Wet and Dry Irrigation and SRI (poor Infrastructure) (1000 ha) 

19. Modernization of irrigation and fertilization for long-term crops (1000 ha) 

20. Circulation of agricultural waste (livestock waste to make HC fertilizer) (1000 tons) 

21. Biogas (1000 standard tanks) 

22. Compost + Organic Agriculture (1000 tons) 

23. Anaerobic treatment with methane recovery for power generation 

24. Reducing methane emissions from landfills by burning for power generation 

25. Semi-aerobic landfill 

26. Optimizing domestic wastewater treatment conditions 

27. Application of biotechnology to remove CH4 from domestic wastewater treatment process 

28. Optimizing industrial wastewater treatment conditions 

29. Recovery of CH4 gas from industrial wastewater treatment 

30. Applying best technology to reduce emissions in the steel industry (BOF technology improvement) 

31. Use climate-friendly refrigerants 

32. Best available technologies to reduce greenhouse gas emissions in sectors and activities where greenhouse gas emissions reduction is difficult 

(The end)

← Previous Post Next article →