The Government of Vietnam is formulating a new draft Decree (dated June 10, 2025) to provide a legal basis for the commercialization of forest carbon credits – a mechanism to certify greenhouse gas emission reductions from forests as tradable “credits”. This move comes after Vietnam’s first successful sale of 10.3 million forest carbon credits (equivalent to 10.3 million tons CO₂) at a price of $5 per ton, earning about $51.5 million through a World Bank-supported transaction. That pioneering deal demonstrated the economic potential of forest carbon sequestration and underscored the urgent need for a clear legal framework to scale up the market.
The draft Decree aims to mobilize new financial resources for forest protection and development via a carbon market. According to the Ministry of Agriculture and Environment, the policy is expected to create a favorable legal corridor for localities and forest owners to exchange and transfer emission reduction results and forest carbon credits, thereby increasing incomes for forestry communities. The document is being crafted to align with domestic laws and international practices, to balance the interests of the State, forest owners, and other stakeholders in benefit-sharing, and to simplify administrative procedures for smooth implementation.
Key Provisions: Forest Carbon Credits and Trading Mechanisms
The draft Decree clearly defines core concepts and establishes market mechanisms for forest carbon absorption and storage services. Key provisions include:
- Forest Carbon Credit: Defined as the certified result of reduced or removed greenhouse gas emissions from forests, as verified by the Ministry (Agriculture and Environment) or an international standard body. Each credit represents 1 ton of CO₂ emission reduced or additionally absorbed through activities like sustainable forest management, reforestation, or forest conservation, under approved carbon standards.
- Service Providers and Users: Providers are lawful forest owners (per the Forestry Law) – including state forest management units, private forestry companies, households, individuals, or community groups allocated forest land. Users are organizations or individuals who need carbon credits – notably large emitting facilities in Vietnam that have greenhouse gas quotas (and may purchase credits to offset excess emissions), as well as domestic or foreign entities seeking credits for voluntary offset or other compliance purposes.
- Transaction Modalities: The draft allows two parallel mechanisms for trading forest carbon credits. First, direct bilateral transactions via contracts between the provider (forest owner or their authorized representative) and the user (buyer). Second, transactions through a domestic carbon exchange – a state-regulated marketplace in Vietnam, implemented under Decree 06/2022/ND-CP (as amended by Decree 119/2025). These dual channels offer flexibility, enabling companies to either trade credits on the exchange or negotiate directly, thus expanding legitimate revenue streams from forest resources.
- Project Participation Requirements: A forest owner wishing to supply carbon credits must implement a forest carbon project that meets national or international carbon standards, follow the required Measurement, Reporting, and Verification (MRV) procedures, and obtain credit certification. The provider is also obliged to contribute a portion of the verified emission reductions to Vietnam’s nationally determined contribution (NDC) – i.e. the national climate target – before converting the remaining reductions into tradable credits. On the buyer side, the credit user must be a legally operating entity that abides by the carbon market’s rules (contract terms or exchange regulations) and fulfills all related financial obligations.
- Payment and Pricing: Two forms of payment for forest carbon services are provided. Direct payment means the buyer pays the seller (provider) outright – either as agreed in a bilateral contract or according to the price on the exchange. Indirect payment is via the Vietnam Forest Protection and Development Fund: the buyer pays into the fund, which then disburses the money to forest owners under an entrusted payment mechanism. Payment is calculated per ton of CO₂ emission reduced (per credit), in Vietnamese đồng or a foreign currency. The draft does not set a fixed price for credits; instead, prices are market-determined, guided by provincial reference price lists or negotiation between parties. For exchange-based trades, a floor price may be set with reference to prevailing market rates. This approach allows carbon prices to adjust flexibly to supply and demand – increasing the appeal to investors and ensuring credits reflect their true market value.
In summary, the draft establishes a transparent legal framework for a forest carbon market: from credit generation (via certified projects) to trading (contracts or exchange platform) and payment distribution, with checks in place to integrate with national climate commitments.
Breakthroughs and Impact on Businesses and Investors
If enacted, this Decree would mark a significant turning point for businesses and investors interested in carbon markets and forestry:
- Legalization of Forest Carbon Credit Trading: For the first time, the right of enterprises and forest owners to monetize carbon credits from forests is explicitly recognized in law. Companies (including state-owned or private forestry entities) that own forests or partner in forest carbon projects will be legally permitted to sell forest carbon credits, unlocking economic value from conservation and reforestation activities. In effect, standing forests are now viewed as assets that can generate profit through carbon credits, rather than only providing non-monetary ecosystem benefits. This opens a new business avenue in both domestic and international markets.
- Flexible Compliance Tool for Emitters: Large emitting industries in Vietnam will have a new mechanism to offset their emissions as they strive to meet regulations and net-zero goals. Under Vietnam’s emerging carbon market (pursuant to Decree 06/2022 and its 2025 amendment), regulated facilities with emission caps may need to acquire credits to stay within their allowances. The new decree provides these companies easier access to credits from domestic forest projects, rather than relying solely on international offsets. This offers a cost-effective, home-grown compliance option alongside internal emission reduction efforts.
