New law in Vietnam creates mandate for ETS

On 17 November 2020, Vietnam’s National Assembly adopted the revised Law on Environmental Protection, which establishes a mandate for the Ministry of Natural Resources and Environment (MONRE) to design a domestic emissions trading market and MRV system. Although the specific structure and rules of this market are yet to be established, the law presents a clear step forward on Vietnam’s path to carbon pricing.
 

The adopted legislation is a framework for Vietnam’s environmental law, including provisions on many different instruments, ranging from waste and water management to incentives for green investment and the transition to a green economy. It does not prescribe specific details for the design of a future ETS, but it does establish a clear legal basis for its definition through government decrees.

The MONRE is given a legal mandate to establish an emissions market, set a cap, and determine the method of allowance allocation. Notably, the law specifically allows for the inclusion of domestic and international offsets in the market. Although the law will enter into force January 2021, it does not specify a timeline for ETS implementation.

An important step towards implementation is the establishment of an MRV system. In its revised NDC of this year, the Vietnamese government identified the lack of an MRV system as an important challenge in its effort to reduce GHG emissions. The revised Law on Environmental Protection establishes a responsibility for covered entities (to be determined by the MONRE) to report their emissions every two years, as well as produce annual greenhouse gas reduction plans.

The sectors that could be covered by the system are not yet determined, but technical preparations have so far focused on the waste sector and some industrial emitters. Since 2013, Vietnam has been working with the World Bank’s Partnership for Market Readiness (PMR) to develop a pilot market for the steel, solid waste, and power sectors. Other work through PMR includes developing a MRV system, a GHG registry, and a roadmap for pursuing market-based carbon pricing.