Vietnam's Carbon Market: Learning from EU ETS for Business Compliance

Vietnam’s carbon market officially launched on June 29, 2026, with initial trading volume being limited. Covered facilities are now facing critical decisions regarding emissions allowances, reporting, and potential exposure to the EU’s Carbon Border Adjustment Mechanism (CBAM). The early stages of the market have seen thin trading, primarily conducted through negotiated transactions rather than continuous order matching. This can present challenges for businesses in their planning. Furthermore, the initial allocation targets only 110 facilities across 92 companies in the thermal power, iron and steel, and cement industries, limiting the pool of potential traders. Under Vietnam's Emissions Trading System (ETS), facilities exceeding their allocated allowances must compensate with additional allowances or eligible carbon credits. This can lead to increased costs, potentially passed on to consumers. The list of facilities required to inventory emissions is reviewed every two years by the Prime Minister, meaning growing plants could be brought into scope. Additionally, the EU’s CBAM will affect Vietnamese exporters regardless of their domestic allowance holdings. Drawing on lessons from the EU ETS, which has been operational since 2005, Vietnamese businesses should consider the following: Firstly, free allowances are provided during the pilot phase through 2028, with an auction mechanism planned from 2029. This mirrors a transition seen in the EU, necessitating budget projections that account for future cost increases. Secondly, the importance of emissions reporting and verification. Vietnam requires covered facilities to submit their first verified inventory reports by December 1, 2027, and surrender allowances for the 2025-2026 period by December 31, 2027. Similar to the EU ETS, accurate record-keeping and data collection for verification are crucial for future allocation decisions and compliance, carrying commercial implications. While the EU ETS experienced a period of zero prices due to excess free allowances in its early phase, Vietnam allows for some unused allowances to be carried over, provided surrender obligations are met. However, the value of these allowances depends on market prices, so they should be treated as compliance headroom until trading establishes a dependable price. Regarding investments, efficiency improvements are important not only for reducing carbon costs but also for lowering energy expenses. These investments, however, directly impact direct emissions and do not directly reduce the allowance obligation. Investment evaluations should incorporate various carbon price scenarios. The use of carbon credits is permitted, but their eligibility varies by system and has become increasingly stringent in the EU. Credits traded on voluntary markets are not automatically eligible in Vietnam, requiring careful consideration. Up to 30 percent of allocated allowances can be offset by credits, demanding a prudent selection process. Source: Vietnam Briefing