Vietnam’s emissions trading scheme ambitions got a boost last week with the government finalising legal requirements to begin quantifying carbon emissions and assigning quotas to key polluters. Here’s how its emissions trading scheme works, who it affects, and why it matters.
The Government of Vietnam issued Decree 119 last week, which looks to be one of the final pieces in Vietnam’s emissions trading scheme (ETS) puzzle.
The new regulations take effect on 1 August 2025, and essentially create the means to assess and report carbon emissions and to assign quotas to Vietnam-based polluters.
This article unpacks Vietnam’s ETS, including the changes in the new Decree, how it is expected to work, its key features, and the next steps in the implementation process.
What is Vietnam’s ETS?
Vietnam’s ETS, like similar schemes around the world, is based on a market mechanism.
Firms are allocated a fixed number of carbon credits or permits, which they can use to cover their greenhouse gas emissions. If they emit less than their allowance, they can sell the surplus; if they exceed it, they need to purchase additional permits on the open market.
This is in contrast to a carbon tax, which sets a fixed price on emissions.
Why is Vietnam building an ETS?
Vietnam is developing an ETS for a broad range of reasons.
International commitments
Vietnam’s ETS is a key component of a multi-pronged approach, to deliver on the country’s commitment, made at COP26, to achieve net-zero emissions by 2050.
It also lays the technical and legal groundwork, through monitoring, reporting, and verification systems, to track national emissions reductions in line with Vietnam’s Paris Agreement obligations.
EU Carbon Border Adjustment Mechanism (CBAM)
The EU’s CBAM puts a carbon price on imported goods (like steel, aluminium, cement, fertilisers, hydrogen, and electricity) to ensure that foreign producers face similar climate costs as EU companies covered under the EU’s ETS.
If a Vietnamese company exports covered goods (steel or cement, for example) to the EU, it must report emissions created in their manufacture.
From 2026, they must then start paying for those carbon emissions unless they’ve already paid a comparable carbon price at home, as in through Vietnam’s own ETS.
That is to say, Vietnam’s ETS could reduce CBAM costs if structured and enforced credibly.
Public health
Vietnam’s reliance on coal-fired power and heavy industry has significantly worsened air quality, particularly in major urban and industrial hubs like Hanoi, Ho Chi Minh City, and Thai Nguyen.
Vietnamese cities routinely rank among the most polluted in Southeast Asia, with air quality indexes often reaching “unhealthy” or “very unhealthy” levels.
By introducing a carbon price through the ETS, Vietnam not only addresses its global climate obligations but also incentivises cleaner industrial practices and energy use, hopefully helping to reduce some of that air pollution.
How has it been developed?
Vietnam’s ETS has been a long time coming. Beginning with the Law on Environmental Protection in 2020, there have been a series of Decrees and Decisions issued that have led to this point.
Vietnam’s ETS timeline and key features
| Regulation | Date | Purpose |
| Law on Environmental Protection | Jan 2020 | Foundation for ETS & carbon market |
| Decree 06/2022 | Jan 2022 | Sets MRV, GHG inventory, ETS framework |
| Decision 01/2022 | Jan 2022 | Identifies mandatory reporting entities |
| Decision 896/2022 | Jul 2022 | Climate strategy targets through 2050 |
| Decision 13/2024 | Oct 2024 | Expands inventory scope |
| Decision 232/2025 | Jan 2025 | Defines ETS pilot & registry design |
| Decree 119/2025 (Pilot ETS) | Jun 2025 | See below |
What does Decree 119 add to the existing structure?
Decree 119, issued last week, clarifies regulatory processes and provides the key forms and documentation required for compliance.
More importantly, however, is that it adds clear instructions and deadlines to the first two phases of the ETS.
2025–2026: The pilot program begins
The pilot program, to begin this year, will cover: select thermal power plants, iron and steel production facilities, and cement producers on a list to be issued by the Prime Minister.
These sectors will be allocated a pilot-stage quota by the Ministry of Agriculture and Environment, in coordination with the Ministry of Industry and Trade and the Ministry of Construction.
The ministries will then propose annual quotas to the Prime Minister for approval.
The deadline for these allocations will be December 31, 2025.
2027-2029: The program is expanded
From 2027 onward, the scheme enters full implementation, with emissions quotas phased in across more sectors and facilities.
Quotas will be allocated in two-year blocks.
Specifically:
- 2027–2028: First expansion – quotas to be allocated by October 31, 2027.
- 2029–2030: Second expansion – to be allocated by October 31, 2029.
Within each block, the government will set both:
- A total emissions quota for the two-year period.
- Annual quotas for each facility, that will be approved and distributed in advance.
When does carbon trading begin?
Carbon trading in Vietnam is slated to begin in 2029. However, it’s important to note that there are still a number of legislative and structural gaps that need to be addressed.
Detailed implementing regulations will need to be issued.
The Ministry of Finance and the Ministry of Natural Resources and Environment will need to detail allowance allocation, auction operations, trading procedures, and offset usage, as well as determine penalties for non-compliance or breaches.
A national registry system will need to be established.
This will need to be capable of tracking verified greenhouse gas (GHG) emissions data from covered entities, recording allocated emission quotas, and monitoring all carbon credit transactions—whether they are purchases, sales, or offset retirements.
There will need to be a technical way to manage trades.
This is expected to be facilitated through the Ho Chi Minh City Stock Exchange (HOSE).
However, the necessary trading infrastructure, including a digital platform, trading rules, and compliance safeguards, is still under development.
Summary
Vietnam’s Decree 119 is a significant step toward launching its national emissions trading scheme (ETS) with the decree laying out how emissions will be reported and quotas allocated.
That said, while the policy is ambitious and well-structured on paper, its success will hinge on whether government agencies can close the gap between what’s on paper and real-world compliance.
Moreover, whether key implementation details can be ironed out by the 2029 deadline, still remains to be seen.
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