Vietnam faces challenges from internationally transferred mitigation outcomes

The rapid expansion of the global carbon market is creating new opportunities for Vietnam to attract green investment, accelerate technology transfer, and enhance the competitiveness of its economy. Domestically, the country has taken a significant step forward by strengthening its legal framework with the issuance of Decree No. 112/2026/ND-CP on the international transfer of greenhouse gas emission reduction outcomes and carbon credits.

“Vietnam’s progress across every aspect of the energy transition since COP26 has been truly remarkable,” said Mr. John Robert Cotton, Deputy Director of the Southeast Asia Energy Transition Partnership at the United Nations Office for Project Services (ETP-UNOPS). He added that the well-structured roadmap, from the Emissions Trading System (ETS) and Carbon Trading Exchange (CTX) to Decree No. 112, has created tremendous confidence among international investors that Vietnam is ready for capital deployment. “This represents an enormous macro-economic and micro-economic financing opportunity for the country,” he believes.

Yet turning policy into a functioning market remains a complex undertaking. To bring Internationally Transferred Mitigation Outcomes (ITMOs) to global markets, Vietnam must address a range of technical and institutional challenges.

From framework to execution

Despite its firm determination, Vietnam’s carbon market still faces several procedural and technical bottlenecks. Mr. Axel Michaelowa, Senior Founding Partner of the Perspectives Climate Group, said one of the biggest challenges lies in the country’s multi-layered governance structure. With numerous ministries and agencies involved in project approval, overlapping responsibilities could slow decision-making and lengthen administrative procedures.

Another challenge concerns risk management and the share of credits retained by the government. Mr. Michaelowa noted that reserving 50 per cent of emission reductions to prevent overselling is a prudent safeguard. However, applying the same 50 per cent retention rate across all sectors, including industries where emissions reductions are particularly costly, could drive credit prices above market levels, undermining project viability and discouraging investment.

Compliance with the reporting requirements under Article 6.2 of the Paris Agreement also presents significant hurdles. Even the 13 countries that have already undergone international technical reviews have all been found to have substantial reporting deficiencies.

Mr. Kazuhisa Koakutsu, Director of the Paris Agreement Article 6 Implementation Partnership Center, said Vietnam has already laid important legal foundations through Decree No. 112, which establishes domestic rules covering Articles 6.2 and 6.4 of the Paris Agreement as well as independent carbon standards. The Decree also provides detailed provisions governing the authorization and allocation of ITMOs.

Vietnam should use the methodologies established under the Paris Agreement’s Article 6.4 mechanism as its foundation. Aligning with UN standards will not only ensure transparency in carbon accounting but also make Vietnamese carbon credits more readily accepted in demanding markets such as Europe.

Mr. Gilles Dufrasne, Policy Expert at the Task Force for International Carbon Pricing and Markets under the European Commission’s Directorate-General for Climate Action (DG CLIMA)

The next challenge, he said, is ensuring these domestic rules are harmonized with bilateral mechanisms such as the Joint Crediting Mechanism (JCM) and agreements Vietnam has signed with countries including Japan and Singapore.

From the private sector’s perspective, Ms. Roxanne Tan, Senior Managing Consultant at South Pole AG, warned that cost uncertainty remains a major obstacle. “Measurement, reporting, and verification (MRV) requirements involve significant costs and substantial effort from project developers,” she said. “Without clarity on fees for Corresponding Adjustments or compliance costs associated with MRV, companies cannot complete their financial models. Without that information, projects can easily stall.”

Building trust through standards

To help Vietnam overcome those challenges, international experts emphasized two essential lessons: maintaining trust through market integrity and adopting standardized methodologies.

