CARBON CREDIT

Things to know about Carbon credits

Carbon credit is a term established with the aim of reducing emissions. Carbon markets are considered a key tool for reducing carbon emissions globally and are growing rapidly in terms of trading market share and participating institutions.

1. What are carbon credits?

Carbon credits are the general term for tradable credits or permits representing 1 ton of carbon dioxide (CO2) or the mass of another greenhouse gas equivalent to 1 ton of CO2 (tCO2e). Trading CO2 emissions or carbon trading on the market is done through credits.

2. Who buys and sells carbon credits as commodities?

Every factory and manufacturing company emits a certain amount of CO2 into the air. If they exceed the prescribed level, they must buy additional carbon credits. Conversely, if a business generates actual emissions lower than its limit, that business can sell the unused credits to a company. Other enterprises whose emissions exceed the limit.

Example:

Company A has a limit of 100 tons of CO2 emissions but only emits 70 tons, so there will be an excess of 30 credits, while company B also has a limit of 100 tons of CO2 emissions but emits 130 tons. Thus, company B can buy 30 additional credits from company A to comply with the State's regulations on environmental protection.

The ultimate goal of establishing carbon credits is to reduce greenhouse gas emissions and enhance sustainable economic development and join hands in the fight against harsh climate change.

Cut emissions to protect the environment (Illustration)

There are two main types of carbon markets: mandatory carbon markets and voluntary carbon markets

After the Kyoto Protocol, carbon markets have developed strongly in European, American and Asian countries. There are two main types of markets:

- Mandatory carbon market: a market where carbon trading is based on the commitments of countries in the United Nations Framework Convention on Climate Change (UNFCCC) to achieve the goal target to reduce greenhouse gases. This market is mandatory and is mainly for projects in the clean development mechanism (CDM), Sustainable Development Mechanism (SDM) or joint implementation (JI).
- Voluntary carbon market/Voluntary carbon market: based on bilateral or multilateral cooperation agreements between organizations, companies or countries. Credit purchasers engage in transactions on a voluntary basis to meet environmental, social and corporate governance (ESG) policies to reduce their carbon footprint.

Major carbon markets in the world

The first international emissions trading market is the European Union's, operating since 2005. This is the most important policy tool of the European Union to respond to climate change and enforce its commitments. concluded in the former Kyoto Protocol and later the Paris Agreement on climate change. This market accounts for about 45% of total European emissions and about three-quarters of the global carbon emissions market.

China began to mention building a carbon market in its Socio-Economic Development Plan for the period 2011 - 2015 and then conducted large-scale pilots in regions and cities with diverse economic levels. different forms. On July 16, 2021, the Chinese carbon exchange market officially operated to achieve the goal of carbon neutrality by 2060.

Vietnam: Pilot operation of carbon credit trading platform from 2025

On January 7, 2022, the Government issued Decree 06/2022/ND-CP regulating greenhouse gas emissions mitigation and ozone layer protection. This Decree has specific regulations on the development roadmap and timing of implementing the domestic carbon market. In particular, the period until the end of 2027 will: Develop regulations for carbon credit management, exchange activities for greenhouse gas emissions quotas and carbon credits; develop regulations for operating the carbon credit exchange; Pilot implementation of the carbon credit exchange and offset mechanism in potential areas and guide the implementation of the domestic and international carbon credit exchange and offset mechanism in accordance with the provisions of law and regulations. international conventions to which the Socialist Republic of Vietnam is a member; Establish and organize pilot operation of a carbon credit exchange from 2025; Implement capacity building activities and raise awareness about carbon market development.

From 2028, it will: Organize the operation of an official carbon credit exchange in 2028; Regulating activities connecting and exchanging domestic carbon credits with regional and world carbon markets.

Green Energy Asia's carbon credit exchange will help centralize, transparently and improve the efficiency of transactions related to carbon credits.