Date of publication: 20/01/2026
Category: Green Finance & Carbon Market (Vietnam)
Prepared by: ESG Expert Team – Carbon Credit Viet Nam Joint Stock Company
On 09/06/2025, Deputy Prime Minister Tran Hong Ha signed Decree 119/2025/ND-CP, officially pressing the “Start” button for Vietnam’s pilot Emissions Trading System (ETS), beginning in August 2025.
This is not merely an ordinary legal document — it marks the birth of a new asset class in the economy: carbon emission allowances. By covering approximately 50% of total national emissions in the very first phase, Vietnam is demonstrating strong determination to use financial instruments to achieve its Net Zero target, while creating a “defense” mechanism for businesses against international tariff barriers such as CBAM.
1. STRUCTURE OF THE PILOT MARKET (2025-2027)
Coverage: Striking at the Core
Unlike countries that typically begin pilots on a small scale, Vietnam has chosen to target its largest emission sources head-on from the outset. The pilot-phase ETS will cover 3 backbone industries:
- Thermal power: The largest emission source.
- Steel production: Comprising 27 large facilities (accounting for 80% of the sector’s emissions).
- Cement production: Comprising 56 clinker plants (accounting for 90% of the sector’s emissions).
Allowance Allocation Mechanism (Allocation)
During 2025-2026, the Government will apply free allocation (Grandfathering) based on historical operating data.
- Objective: To help businesses become familiar with allowance management without causing production-cost shocks (avoiding inflation in electricity and construction material prices).
- Warning: The free allocation ratio will gradually decrease over time. Businesses need to understand that this “free lunch” will not last forever.
2. THE FLEXIBILITY MECHANISM: THE 30% “EMERGENCY EXIT”
A strategic highlight of Decree 119 is the offsetting mechanism.
- Businesses that emit beyond their allowances are permitted to use carbon credits to offset up to 30% of the excess emissions.
- Accepted credit sources: Domestic emission-reduction projects (Forestry, Solar power, Biogas, etc.) or international credits under the Article 6.2 and 6.4 mechanisms of the Paris Agreement.
Financial significance: This is a golden opportunity to optimize costs. Instead of having to buy allowances from other businesses (prices are expected to be high), businesses can invest themselves or purchase carbon credits from forestry/renewable energy projects at a lower cost (Arbitrage opportunity), provided they do not exceed the 30% ceiling.
3. THE DUAL IMPACT ON THE STEEL AND CEMENT INDUSTRIES
These two industries are caught in the “crossfire”:
- Domestically: They must comply with Vietnam’s ETS allowances.
- Internationally: They must bear CBAM levies when exporting to the EU (as analyzed in Article No. 1).
However, Vietnam’s ETS is precisely the “shield” against CBAM.
- Mechanism: If a business has already paid a carbon cost in Vietnam (through purchasing allowances or investing in emission reductions), this cost will be deducted from the CBAM levy payable to the EU.
- Benefit: Instead of paying tax into European coffers, businesses pay into Vietnam’s carbon market, keeping the capital within the country for green reinvestment.
4. URGENT ACTIONS FOR BUSINESSES (DEADLINE 31/03/2025)
The pilot phase is fast approaching, and businesses on the mandatory list need to take the following steps immediately:
Step 1: Finalize 2024 GHG Inventory Data
Under Decision 13/2024/QD-TTg, the 2024 greenhouse gas inventory report must be completed before 31/03/2025.
- Why is this important? This is the baseline dataset the Government will use to decide how many free allowances each business receives.
- Risk: If the report is sloppy or understated relative to reality, the business will be allocated fewer allowances. Once operations begin, if a business is short of allowances, it will have to pay out of pocket to buy them => Direct financial loss.
Step 2: Establish a Carbon Trading Desk
Large businesses need to designate personnel responsible for monitoring the market. Carbon is no longer an environmental engineering issue — it is a Finance and Accounting issue. A strategy is required: When should allowances be bought? When should they be sold (if in surplus)? When should the 30% offset entitlement be used?
Step 3: Internal Carbon Pricing
Begin incorporating an assumed carbon cost into new investment projects. For example: When calculating the ROI (payback) of a new production line, add a cost of $5-10 per tonne of CO2 emitted. Only proceed with the investment if the project remains profitable.
5. CONCLUSION
The launch of the pilot ETS in August 2025 is a coming-of-age milestone for Vietnam’s economy. It shifts emission-reduction responsibility from “voluntary” to “financial obligation.”
For businesses in the Power, Steel, and Cement industries: The rules of the game have changed. Future profits will come not only from how many products are sold, but also from the skillful management of their carbon assets.
About us: This report was prepared by the ESG Strategy & Policy Team of Carbon Credit Viet Nam Joint Stock Company. We support businesses in conducting GHG Inventories to the ISO 14064 standard, registering carbon credit projects, and advising on trading strategies on the ETS exchange.
