Determining the allocation of greenhouse gas emission quotas has proven to be marked by major complexity. In proposed amendments to Decree No. 06/2022/ND-CP, which focuses on reducing greenhouse gas emissions and protecting the ozone layer, the Drafting Committee introduced additional regulations concerning the identification and organization of greenhouse gas emission allocation caps and revisions addressing the timeline for such allocations.

Under Section 4 of Article 7 and Section 2 of Article 12 in Decree No. 06, organizations must conduct audits and reduce emissions to qualify for greenhouse gas emission allocation caps during the 2026-2030 period. However, some organizations are yet to provide detailed data, presenting challenges for the government in allocating these caps.

Consolidation proposals

According to the draft amendments, the Ministry of Natural Resources and Environment (MoNRE) will lead and cooperate with relevant sectoral ministries to establish and enforce greenhouse gas emission standards per unit of product for each type of production and business establishment, to determine the cap allocated.

However, drawing from the experiences of countries with functioning carbon markets, initial phases typically allocate caps based on historical greenhouse gas emissions from establishments. Emission standards are applied only to sectors where adequate information and data are available to set these standards. Practices in countries like South Korea demonstrate the difficulty in setting caps based on greenhouse gas emission intensity per unit of product. Consequently, reliance is placed on emissions data from the past three years to determine emission caps.

Therefore, the Drafting Committee proposes amendments so that relevant sectoral ministries compile and propose lists of establishments and their annual allocated caps. These proposals are then consolidated by MoNRE and submitted to the Prime Minister for approval of total greenhouse gas emission caps, reserve cap ratios, auction schedules, and a list of establishments expected to receive caps for each stage from 2025 to 2030. Upon approval of the total greenhouse gas emission caps by the Prime Minister, MoNRE, in coordination with relevant sectoral ministries, will allocate caps to establishments before October 31 in 2027 and 2029 for each respective stage.

For the 2025-2026 period, the draft requires the Ministry of Industry and Trade (MoIT) and the Ministry of Construction (MoC) to propose annual emission caps for every thermal power plant and steel and cement production facility. These proposals must be submitted to MoNRE by June 30, 2025, for consolidation and subsequent reporting to the Prime Minister, who will approve them by December 31 of the same year.

Regarding the responsibility for allocating these caps, the draft assigns relevant sectoral ministries the task of implementing sector-specific greenhouse gas emission reduction plans. These ministries are also responsible for issuing technical regulations on greenhouse gas inventories, measuring, reporting, and verifying emission reductions at the facility level, and ensuring compliance with these regulations within their respective sectors.

Mr. Tang The Cuong, Director General of the Department of Climate Change at MoNRE, said the Ministry has held meetings with relevant sectoral ministries to propose allocation methods. In the initial phase, industries such as thermal power, steel, and cement, which are overseen by MoIT and MoC, are prioritized for early cap allocation. The draft specifies that these two ministries will propose the allocation caps, submit these to MoNRE for consolidation, and then report to the Prime Minister for approval. Based on the approved caps, the two ministries will allocate them to enterprises under their jurisdiction.

Additional opinions

During a feedback session with various ministries to finalize the amendments to Decree No. 06, a representative from the MoIT suggested that MoNRE lead the allocation of emission caps. “The draft requires that MoIT and MoC propose allocation plans,” the representative said at the feedback session. “What is the next step - submission or approval? This mechanism seems unsuitable because Article 139 of the amended Law on Environmental Protection 2020 assigns the Ministry of Finance to lead, in coordination with MoNRE and other ministries, the establishment of a domestic carbon market. MoNRE is responsible for organizing the allocation of greenhouse gas emission caps to entities. So, if we now assign relevant sectoral ministries to implement the Decree, can caps be re-allocated?”

“If MoIT and MoC propose allocation plans but MoNRE disagrees, what is the resolution mechanism?” the representative continued. “If there are discrepancies, what are the responsibilities and authorities of the ministries?”

The representative proposed revising the draft to state that MoNRE will organize, develop, and allocate emission caps and establish an appraisal committee under an inter-agency mechanism. There is already a Prime Ministerial Decision regulating the coordination mechanism of this inter-agency committee, placing the responsibility on the committee rather than any single ministry.

