Carbon markets open new financing opportunities for Viet Nam’s forestry sector

Principles for pricing forest carbon

Shortly afterwards, Government Decree 180 on forest carbon sequestration and storage services was issued on May 21 and took effect on July 15. Under the decree, businesses may purchase forest carbon credits to offset greenhouse gas emissions. It sets out the principles, mechanisms and contract terms governing the provision and use of forest environmental services, the registration of forest carbon projects, and carbon credit trading.

Decree 112, meanwhile, opens access to payments from international carbon markets. With the legal framework now in place, many localities and domestic businesses have shown considerable interest in forest carbon credit projects, which are also seen as a new avenue for developing local forest economies.

Assessing the impact of the new policies, Dr Nguyen Phuong Nam, General Director of Klinova Climate Innovation Consulting and Services, said the current legal framework has created favourable conditions for forest carbon projects.

“Forest carbon projects now have a legal framework that allows them to transfer up to 90% of their credits to international markets. Projects that use technologies on the high-tech list or require substantial investment are also given priority for the maximum transfer rate, in order to attract foreign investment,” he said.

However, businesses need to establish clear models for commercialising their credits and register with the national registry to avoid overlaps and enhance their commercial value.

Currently, there are two payment arrangements: direct payments and payments through an entrustment mechanism administered by the Viet Nam Forest Protection and Development Fund (VNFF). The fund acts as an intermediary that receives, manages, regulates and allocates funds in line with the law.

Under the VNFF mechanism, most of the revenue generated from carbon credit sales or forest environmental services must be reinvested directly in forest management, protection and development.

A share is allocated to support local communities and households contracted to protect forests. Another share covers the costs of additional activities essential to carbon projects, including preparing project documentation, registration and reporting.

Dr Vu Tan Phuong, Director of the Viet Nam Forest Certification Centre, said forest carbon credits are issued only when businesses can demonstrate an actual increase in carbon stocks compared with the projected baseline.

He noted that some organisations are seeking to carry out silvicultural measures under forest carbon projects, such as converting short-rotation timber plantations into long-rotation plantations that produce large-diameter timber, improving cultivation and post-harvest replanting techniques, or integrating trees into agricultural land or perennial crop plantations.

Such measures must produce a clear increase in biomass or reduction in emissions to generate carbon benefits. Forest owners must have their projects validated by an independent ISO-accredited body before applying for carbon credits through the national system.

From passive compliance to proactive leadership

Under current regulations and guidelines, there is no single fixed price for forest carbon credits across all forests. The selling price depends on the actual cost of generating the credits, the quality of the forest carbon project, its ability to maintain carbon stocks over the long term and current market trading conditions.

In practice, businesses that directly manage large areas of woody perennial crops still face considerable difficulties accessing carbon markets.

Hoang Bao Luan, Deputy Director of the Science and Technology Division at Dong Nai Rubber Corporation, said: “Carbon credits are real, but for the rubber and forestry sectors they offer no easy opportunity to generate revenue in the short term.”

One of the biggest obstacles is the legal status of entities that lease land for perennial crops when they register projects. Changes in land-use planning for urban areas and infrastructure also pose significant risks to commitments to maintain projects for eight to ten years.

Businesses have called on the Ministry of Agriculture and Environment to issue specific technical guidelines and create mechanisms for bundling large-scale projects to reduce consultancy costs.

The regulatory framework for state management of forest carbon is now set out in Decree 180.

In addition, Circular 31, issued by the Ministry of Agriculture and Environment on July 15, sets out for the first time detailed methods for determining payment levels for forest carbon sequestration and storage services, and provides guidance on forest valuation methods and on establishing forest price frameworks.

These regulations set specific conditions for both credit suppliers and users to ensure transparency.

Vu Thi Thu Thuy, a specialist from the Department of Forestry and Forest Protection under the Ministry of Agriculture and Environment, said: “Most of the revenue from forest carbon credit transfers must be reinvested in forest protection and development, and in payments to communities.”

The authorities will also strictly control the share of each project’s credits that may be traded internationally, to ensure that national targets under Viet Nam’s Nationally Determined Contributions on climate action are met.

Forest owners must apply the method for determining forest carbon credit payment levels set out in Circular 31 before conducting market transactions for forests under public ownership as defined by the 2017 Law on Forestry. These include natural forests; planted forests established with state budget funds, whether through projects or science and technology tasks; and planted forests transferred to the State.

Assessing the prospects of the agriculture and forestry sectors for earning carbon credit revenue, Dr To Xuan Phuc of the Agricultural and Forestry Policy Research Network said: “The forestry sector needs to move from passive compliance to proactive leadership of the value chain through standardised carbon data and sustainable forest governance.”

Phuc added that carbon credit revenue should be seen as an additional financial benefit rather than the sole objective of forest owners.

He said the transition to low-emission production must be grounded in protecting forest ecosystems and community livelihoods.

Combining carbon trading with the development of brands for green products can create lasting competitive advantages for Viet Nam’s forestry sector.