Carbon credit market
The carbon credit market originated from the 1997 United Nations Kyoto Protocol on climate change. Accordingly, countries with excess greenhouse gas emission rights are sold, given or bought from countries that emit more or less than their committed targets. Since then, a new commodity has appeared in the world: greenhouse gas emission reduction certificates.
Because carbon (CO2) is the equivalent greenhouse gas of all greenhouse gases, transactions are commonly called carbon trading, exchange, forming a carbon market, or carbon credit market.
Each carbon credit is equivalent to one ton of CO2 emissions or other greenhouse gas emissions (CH4, NO2). Previously, each carbon credit had a very wide price range, from US$6 to nearly US$100, depending on the time and size of the carbon credit lots traded.
The carbon credit market operates with buyers, sellers and intermediaries. The seller, known as the “carbon footprint” party, can be an organization or individual with activities such as implementing afforestation and ecosystem protection projects, developing renewable energy projects, developing green energy, green production… in the direction of combating climate change, not causing greenhouse gas emissions.
On the contrary, the buyers are businesses and organizations with production and business activities such as steel, cement, petrochemical, chemical production companies, etc. that emit greenhouse gases during their operations. According to international conventions, if these organizations want to sell their products, they are required to buy carbon credits so that the goods are eligible for export to markets with regulations on green production standards.
In other words, carbon credit trading is an internationally recognized activity aimed at minimizing human impacts on the ecological environment, ozone layer depletion, and climate change. Buying and selling carbon credits encourages environmentally friendly activities, towards green production and green energy to protect the earth's environment. The party that causes greenhouse gas emissions (the buyer) must pay the cost to support and encourage the party that carries out activities to reduce greenhouse gas emissions (the seller).
The first international carbon credit trading market was operated by the European Union in 2005, to respond to climate change, implementing the commitments under the Kyoto Protocol and later the Paris Agreement on climate change. This market accounts for about 45% of total European emissions, and about three-quarters of the global carbon emissions market.
Global inevitable trend
After the Kyoto Protocol, carbon markets have developed strongly in European, American and Asian countries with two types of markets, including mandatory carbon markets and voluntary carbon markets. The mandatory market applies to carbon trading based on the commitments of countries in the United Nations Framework Convention on Climate Change (UNFCCC) to achieve greenhouse gas reduction targets. The voluntary carbon market is based on bilateral or multilateral cooperation agreements between organizations, companies or countries.
On January 7, 2022, the Vietnamese Government issued Decree 06/2022/ND-CP regulating the reduction of greenhouse gas emissions and the protection of the ozone layer. This Decree has specific provisions on the development roadmap and timing of the implementation of the domestic carbon market. Currently, Vietnam is taking steps to prepare for the pilot operation of the carbon credit trading floor starting in 2025, and will officially operate by 2028.
In October 2022, the Ministry of Agriculture and Rural Development of Vietnam and the World Bank (WB) - the trustee of the Forest Carbon Partnership Facility (FCPF), signed the Emission Reduction Payment Agreement for the North Central Region Emission Reduction Program (ERPA). Under this Agreement, Vietnam will transfer to FCPF 10.3 million tons of CO2 to reduce emissions from forests in 6 provinces in the North Central region, including Thanh Hoa, Nghe An, Ha Tinh, Quang Binh, Quang Tri and Thua Thien Hue in the period of 2018-2024. FCPF will pay for this service of 51.5 million USD.
The ERPA Agreement will be fully implemented only when Vietnam issues regulations on the mechanism for transferring results and financial management mechanisms. On December 28, 2022, the Government of Vietnam issued Decree No. 107/2022/ND-CP on piloting the transfer of emission reduction results and financial management of greenhouse gas emission reduction payment agreements in the North Central region. To date, the WB has transferred 41 million USD to Vietnam, which will be added by localities to the forest environment fund to pay those who directly work in the forest, contributing to improving people's lives, thereby promoting awareness of sustainable forest protection and management.
The ERPA marks the first successful forest carbon transfer agreement in Vietnam.
Nghe An initiates steps to approach carbon market
Nghe An currently has more than 1 million hectares of forest land, the province with the largest forest and forestry land area, along with the largest forest cover in the country. Nghe An's forest area is mainly distributed in 11 districts in the West, especially the Southwest region, which is a favorable condition bringing great potential in exploiting carbon credits. The West region accounts for 84% of the province's area with 1.4 million hectares, with high mountainous terrain characteristics that are very favorable for the development of many industries in many fields such as: forest economy (zoning, protection, afforestation), medicinal plant cultivation, clean agricultural production (livestock, cultivation), tourism development... In which, forest planting and protection is the industry that will bring in "million dollar" revenue when accessing the carbon credit market.
According to research by scientists, newly planted hybrid acacia forests, in addition to providing timber value when harvested, during the maturity process, hybrid acacia trees are one of the most effective forest trees in absorbing CO2. Therefore, planting acacia trees not only provides income from timber but also prevents the emission of thousands of tons of CO2 into the environment.
In Nghe An, according to the data of the Forest Protection Department, the whole province has 172,296.52 hectares of planted forests and 51,844.57 hectares of unforested forests. Of which, the area of acacia plantations on production forest land is about 150,192 hectares, accounting for 90% of the total planted forest area. Therefore, acacia plantation is currently the main source of forest economic development in Nghe An. This is also a great potential for forest growers to increase high-value income by selling carbon credits in addition to income from selling acacia wood.
For Nghe An, according to Mr. Nguyen Khac Lam - Director of the Forest Protection and Development Fund, carbon credit trading is currently a new field, it is necessary to complete many policy mechanisms according to new regulations to be able to access this potential market. Currently, the province is in the access phase. Along with the major policies of the Government, the Ministry of Agriculture and Rural Development, Nghe An is gradually preparing to access the carbon credit trading market.
Specifically, agricultural sector officials have been participating in training courses, updating basic knowledge on carbon standards; safety measures and experiences of countries operating carbon markets; carbon offsets as well as methods of operating and trading emission quotas and carbon credits on the domestic carbon market trading floor according to Decree 06/2022/ND. In addition, they have access to knowledge and guidance on greenhouse gas emission reduction activities; greenhouse gas inventory work; carbon prices and quotas in the domestic carbon market.
Agricultural and forestry officials also visited, learned and trained on carbon trading floor simulation software (CarbonSim); types of markets on the trading floor and steps to register an account, select each account to conduct transactions, and transaction methods.
The Nghe An Provincial Forest Protection and Development Fund will continue to proactively approach the carbon market, including the domestic carbon trading market, contributing to increasing the surplus value of forests from providing forest environmental services through the carbon market; effectively implementing the Government Decree on the transfer of emission reduction results and financial management of emission reduction payment agreements in the North Central region after it is issued.
It can be seen that the market potential and demand for forest carbon trade in Vietnam in general and Nghe An in particular are very large. To promote the forest carbon market domestically and internationally, both mandatory and voluntary, Vietnam as well as Nghe An are urgently preparing all necessary conditions to take advantage of opportunities, contributing to achieving the goal of accessing international financial resources, contributing to improving people's lives through revenue from forest environmental services. This will further contribute to promoting forest management and protection, improving forest quality, and promoting stable and sustainable development of the forestry economy.
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