Vietnam Pilots Greenhouse Gas Emission Quota Allocation: A Major Step Toward Delivering Net Zero Commitments and Building a Domestic Carbon Market

Vietnam’s pilot allocation of greenhouse gas (GHG) emission quotas for the 2025–2026 period marks the country’s first implementation of a national cap-and-trade mechanism. More than a technical regulatory measure for high-emission industries, it represents a significant transition from policy commitments to concrete action in achieving the national goal of net-zero emissions by 2050.

Building a Comprehensive Legal Framework from the Law on Environmental Protection to Emission Quota Allocation

The regulation on greenhouse gas emission quota allocation is not an isolated policy but the result of several years of continuous legal development in Vietnam’s climate governance framework.

The foundation was established under the 2020 Law on Environmental Protection, which, for the first time, introduced provisions on the establishment of a domestic carbon market, greenhouse gas inventories, emission reduction obligations, and the allocation of emission quotas to major emitting facilities.

Building upon this legal basis, Decree No. 06/2022/ND-CP on greenhouse gas emission mitigation and ozone layer protection created Vietnam’s first comprehensive framework governing greenhouse gas inventories, the Measurement, Reporting and Verification (MRV) system, and the roadmap for establishing a domestic carbon market. In 2025, the decree was further amended and supplemented to strengthen the legal basis for quota allocation and emissions trading.

The next milestone came with Decision No. 263/QD-TTg, under which the Prime Minister approved the total pilot greenhouse gas emission quota for the 2025–2026 period. Based on this national cap, the Ministry of Agriculture and Environment subsequently issued Decision No. 699/QD-BNNMT, allocating specific emission quotas to individual facilities in three carbon-intensive sectors: thermal power generation, cement production, and steel manufacturing.

According to the Ministry of Agriculture and Environment, this marks an important shift from macro-level policy formulation to facility-level implementation while laying the foundation for Vietnam’s primary carbon market through a free allocation mechanism during the pilot phase, allowing businesses to familiarize themselves with emissions management requirements.

Emissions Data Become the Basis for Quota Allocation

According to Dr. Luong Quang Huy, Head of the Greenhouse Gas Management and Ozone Layer Protection Division under the Department of Climate Change, emission quota allocation is not based on a uniform formula but on a comprehensive analysis of verified greenhouse gas inventory data collected over multiple years.

Eligible facilities must belong to the list of mandatory greenhouse gas inventory entities, have commenced commercial operation before January 1, 2022, and possess complete data on both production output and emission intensity during the 2022–2024 period.

Beyond historical emissions, regulators also evaluate technological characteristics, emission control capabilities, and sectoral representativeness. Consequently, the pilot phase only includes coal-, oil-, and gas-fired thermal power plants, crude steel production facilities, and clinker manufacturing plants in the cement industry.

The pilot program currently covers 110 facilities operated by 92 enterprises, representing the country’s largest greenhouse gas emitters.

Vietnam Is Turning International Climate Commitments into Reality

The pilot emission quota allocation is widely regarded as one of Vietnam’s most concrete actions toward fulfilling its international climate commitments.

At the COP26 Climate Conference in 2021, Vietnam pledged to achieve net-zero greenhouse gas emissions by 2050 while joining global initiatives on methane reduction, energy transition, and the development of a low-carbon economy.

Vietnam has since submitted an updated Nationally Determined Contribution (NDC), raising its domestic emission reduction targets while setting more ambitious goals contingent upon international financial and technological support. Meanwhile, the National Strategy on Climate Change to 2050 identifies the carbon market as one of the country’s key economic instruments for achieving long-term emission reduction objectives.

According to the Government’s roadmap, Vietnam will continue developing the technical infrastructure, emissions registry, trading platform, and monitoring mechanisms through 2028 before officially launching a fully operational domestic carbon market.

Many climate policy experts believe that beginning with free allocation during the pilot phase follows the same approach adopted by mature carbon markets such as the European Union Emissions Trading System (EU ETS) and the Korean Emissions Trading Scheme (K-ETS). This phased approach allows businesses to gradually adapt to carbon pricing before the government transitions toward auction-based allocation or progressively tighter emission caps.

Shared Responsibilities Across Government Agencies

During the pilot phase, the Ministry of Agriculture and Environment serves as the central coordinating authority, responsible for allocating emission quotas, providing implementation guidance, monitoring compliance, and evaluating the overall effectiveness of the pilot program to support future policy refinement.

Meanwhile, the Ministry of Industry and Trade and the Ministry of Construction oversee facilities within their respective sectors, supervise greenhouse gas inventory implementation, verify emissions data, and assist enterprises in adopting emission reduction technologies and management practices.

The list of facilities required to conduct greenhouse gas inventories will continue to be reviewed and updated every two years. As a result, the scope of regulated entities is expected to expand progressively as more enterprises exceed the prescribed emission thresholds.

A Strong Signal for Vietnam’s Low-Carbon Economic Transition

Climate policy experts emphasize that greenhouse gas emission quota allocation is intended not only to regulate emissions but also to create market signals that influence corporate investment decisions.

Once carbon emissions carry an economic value through a functioning carbon market, businesses gain stronger incentives to invest in energy-efficient technologies, adopt cleaner fuels, improve production efficiency, and develop emission reduction projects.

For Vietnam, the establishment of an emission quota system also helps domestic manufacturers prepare for increasingly stringent international requirements, including the European Union’s Carbon Border Adjustment Mechanism (CBAM), while strengthening their competitiveness within global supply chains that increasingly favor low-carbon products.

The 2025–2026 pilot phase is therefore widely viewed as a critical testing ground before Vietnam’s carbon market enters full-scale operation. More importantly, it marks the country’s transition from climate commitments on paper to a market-based emissions management system built upon verified data, transparent regulation, and practical implementation.

Source: Compiled from the Ministry of Agriculture and Environment, the Department of Climate Change, Government of Vietnam documents, and public policy materials.

Disclaimer: All information provided in this article is intended for informational purposes only. Readers and investors are encouraged to conduct their own due diligence and consult qualified professionals before making any investment or business decisions.