Vietnam prepares for carbon tariffs in pursuit of netzero target

As carbon taxes and credits become more prevalent across markets around the world, Vietnam is seeking ways to demonstrate its responsibility in decarbonisation and help local businesses adapt to change.

An official circular on measuring greenhouse gas emissions (GHG) is expected to be released this November, taking Vietnam a step closer to its target of net-zero emission in 2050.

The circular, led by the Ministry of Industry and Trade (MoIT), will be followed by training courses for businesses to comply with GHG control, in order to limit the carbon footprints throughout the supply chain.

The measurement, reporting and verification of GHG mitigation will be mandatory in 2025 for applicable industries including steel, cement, aluminium and fertiliser production, said deputy head of MoIT’s Climate Change and Green Growth Office Hoàng Văn Tâm.

The move is seen as part of Vietnam’s bigger response plan to changes in the carbon tax regulations already initiated across the world – one of the most notable being the Carbon Border Adjustment Mechanism (CBAM) introduced by the European Union (EU).

Vietnam’s steel industry saw significant growth in exports to the EU, especially with the EU- Vietnam Free Trade Agreement (EVFTA) taking effect in August 2020.

According to the Vietnam Steel Association (VSA), as of June 2020, steel exports to the EU accounted for only 3.4 per cent of the total steel export turnover. After two years, this figure rose to 20.51 per cent.

In the first six months of 2023, Vietnam exported nearly 1.4 million tons of steel to the EU.

The mechanism puts a price on the emissions released during the production of goods that are ntering the EU, ensuring that the carbon prices of imports match those of production within the union.

The purpose of this tool is to prevent ‘carbon leakage’, which happens when EU-based companies relocate their carbon-intensive production to other locations with less stringent climate regulations.

Pham also noted that a period of transition is necessary and there will be certain challenges in the administration behind CBAM compliance.

The type of carbon recording, for example, that’s going to be required as part of CBAM is new not only to the companies in Vietnam but also to many in the EU, she said.

However, this will no longer be possible when CBAM or other similar mechanisms become more prevalent, then the impact will be massive, he said.

It is not only manufacturing businesses that are preparing for carbon reduction. The aviation industry, for instance, has seen several decarbonisation initiatives.

In October 2022, the International Civil Aviation Organisation (ICAO) set out its “long-term aspirational goals”, that all the members agree to reach net-zero carbon emission in 2050.

Countries across the EU have also been taking action to limit short-haul flights where railway routes are available in an effort to reduce the region’s carbon emissions.

France has banned flights where train alternatives of 2.5 hours or less are available, while Germany doubles the taxes on short-distance flights.

Aircraft manufacturer Airbus said that it commits to reducing carbon emissions by 63 per cent by 2030, and fuel emitted through flights by 43 per cent by 2035, according to Helene Burger, head of International Cooperation and Sustainability for Airbus Asia-Pacific.

The major contributor to reducing carbon emissions is expected to be sustainable aviation fuel (SAF), which studies have found to contribute 60 per cent to decarbonisation innovations.

SAF distribution and production are also not yet available in Vietnam.

Recent survey data from Vietnam General Statistics Office revealed that small and medium-sized enterprises (SMEs) account for over 97 per cent of the total number of businesses in Vietnam.

Tags: Carbon Tariff, eu, SAF, Vietnam