INTRODUCTION
Background
Climate change has emerged as a critical global issue, with the adoption of the Kyoto Protocol in 1997 marking a significant milestone in international efforts to mitigate greenhouse gas emissions This historic agreement established the first global framework for reducing GHGs and introduced three flexible mechanisms designed to facilitate cost-effective emission reductions, ultimately leading to the creation of the international carbon market.
The Clean Development Mechanism (CDM) is a key flexible mechanism under the Kyoto Protocol (KP) that enables Annex I countries to fulfill their emission reduction commitments by purchasing Certified Emission Reductions (CERs) from projects in non-Annex I countries, primarily developing nations This approach not only helps Annex I countries meet their climate goals but also promotes sustainable development in the host countries.
The KP entered into force on 16 February 2005, its first commitment period was from
2008 – 2012 During the first commitment period, conflicts on responsibility of emissions reduction targets between countries had been increasing In Doha, Qatar on
8 December 2012, the Doha Amendment to the KP was adopted for the second commitment period from 2013 to 2020, however it was not entered into force due to not enough countries ratified
The Paris Agreement (PA), adopted at the 21st Conference of Parties to the United Nations Framework Convention on Climate Change (COP 21), is a legally binding international treaty on climate change This landmark agreement was reached through the consensus of 196 parties, reflecting the international community's commitment to finding alternative solutions to the Kyoto Protocol (KP).
The Paris Agreement (PA) 2015, effective from November 4, 2016, aims to limit global temperature rise to well below 2°C, with a goal of restricting the increase to 1.5°C above pre-industrial levels Each country's commitment to reducing national emissions is outlined in their Nationally Determined Contributions (NDCs).
2 and adapt to climate change, which are considered as the core of the PA to achieve these long-term goals
Article 6 of the PA provides two international carbon markets for Parties to achieve their NDCs (Gao et al., 2019) Article 6.2 establishes cooperative approaches in the form of bottom-up bilateral or multilateral agreements while Article 6.4 provides a centralized mechanism, both to help Parties to trade ―emission reductions‖ or
To achieve their Nationally Determined Contributions (NDCs), countries can realize effective mitigation outcomes by implementing a strong accounting framework Article 6.4 is considered a successor to the Clean Development Mechanism (CDM), as it shares similar procedures (Mele et al., 2021) Additionally, projects initiated under the Kyoto Protocol's CDM can be transitioned to the Article 6.4 mechanism (A6.4M) if specific conditions are met.
CDM projects created under the Kyoto Protocol will evolve under Article 6 of the Paris Agreement, emphasizing trust building, the preservation of existing knowledge, and encouraging new mitigation activities.
The Kyoto Protocol (KP) and the Paris Agreement (PA) are distinct agreements, and as such, Clean Development Mechanism (CDM) activities cannot be directly transitioned to Article 6 Additionally, the sustainability development (SD) and environmental integrity requirements outlined in Article 6 are more intricate than those established under the KP Consequently, it is essential to thoroughly and carefully evaluate the criteria for the transition of CDM activities.
1.1.2 The necessity of the research
Over the last two decades, Vietnam has been a proactive participant in global efforts to combat climate change The country signed the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 and ratified it on November 16, 1994 Subsequently, Vietnam signed the Kyoto Protocol (KP) in 1998 and ratified it in 2002, aligning itself as a Non-Annex I party eligible for international financial support through the Clean Development Mechanism (CDM).
In 2015, the Parties reached the Paris Agreement (PA) to enhance and replace the Kyoto Protocol (KP) Vietnam ratified the PA on October 31, 2016, and has since submitted three Nationally Determined Contributions (NDCs) The most recent NDC, submitted on November 8, 2022, reflects an increased emission reduction target that is over 1.5 times higher than its predecessor.
In 2020, Vietnam committed to achieving a net-zero target by 2050, aiming to reduce its greenhouse gas (GHG) emissions by 15.8% compared to the Business-as-Usual (BAU) scenario by 2030 using domestic resources With international support through bilateral and multilateral cooperation, this reduction could increase to 43.5%, highlighting the importance of collaborative efforts and new mechanisms in addressing climate change.
PA (The Socialist Republic of Viet Nam, 2022)
Vietnam has successfully participated in the CDM under the KP As of December
In 2022, Vietnam ranked fourth globally for the number of registered Clean Development Mechanism (CDM) projects, with 258 project activities (PAs) and 16 programmes of activities (PoAs) The country has issued a total of 30,959,918 Certified Emission Reductions (CERs) from 82 registered PAs and 3 registered PoAs, positioning it fifth worldwide in terms of expected CERs, according to UNEP DTU.
