Vietnam’s carbon market takes shape, but real test lies beyond trading

Vietnam officially launched its domestic carbon trading platform on June 29, 2026, opening the first trading session under a pilot market that will run through the end of 2028.

The Hanoi Stock Exchange operates the trading system, while the Vietnam Securities Depository and Clearing Corporation handles depository and settlement.

In the initial phase, the government allocated more than 511 million metric tons of CO2 equivalent in emissions allowances for 2025-26, including about 243 million metric tons for 2025 and 268 million metric tons for 2026. The allocation covers 92 companies in three major emitting sectors: thermal power, steel and cement.

The system is intended to establish a market-based carbon price and create financial incentives for businesses to reduce emissions and invest in cleaner technologies.

Putting a price on carbon emission

At the heart of a carbon market is a simple principle: companies that emit greenhouse gases are given a limit, and emitting beyond that limit comes at a cost.

Under Vietnam’s emerging system, companies that keep emissions below their allocated allowances can sell the surplus, while those that exceed their quotas must buy additional allowances or use eligible carbon credits within regulatory limits.

As a result, the trading mechanism effectively puts a price on each additional ton of emissions.

That changes the economics of pollution. What was once largely an external cost begins to enter corporate balance sheets and investment calculations.

For major emitters in sectors such as power, steel and cement, the question becomes whether it is cheaper to continue emitting and pay for additional allowances, or invest in technologies that reduce emissions over time.

As the emissions cap is gradually tightened, that calculation could increasingly favor investment in cleaner production.

Bao Nguyen, co-founder and managing partner of Green Transition, said a declining emissions cap and tighter benchmark quotas would steadily increase the cost of non-compliance.

“This makes capital expenditure (CapEx) in energy efficiency, process electrification, and clean technology far more financially compelling than purchasing allowances or paying penalties,” he told Tuoi Tre (Youth) online newspaper.

In that sense, the significance of carbon pricing extends beyond the trading floor. Its broader economic role is to create a price signal capable of influencing where companies put their next dollar of investment.

That price signal, however, will only work if the market is sufficiently stringent, he emphasized.

Generous quotas, widespread use of cheap offsets or weak enforcement could reduce the incentive for companies to cut their own emissions.

Where the green opportunities are

As carbon begins to enter corporate investment calculations, new opportunities are likely to emerge well beyond the buying and selling of allowances and credits.

“The biggest opportunities actually emerge before the carbon credit is generated,” said Markus Klemmer, chairman cum general director of Planetzero.earth.

He said generating credible emissions reductions requires companies to invest in new equipment, infrastructure, engineering and monitoring systems.

This could create business opportunities in renewable energy, industrial energy efficiency, waste treatment, methane reduction, sustainable agriculture, biomass utilization and biochar.

In this way, carbon finance could help turn environmental spending into a broader investment case for restructuring operations and cutting emissions.

From another viewpoint, Bao Nguyen pointed to opportunities in the systems and services supporting a credible low-carbon economy.

“The biggest opportunities lie not in transactional carbon trading, which carries inherent greenwashing risks if pursued in isolation, but in the trust, data transparency, and disclosure mechanisms required to underpin a credible low-carbon economy and, more importantly, a real organizational sustainability transformation,” he stressed.

One area is carbon data and verification. He sees growing demand for digital measurement, reporting and verification, or MRV, including automated emissions tracking, AI-driven carbon accounting and integration with international reporting systems.

The need for reliable emissions data could also expand demand for ESG disclosure and independent assurance, as companies face greater scrutiny from investors, business partners and international buyers.

Finance is another potential growth area. Bao said financial institutions could expand green bonds and sustainability-linked loans, alongside advisory services that help companies develop transition plans and meet disclosure requirements.

The risk of paper compliance

A carbon market, however, does not automatically translate into lower emissions.

Bao Nguyen warned that the system could instead encourage “paper compliance” if companies are allowed to meet too much of their obligations through generous allowances or low-cost carbon credits without making meaningful changes to their operations.

He said strict limits on offset use would be needed to prevent credits from becoming a substitute for direct decarbonization. Companies should prioritize cutting their own Scope 1 and Scope 2 emissions, with credits reserved mainly for residual, hard-to-abate emissions.

Without such safeguards, Bao said companies could continue business-as-usual emissions while buying cheap or poorly verified offsets, effectively turning carbon pricing into a “fee for the right to pollute.”

Markus Klemmer shared the concern from the perspective of the carbon price signal, saying the mechanism only works if the carbon constraint is meaningful.

“If emission allowances are too generous, the carbon price signal may be too weak to influence investment decisions,” he said.

Companies could then continue using existing technologies because there would be little economic reason to change.

A well-designed market creates a different dynamic, Klemmer said, giving companies a choice between bearing the cost of higher emissions and investing to reduce them. Those that invest early could lower their future exposure to carbon costs while improving resource efficiency and preparing for increasingly demanding international markets.

For Bao, the challenge is therefore to ensure that carbon pricing directs capital toward real operational decarbonization rather than speculative or superficial offsetting. Otherwise, the market risks rewarding compliance on paper without delivering the industrial transformation needed to cut emissions.

The real test: investment and competitiveness

The real test for Vietnam’s carbon market could come after the pilot phase, when carbon pricing begins to exert greater pressure on corporate investment decisions.

Bao Nguyen said stronger market signals are likely to emerge from 2029 as free allowances contract and quota auctioning begins.

“This is where the market will face its true test: whether heavy emitters are forced to commit CapEx to direct operational decarbonization or whether they attempt to exploit regulatory loopholes,” he said.

Where that investment goes will also matter.

Bao noted that capital could naturally favor high-return energy projects, potentially leaving non-energy carbon projects such as community forestry and agriculture with less funding unless targeted policy incentives are provided.

For exporters, decarbonization is also increasingly linked to market access.

Bao said paying for carbon domestically and demonstrating lower emissions intensity could help protect export revenue against mechanisms such as the EU’s Carbon Border Adjustment Mechanism, or CBAM.

Markus, meanwhile, expects Vietnam’s carbon market to develop gradually rather than transform the economy overnight.

Once a credible foundation is established, he said carbon pricing could create a broader economic cycle in which “carbon constraints encourage investment; investment reduces emissions; reduced emissions improve competitiveness; and the resulting market creates further demand for low-carbon technologies and services.”

Klemmer was also cautious about overstating the market’s ability to attract foreign investment.

“I would be careful about saying that the carbon market itself will suddenly attract foreign investment,” he said.

Rather, he sees it as one part of Vietnam’s investment environment, giving businesses and investors a clearer signal that carbon management is becoming part of the country’s economic framework.

Companies that invest in efficient, low-emission production could consequently be better positioned for international customers and supply chains demanding lower-carbon products and transparent emissions data.

Bao similarly argued that carbon trading should remain secondary to deeper structural reforms, including Power Development Plan 8 implementation, grid modernization and direct industrial electrification.

Ultimately, he said, the market’s success should not be measured by the volume of carbon credits generated or traded, but by whether it drives industries and supply chains to achieve real-world emissions reductions.

For Markus, the carbon market is therefore “an important enabling mechanism rather than the solution by itself,” one that can help steer investment toward lower emissions as Vietnam pursues its 2050 net-zero target.