- Revenue Benefits for Project Developers: A breakthrough provision allows forest owners or investors in carbon projects to retain 100% of the revenue from selling carbon credits (after paying any taxes or fees). This income is recognized as legitimate and can be recorded as part of the entity’s revenue, improving their financial returns. Previously, under pilot schemes, state-affiliated forest owners faced uncertainties in how proceeds from carbon credit sales could be used. The new decree removes that hurdle – the money earned stays with the project developer – which greatly incentivizes businesses to invest in forest protection and restoration, knowing they can directly benefit from the carbon credits they generate.
- Trading and Pricing Flexibility: By permitting both negotiated off-market deals and exchange-based trading at market rates, the policy gives businesses latitude to strategize their carbon credit sales. Enterprises can choose the timing and method of sale to maximize revenue – for example, opting to sell on the exchange when prices peak, or entering long-term purchase agreements with strategic partners for stable returns. Importantly, carbon credit prices are not subject to a government-imposed cap in the draft; they will rise or fall with market conditions. If international demand grows, high-quality Vietnamese forest credits could fetch higher prices, directly benefiting the project owners and encouraging further investment into forestry carbon projects.
- Attracting International Investment: Vietnam’s nascent forest carbon market is poised to draw interest from global investors and climate-focused funds. With a clear legal framework in place, foreign companies and organizations can confidently purchase credits from Vietnam’s forest projects via contracts or the future exchange. This promises not only to bring in foreign capital but also technical cooperation – for instance, international partners may assist with advanced MRV technologies and project methodologies. In fact, even before the decree is finalized, some international partners have already entered discussions with the Ministry about exchanging carbon credits, indicating existing demand. This interest is expected to grow once the market is officially operational, integrating Vietnam into the global voluntary carbon market and potentially generating foreign exchange earnings for the country.
- Readiness and Risk Mitigation: These opportunities also come with responsibilities. To fully capitalize on the new market, businesses and forest owners will need to prepare thoroughly. Projects must adhere to stringent technical standards for carbon accounting, which means investing in robust MRV systems (e.g. satellite monitoring, field inventories, independent audits) to ensure the credits are high-quality and credible. Enterprises should also be mindful of market risks – such as price volatility and evolving international rules – and develop risk mitigation strategies. Diversifying their buyer base, staying updated on global carbon standards, and planning credit issuance/sales over a longer term can help cushion against oversupply or regulatory changes in the carbon market, which is still maturing.
International Context: Forest Carbon Market Trends
The draft Decree is introduced against a backdrop of fast-changing global carbon market dynamics, particularly for forest-based credits. The voluntary carbon market (VCM) saw a boom around 2021 but then a significant slowdown by 2023. Global transaction volumes of carbon credits dropped by about 56% in 2023 compared to 2022. Credits from REDD+ forest projects (Reducing Emissions from Deforestation and Forest Degradation), which comprise a large share of the voluntary market, lost roughly 62% of their market value in 2023, with average prices falling about 23% year-on-year. The primary cause was concern over credit quality and transparency: 2023 saw a wave of negative publicity around some forest carbon projects, with questions raised about their additionality (whether the emission reductions would have happened anyway) and the verifiability of their claims. This made many buyers more cautious, and some paused purchases while awaiting clearer guidance and integrity standards in the market.
Despite the downturn in volume, carbon credit prices held relatively firm. In 2023, the average price paid for voluntary carbon credits globally was around $6.5 per ton of CO₂ – a slight dip from 2022, but still higher than in any pre-2022 year. Early 2024 showed signs of a rebound in demand and pricing, as new initiatives to bolster credit integrity took shape. The publication of the ICVCM’s Core Carbon Principles (a set of quality benchmarks for credits) and the launch of the VCMI’s Claims Code (guidelines for credible corporate use of offsets) have started to improve buyer confidence. These efforts, along with other emerging standards, suggest the voluntary market may recover with a focus on high-integrity credits.
On the compliance market side, major economies like the EU, China, and South Korea have established emissions trading systems (ETS) that cap industrial emissions and allow companies to trade allowances. While these regulatory markets generally do not yet accept forest-based offsets for compliance, many corporations still pursue voluntary offsets (including forest credits) to supplement their mandatory efforts. This parallel development means forest carbon credits continue to have a role internationally, even if not directly inside compliance schemes, as companies seek to meet “net-zero” pledges or prepare for future carbon regulations.
