Small businesses struggle to trade carbon credits

Carbon credit trading mechanisms are not yet working in many sectors, causing issues for enterprises who want to trade.
Small businesses struggle to trade carbon credits
Natural forests in the north central province of Hà Tĩnh are used in the Emissions Reduction Payment Agreement (ERPA), the largest carbon credit project in Việt Nam to date. — VNA/VNS Photo Vũ Sinh

Việt Nam’s efforts to establish a carbon credit market have borne initially positive results, with nearly US$52 million earned by the forestry sector, but the lack of trading mechanisms and policies for other sectors is leaving businesses confused.

Statistics from the Gold Standard Foundation and Verra carbon credit registry show that Việt Nam has registered 116 projects for carbon credit certification, of which 40 have been certified, issuing 10.7 million credits annually.

The forestry sector is generating the highest number of carbon credits each year, despite having completed only one project, which is the Emissions Reduction Payment Agreement in the north central region of Việt Nam (ERPA).

Signed on October 22, 2020 by the Ministry of Agriculture and Rural Development with the World Bank (WB), the agreement is the largest carbon credit project in the country to date. With 10.3 million forest carbon credits sold to the WB in 2023 at $5 each, Việt Nam earned $51.5 million through the project.

However, apart from forestry, carbon credit trading mechanisms have not been established for other sectors, causing headaches for companies ready and willing to trade.

One example is a project to produce free range eggs from 50,000 chickens at the Nguyễn Gia Co-operative in Hưng Yên Province. Last year, the co-operative signed an agreement to sell carbon credits to Global Food Partners, a Singapore-based consulting company currently providing carbon credits to over 50 businesses.

The transition from caged to cage-free farming has received technical support and funding from the company. If successful, the value obtained from the project will be much higher than previously, since apart from the revenue from selling carbon credits, the eggs produced from this project can be sold at prices 20-30 times higher than those produced through conventional methods.

The co-operative’s director, Nguyễn Hữu Tuệ, said: "The company, who is our consulting unit and also partner, will come to assess whether the scale, techniques and farming standards such as the number of chickens, roost space, food and water sources and nesting boxes meet the requirements. Only then will they assess if the criteria for reducing greenhouse gases have been met and consider issuing carbon credit certification to us."

However, he was unclear about the credit purchase price and the exact timeline for when credits could be sold.

Small businesses struggle to trade carbon credits
Representatives from Nguyễn Gia Co-operative and Global Food Partners sign an agreement to produce free-range eggs on December 8, 2024 in Hưng Yên Province. — Photo vietnamplus.vn

The director of UT Tea Investment and Development Co., Ltd., Lê Thị Hồng Phương, which has an organic tea farm of over 23 hectares in Thanh Ba District, Phú Thọ Province, is also interested in joining the carbon market. But unsure where to start and how to proceed, she hopes to receive more information and support from the more informed organisations.

A complex task

According to Nguyễn Đình Thọ, director of the Institute of Strategy and Policy on Natural Resources and Environment at the Ministry of Natural Resources and Environment, establishing carbon trading mechanisms for different sectors and projects will take a long time.

"To sell forest carbon credits, the preparation took almost ten years, from 2014 to 2023," he said. "Currently, it takes 18 months to complete the basic setup for a carbon credit project, then an additional two to three years to generate the credits, and another six months to audit the project."

While it normally takes three to five years for a project to mature and gain credits to sell in Asia, in Việt Nam it will take an average of five years due to the need for further improvements in mechanisms and policies, said Vũ Tùng Quân, director of the carbon credit training programme at the Center for Economic Development Studies, under the VNU University of Economics & Business.

Quân also warned of the risks of failure when developing carbon credit-selling projects, since investing in them alone does not guarantee credits for sale.

He suggested that third-party involvement be included from the start of the initial project creation, as well as during construction, contract signing, price negotiations and credit transfer. However, third-party participation in Việt Nam is currently very limited, even completely absent in some cases, leading to lower prices for carbon credits, Quân said.

"We are only thinking about selling carbon credits through forests, agricultural products and electricity, but many countries are selling them in various sectors and forms, such as carbon storage projects,” he said. “This is something that businesses looking to enter the carbon credit market should pay attention to.”

According to the national plan for carbon market development from 2025 to 2027, Việt Nam will pilot a carbon credit trading platform. In 2028, the official carbon credit exchange will begin operation.

Carbon credit trading will open up new opportunities for businesses as they will gain additional financial resources to cover expenses, according to Thọ.

Businesses need to prepare quickly to participate in this market as it will become very active in the next few years, according to Quân. “The compliance carbon market will be vibrant at first, followed by a strong boost in the voluntary market,” he said. — VNS

BOX:

Carbon credits are recognised in the form of permits or certificates, which businesses obtain by applying methods to reduce carbon emissions in their production.

Those that have carbon credits can trade them with those struggling to reduce emissions to offset the pollution that the latter create, with one credit equalling one tonne of carbon dioxide (CO2).

In other words, one carbon credit allows environmentally unfriendly businesses to emit one tonne of CO2 – or the equivalent in other greenhouse gases – into the environment.

A carbon credit market, or carbon market, is an exchange or platform where businesses can trade carbon credits, like stocks.

Source: VNA
vietnamnews.vn

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