Carbon pricing tools support emissions reduction

The introduction of the EU’s carbon border policy will be particularly crucial for Vietnamese steel companies, as they are among the top emitters of greenhouse gases domestically

Green technical barriers

On February 8, the European Parliament and the European Council announced the latest updates on the EU’s plan to implement the Carbon Border Adjustment Mechanism.

CBAM has been approved and officially took effect on May 17 this year. CBAM began a three-year transition period from October 1, 2023. After this time, the CBAM mechanism will officially take effect from January 1, 2026 and be fully operational in 2034.

CBAM is the EU’s landmark tool to fight carbon leakage and one of the central pillars of the EU’s ambitious Fit for 55 Agenda. It will equalize the price of carbon between domestic products and imports. This will ensure that the EU’s climate policies are not undermined by production relocating to countries with less ambitious green standards or by the replacement of EU products by more carbon-intensive imports. CBAM is a WTO-compatible measure that encourages global industry to embrace greener and more sustainable technologies.

Sirpa Jarvenpaa, Director of the Southeast Asia Energy Transition Partnership Program (ETP), said CBAM will directly affect Vietnamese products and exporters to the EU. Accordingly, exporters will have to ensure that products exported to the EU meet the corresponding tax rates imposed on EU manufacturers.

The scope of application of CBAM is greenhouse gases, specifically: For iron and steel it is CO₂, for aluminum it is CO₂ and PFC, for fertilizers it is CO₂ and N₂O, and for cement it is CO₂.

Vietnam has determined to apply carbon pricing tools to support the goal of reducing greenhouse gas emissions.

Mai Kim Lien, Deputy Director of the Ministry of Natural Resources and Environment’s Department of Climate Change, said that in order to reduce greenhouse gas emissions, in addition to applying advanced technology, many countries apply carbon pricing tools. Commonly-applied carbon pricing tools are carbon taxes, greenhouse gas emission quota trading systems, and carbon credit mechanisms, she added.

From October 1, steel companies exporting to the EU must adhere to the EU’s CBAM mechanism, starting with greenhouse gas emissions reporting and reduction

Carbon tax, part of environmental protection tax

Nguyen Anh Minh, national policy expert, the technical assistance project on “Impact Assessment of EU's CBAM,” said there are two options of carbon tax application – amending the draft on environmental protection fees subject to gas emissions to be approved by the Government later this year and revision of the carbon tax as part of the environmental protection tax (EPT) that the Ministry of Finance plans to submit to the relevant authority in 2026.

According to experts, if the carbon tax is integrated into the environmental protection tax, it will take about three years to legalize the relevant legal documents, while the integration of the tax into the draft decree on environmental protection fees (being consulted by the Ministry of Finance) is estimated to take only two years. Moreover, the carbon tax policy will have to be implemented soon to ensure that Vietnamese goods exported to the EU are not affected when the EU’s CBAM officially takes effect on January 1, 2026.

Axel Michaelowa, Senior Founding Partner of Perspectives Climate Group, said the CBAM tax mechanism is based on rewards and penalties. If in Vietnam, a business has already paid VND2 for the carbon tax, the remaining VND8 will have to be paid by the company when its goods are exported to the EU. The proportion of payment in Vietnam and the EU is still being discussed, he said.

Nguyen Anh Minh said he believes that there will be nothing called carbon tax but something similar would be integrated into the environmental protection tax or environmental protection fee. However, the application of the carbon tax needs a specific roadmap to ensure harmony between the interests of the state and those of businesses and tax payers.