Carbon tax helps "decarbonize" the economy, increasing revenue

	Exports to the EU cannot bypass the Carbon Border Adjustment Mechanism (CBAM)
	The steel industry is concerned about the mechanism of CBAM carbon border adjustment
	The steel industry facing concerns about the carbon border adjustment mechanism (CBAM)

The workshop

Propose carbon pricing tools, including a carbon tax

In her opening speech, Ms. Mai Kim Lien, Deputy Director of the Department of Climate Change (Ministry of Natural Resources and Environment) said that climate change has become the biggest challenge for humanity, and has been affecting all aspects of economics, politics, diplomacy, and global security.

In addition to proactive adaptation, each country must be responsible for reducing greenhouse gas emissions to implement the Paris Agreement on climate change since 2021.

To achieve the goal of reducing greenhouse gas emissions, in addition to applying advanced technology, many countries apply carbon pricing tools. Commonly applied carbon pricing tools are carbon tax, greenhouse gas emission quota trading systems, and carbon credit mechanisms.

According to Ms. Mai Kim Lien, Vietnam always considers response to climate change as a vital task and the responsibility of the entire political system. Therefore, in addition to implementing adaptation activities, mitigating greenhouse gas emissions, and using natural resources effectively and sustainably, it is necessary to study international experience to offer appropriate measures and policies.

According to Ms. Lien, in parallel with the roadmap to establish and run the domestic carbon market, the Prime Minister has also assigned relevant ministries and agencies to research regulations and propose a roadmap for applying carbon tax in Viet Nam. Therefore, the Southeast Asia Energy Transition Partnership Program has supported the impact assessment of CBAM and proposed carbon pricing tools, including a carbon tax policy for Vietnam.

At the seminar, Mr. Nguyen Anh Minh, a lawyer member of NHQuang and associates Law Firm said that through reviewing and analyzing current policies on taxes and fees related to environmental protection in Vietnam, when reviewing the characteristics of a carbon tax and the main characteristics of a carbon tax showing that the Environmental Protection Tax together with the Environmental Protection Fee are considered compatible with the carbon tax among various taxes and fees in Vietnam.

In particular, the environmental protection tax is calculated from different times depending on the type of product such as: when there is a transfer of ownership or use rights of goods, when goods are consumed or used, imported through customs declarations, or sold (for petrol).

Proposing two options for enacting a carbon tax

Regarding tax rate, according to experts' analysis, a low tax rate may not encourage emission reduction, while a high tax rate may negatively affect the stability of the economy in the short term.

The environmental protection tax rate is a fixed rate which is determined on a unit of taxable goods. The specific tax rate is decided by the National Assembly Standing Committee. These tax rates are set to match the country's socio-economic development policies as well as reflect the negative impact level on environment caused by goods.

Among the goods subject to environmental protection tax, coal, gasoline and diesel oil are widely used as fuel or materials in the areas covered by CBAM. The current tax rates of these items are specified in Resolution 579/2018/UBTVQH.

“The current environmental protection tax rate is not regulated in proportion to the carbon content of the fuel and reflects a number of other contents. For coal, for example, the environmental protection tax rate is too low to create real mitigation actions and reduce emissions related to coal use,” said Mr. Nguyen Anh Minh.

Therefore, the principle for environmental protection tax determination will be based on ensuring cost compensation, taking into account Vietnam's socio-economic development policies. This aims to ensure fairness, transparency and equality in the rights and obligations of people. In addition, non-taxable entities may include remote areas, vulnerable groups or important sectors important to the economy.

Therefore, it is possible to integrate a carbon tax into an environmental protection tax, because both apply to goods that have a negative impact on the environment.

In fact, certain products such as coal and gasoline are already subject to environmental protection tax. Therefore, the environmental protection tax can also be expanded to include greenhouse gas emissions arising from the production and use of taxable goods.

It is important to ensure that a carbon tax (if it is introduced as part of an existing environmental protection tax) directly related to the greenhouse gas emissions of a good and other products should be included into environmental protection tax to be consistent with CBAM (e.g cement, steel).

Sharing experience in implementing a carbon tax, expert Axel Michaelowa, Senior Founding Partner of Perspectives Climate Group, said that a carbon tax determines a fixed price of carbon in USD/tCO2-eq.

In Colombia, a carbon tax has been in place since 2016, on fossil fuels produced or imported. Coal alone will be fully taxed from 2028. The taxes are determined based on the carbon content of each fuel. This country collected US$527 million from January 2017 to April 2023.

Regarding the goal of building a carbon tax in Vietnam, this expert said that, instead of paying for CBAM, a well-designed carbon tax will help to "decarbonize" the economy. Part of the State revenue is retained domestically to reduce the impact of CBAM on Vietnam's exports and raise Vietnam's competitiveness in the medium and long term.

This expert has proposed two options to enact a carbon tax based on the existing policies. Accordingly, the option 1, which is also the most potential option, is to amend and supplement the draft Decree stipulating the environmental protection fee for emissions which being developed by the Ministry of Finance and expected to be approved by the end of 2023.

The option 2 is to include a carbon tax in the amendment of the environmental protection tax, which the Ministry of Finance expects to amend around 2026. This option allows a longer preparation time.