Representing the UK at the “Promoting Cooperation on Internationally Transferred Mitigation Outcomes Towards the Implementation of National & Corporate Emission Reduction Commitments” forum on July 23, as both a potential buyer and investor, Mr. Fergus McBean, First Secretary for Climate and Nature at the Embassy of the UK in Vietnam, said the most important issue today is confidence in the transparency and integrity of carbon credits. The UK Government’s principles for high-integrity voluntary carbon and nature markets stress that carbon credits must deliver genuine, measurable, and verifiable climate benefits. 

From the EU’s perspective, Mr. Gilles Dufrasne, Policy Expert at the Task Force for International Carbon Pricing and Markets under the European Commission’s Directorate-General for Climate Action (DG CLIMA), said the EU is developing a legal framework to integrate ITMOs into both its internal market and its Nationally Determined Contribution (NDC) framework as part of its 2040 climate strategy.

The EU already has strategic guidance through the European Climate Law, which establishes the bloc’s overall emissions reduction targets through 2040 and outlines the criteria for incorporating Article 6 credits into the EU market. The framework provides clear priorities for future credit purchases, ensuring projects align with the objectives of the Paris Agreement and help both the EU and partner countries remain on track to meet their climate commitments.

As the EU finalizes its framework for integrating Article 6 credits during the 2030-2040 period, Mr. Dufrasne advised Vietnam to avoid adopting too many fragmented voluntary standards. Instead, he recommended aligning with internationally-recognized common standards to maximize market access.

Japan, meanwhile, offered practical lessons from 13 years of implementing the Joint Crediting Mechanism (JCM) in Vietnam. Mr. Koakutsu said the most important factor in building private sector confidence has been the government’s ability to authorize projects and deliver tangible results.

For a market to function, he explained, it must first generate real products, in this case ITMOs. But producing ITMOs requires one indispensable first step: government authorization. Following the completion of detailed Article 6 rules at the Baku climate conference, many countries are now building legal frameworks centered on authorization procedures. In Vietnam, Decree 112 serves as the legal basis governing how ITMOs will be authorized.

Vietnam’s competitive edge

Though the technical challenges remain substantial, experts believe Vietnam holds significant competitive advantages over many neighboring countries in its ambition to become one of Asia’s leading carbon trading hubs.

When the ETP convenes regional forums bringing together Vietnam, Indonesia, the Philippines, Thailand, and Singapore, Vietnam’s delegation consistently stands out as a leader. Vietnam is moving significantly faster than many of its regional peers. The lesson it offers the region is a simple but effective strategy: set clear goals, develop a concrete roadmap, and execute it decisively with the full commitment of government and stakeholders.

Mr. John Robert Cotton, Deputy Director of the Southeast Asia Energy Transition Partnership at the United Nations Office for Project Services (ETP-UNOPS)

One key advantage is strong government support. Ms. Tan said close coordination between the Ministry of Agriculture and Environment (MAE) and other relevant ministries will be essential to resolve implementation issues and translate policy into practice. International buyers are closely watching Vietnam’s next steps and are looking for clearer guidance on how the new regulations will operate in practice.

Unlike many countries whose mitigation potential is concentrated in only one or two sectors, Mr. Michaelowa said Vietnam possesses opportunities across five to ten different industries, including renewable energy, forestry, low-carbon agriculture, such as the government’s 1-million-ha high-quality rice initiative, and waste treatment technologies.

Vietnam also enjoys a unique advantage through its pool of domestic experts with more than two decades of experience under the Clean Development Mechanism (CDM). This workforce has deep expertise in baseline methodologies and MRV systems, allowing the country to develop projects independently without relying heavily on costly international consultants.

Among these sectors, forestry stands out as particularly promising. As a partner in the Lowering Emissions by Accelerating Forest Finance (LEAF) Coalition, the UK Government has been working closely with the MAE. “We are very hopeful that Vietnam will take another major step forward on forest carbon credit mechanisms next month,” Mr. McBean said. “That would be a significant achievement and an opportunity to demonstrate the integrity of Vietnam’s carbon products. Vietnam certainly does not lack ambition. The challenge is maintaining this momentum and seizing the opportunity at the right moment.”