“The MoIT believes that in developing the allocation caps, we should hire a consultant for calculation while the Ministry only conducts appraisals,” the representative continued. “It cannot independently calculate the data for each enterprise, especially since the industry and trade sector includes a large number of emitting enterprises.”

Posing the question of which ministry would be responsible if a company produces both cement and steel, the representative said that if each ministry uses a different method for allocating quotas, how can consistency be maintained? The best approach would be for MoNRE to take the lead, with other ministries participating in coordination.

Mr. Nguyen Xuan Kien from the Vietnam Society of Refrigeration and Air-Conditioning Engineering, a sector that contributes significantly to ozone-depleting emissions, pointed out that greenhouse gas emissions occur across all sectors, with every company contributing to some degree.

“Government regulatory bodies cannot individually measure the emission reductions of every enterprise; they can only compile data to create policies,” he continued. “This task should be handled by independent appraisal and consulting organizations. The proposed amendments to Decree 06 should specify the methods for establishing these independent consulting and appraisal units and their operational mechanisms.”

The fact is, however, that there are currently no reputable consultants in Vietnam, even though they have a crucial role to play in measuring emissions to implement policies. “I believe that determining and allocating quotas is extremely difficult right now, due to a lack of specific parameters and data,” Mr. Kien said. “This is a complex issue that MoNRE cannot tackle on its own.”

Practical concerns

During the feedback session, Mr. Cuong predicted that “there will be delays in the initial quota allocation phase for 2025-2026 because we are new to this process. By the 2027-2028 and 2029-2030 phases, quota allocation will be conducted earlier.”

In response to this, the MoIT representative raised a concern that the draft sets a goal of allocating quotas from 2025 to 2030, so the Drafting Committee needs to clarify whether it is feasible to allocate quotas by 2025 and whether such a deadline can be realistically met.

Addressing this concern, Mr. Nguyen Ngoc Vinh, Secretary of the Drafting Committee, explained that the draft proposes a quota allocation deadline of December 31, 2025, for the 2025-2026 period. Under the Law, entities must conduct greenhouse gas inventories every two years, starting from 2023. Initially, they will provide data to the relevant ministry for inventory verification, beginning in March 2025, with official greenhouse gas inventory data submissions starting at that time. Therefore, the proposed amendment suggests that the relevant ministry will compile inventory results, with MoNRE to determine quotas, and allocation will occur by the end of 2025. As a result, businesses will only learn their emission quotas for the 2025-2026 period at the end of 2025.

“We foresee that the delayed allocation of emission quotas will pose challenges for businesses in effectively planning their emission reduction strategies due to the late availability of quota information,” he said. “However, during the initial phase, regulatory bodies face significant gaps in data availability. Therefore, the Drafting Committee suggests basing quota allocations on emissions data from the past three years, to minimize disruptions to business operations as much as possible.”

Ms. Tran Kim Chi from the Vietnam Automobile Manufacturers Association (VAMA) also raised concerns over quotas being allocated for the 2025-2026 period at the end of 2025. In cases where an entity has already implemented greenhouse gas reduction measures but has not yet received allocated quotas, she asked, can they transfer the previously obtained quota amounts before formal allocation?

To encourage the early adoption of greenhouse gas reduction technologies, VAMA proposed allowing businesses to transfer their quota allocations over a three-year period.

Meanwhile, in discussing quota allocations based on historical emissions, a representative from Electricity of Vietnam (EVN) pointed out that its assessments over the past three years reveal varying business performance each year. Relying on past emission inventory reports to determine future quota allocations could well result in insufficient quotas being allocated for future consumption periods.

In addition, EVN’s power plants have the critical task of ensuring electricity production and supply, as required by the government. It therefore proposes adding specific provisions for enterprises. “If compelled to urgently mobilize electricity production and supply as mandated by the government, can facilities exceed their allocated quotas?” the representative asked.

EVN’s power plants have provided information to MoIT in recent years but have not conducted audits on greenhouse gas emissions or developed plans for emission reductions. It therefore suggests clarifying deadlines on submitting audit data to alleviate pressure on businesses.

The representative also highlighted that guidance on emission audits and reduction plans is still relatively new for most businesses. There is a pressing need for substantial support, including enhanced training and procedural guidance in completing such audits. EVN requires assistance from MoNRE and MoIT, the representative said, in conducting training programs for appropriate audits at power generation facilities.