Notably, Article 6 of the Paris Agreement provides for international cooperation in achieving climate targets, effectively enabling countries to trade carbon credits to fulfill their NDCs. This has led nations to carefully manage how forest carbon credits are utilized. For example, Indonesia – which launched a national carbon exchange (IDXCarbon) in September 2023 – has introduced rules for forest carbon credits requiring that a portion of any credits sold to foreign buyers be allocated to a state-controlled climate fund and counted towards Indonesia’s own NDC. In other words, when Indonesia exports forest credits, it reserves some of the emission reductions for its national goals, ensuring it doesn’t “sell off” all the reductions needed to meet domestic targets. This reflects a broader trend of countries balancing the attraction of carbon finance with the protection of their climate commitments.
Vietnam’s draft Decree follows a similar logic. It requires forest project owners to set aside a part of their verified emission reductions for the country’s NDC before issuing the remainder as carbon credits for sale. This mechanism will help Vietnam avoid double counting (preventing both Vietnam and the credit buyer from claiming the same emission reduction) and guard the country’s climate pledges, all while still enabling the sale of surplus credits. By doing so, Vietnam can engage in international carbon transactions without undermining its own emission reduction targets – a strategy also aimed at compliance with future Paris Agreement accounting rules.
Another international consideration is the growing emphasis on the co-benefits of forest carbon projects. The global market is increasingly favoring credits that not only reduce carbon but also contribute to biodiversity conservation, water protection, and local community livelihoods. Investors and buyers are showing preference for projects with strong social and environmental safeguards. In anticipation of this, Vietnam’s draft mentions the development of a national forest carbon credit standard (TCVN) that will set strict criteria for ecological and social impact, carbon measurement, and independent validation. Establishing a rigorous domestic standard will enhance the credibility of Vietnamese forest credits and facilitate their acceptance in international markets where quality demands are rising. It aligns Vietnam’s market with the global shift towards high-integrity, sustainable carbon credits, potentially making “made-in-Vietnam” forest credits more attractive to responsible buyers worldwide.
Implementation Challenges and Considerations
While the draft Decree opens many opportunities, its successful implementation will face several important challenges:
- Clarifying Forest Carbon Rights: A key issue is defining the ownership of carbon sequestration rights associated with forests. Should carbon credits be considered an asset attached to the land/forest (and thus belonging to whoever holds land-use rights), or as an environmental service product created by the entity managing the forest? Experts have noted the need to spell out “carbon rights” clearly. Without clarity, conflicts could arise – for example, between a local community that legally owns a forest and an investor who finances a carbon project on that land. The final decree should transparently designate who owns the emission reductions and resulting credits in various scenarios (state-owned forests, community forests, private leases, etc.) to prevent disputes over benefit entitlement.
- Coordinating Dual Mechanisms (Service vs. Market): The draft employs both a government-mediated service payment model (through the forest fund, with guided pricing) and a free-market trading model (through the carbon exchange or direct contracts). Implementing both in parallel requires careful coordination to avoid overlap or contradictory incentives. Policymakers need to delineate when the state-led pricing mechanism applies (e.g. for programs where the government aggregates credits on behalf of smallholders) versus when the market-based mechanism prevails. As one expert suggested, the state’s role should be to provide orientation on pricing and benefit-sharing when acting as organizer of environmental services, but for the carbon market transactions, prices should be determined by supply and demand (even via auction). Clear rules on how these two mechanisms interact will prevent confusion and ensure that the market operates fairly, without undermining the interests of any party.
- Technical Capacity and Oversight: Measuring and verifying forest-based emission reductions is technically complex. Vietnam will need to bolster its MRV infrastructure – including satellite-based forest monitoring, periodic carbon stock assessments, and robust data management – to ensure that the credited emission reductions are real and additional. Independent third-party validation will be crucial for credibility. Government agencies (such as the agriculture/environment ministry, the national forest fund, and provincial forest authorities) must be equipped with expertise and resources to oversee project implementation and prevent fraud (e.g. false credit claims). This may involve training personnel, developing new data systems, and possibly allocating a portion of carbon revenue to support MRV and enforcement. Indeed, the policy may allow a small percentage (for instance, up to 5% of annual carbon fund proceeds) to be used for activities like measurement, verification, and strengthening enforcement. It will be important to use such funds efficiently and transparently to build trust in the system.
- Market Volatility and Price Risk: As seen in the international market, carbon credit prices – particularly for nature-based credits – can be volatile. If many Vietnamese projects come online simultaneously, an oversupply of credits could depress prices. Conversely, changes in international policy (such as stricter rules on cross-border credit use under the Paris Agreement’s “corresponding adjustment” requirements) could affect demand for Vietnam’s credits. Project developers and investors will need to manage these risks. This could mean gradually phasing credit issuances, securing forward offtake agreements, or focusing on quality to differentiate their credits. Diversifying the pool of buyers (domestic compliance buyers, voluntary international buyers, etc.) can also cushion against demand swings. Staying informed about global carbon market trends and regulatory developments will be essential for Vietnamese stakeholders to adjust their strategies. In short, while the new decree paves the way for a “green finance” revenue stream from forests, prudent risk management and adaptive planning will be key to sustaining that revenue in the long run.
Thị trường Carbon
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