The recent COPs 26 and 27 have established general rules for transitioning CDM activities to Article 6.4 of the Paris Agreement; however, host Parties play a crucial role in developing specific criteria tailored to their national context, NDC commitments, and sector development priorities Various transition pathways can be explored, including full transition, conditional transition based on factors like registration date and project type, stricter transition criteria involving technology type and Sustainable Development Goals achieved, or even opting for no transition at all.
CDM activities must submit their transition requests to the secretariat and the designated national authority (DNA) by December 31, 2023 If the DNA approves the transition, it must notify the Supervisory Body (SB) by December 31, 2025 The SB, appointed by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA), oversees Article 6.4 under its authority and guidance.
With such large number of CDM projects, it is thus necessary for Vietnam to incentivize and develop in-country regulations related to selection and approval of h
The transition process to A6.4M of the PA involves four existing projects that enhance investor trust in the international carbon market This initiative not only expands investment opportunities in potential emission reduction projects but also attracts essential resources to meet national NDC targets.
Research question and hypothesis
The research aims to identify transition criteria and potential carbon projects that align with Article 6.4 of the Paris Agreement and Vietnam's Nationally Determined Contributions (NDC) To achieve these objectives, the study will explore the questions and hypotheses outlined in Table 1.1.
Table 1.1 Research questions and hypothesis
What are lessons learned from implementation of
Lessons learned from implementation of CDM projects can be assessed in two aspects: policy gaps; and advantages and barriers
What are improved requirements of Article 6.4 of PA compared with
The improved requirement of Article 6.4 could relate to context, objectives or elements of mechanisms
What scenarios will be determined to select the
CDM projects that will be transferred to A6.4M and contribute to NDC?
Scenarios could be developed based on different transition criteria Criteria may have some limitations of registration date, active crediting period, project type, project scale, abatement cost, SDG goals, etc.
Research objectives and tasks
Table 1.2 Research objectives and tasks
Overall: To determine the CDM transition scenarios to Article 6 mechanism of the PA and Vietnam NDC
O1 To review the legal framework and status of CDM project in
T1 To review the existing policy framework supporting the development of CDM projects h
Vietnam T2 To review and evaluate existing and potential CDM projects in Vietnam
T3 To identify national and international stakeholders in the project implementation process and identify advantage and barrier when implementing projects/sector
Article 6.4 of the PA and identify potential sectors and types of projects that might be included in the to-be-designed domestic ETS and
T4 To examine the requirements in Article 6.4 of the PA on the use of carbon credits
T5 To research and identify potential sectors and types of projects for the to-be-designed domestic ETS
O3 Develop scenarios for CDM project transition to the new mechanism
T7 To develop scenarios for project transition to the new mechanism
Objects and scope of the research
The existing and potential CDM projects in Vietnam and in the world
Study scope: Carbon credits from CDM projects
Duration: 12 months (from May 2022- May 2023).
Research framework
The research framework is employed as Figure 1.1: h
Literature review
Recent agreements at COPs 26 and 27 have established approaches for transitioning the Clean Development Mechanism (CDM) to a new framework; however, international research remains limited to theoretical discussions and criteria-setting for this conversion Notably, there is a lack of similar research conducted within Vietnam.
1.6.1 History of the climate negotiations
The main climate negotiations which link directly to CDM and Article 6.4 are presented to provide a general picture of the relationship of two mechanisms
For many years, climate change was perceived as a natural occurrence However, the United Nations Framework Convention on Climate Change (UNFCCC), established in 1992 during the Rio Earth Summit, marked the first global agreement recognizing the significant influence of human activities on climate change This landmark convention aimed to mitigate and address the challenges posed by global warming, emphasizing the need for collective action.
The principle of "Common but Differentiated Responsibilities" (CBDR) recognizes that while combating climate change is a collective obligation, developed nations bear a greater responsibility to spearhead climate action due to their significant historical contributions to greenhouse gas emissions.
The Kyoto Protocol (KP), adopted in 1997 and linked to the UNFCCC, became effective in 2005 after 55 countries, representing at least 55% of global emissions, ratified it The protocol's first commitment period, from 2008 to 2012, mandated a 5% reduction in greenhouse gas (GHG) emissions from 1990 levels for 37 industrialized nations, economies in transition, and the European Union To facilitate these targets cost-effectively, the KP introduced three flexible market-based mechanisms for trading GHG emissions among countries and companies.
Joint Implementation (JI): The mechanism allows to trade emission reduction units h
(ERUs) from relevant projects between countries with emission reductions or limitation commitments (Annex B party) under the KP towards meeting its Kyoto target
International Emission Trading (ET) enables countries with commitments under the Kyoto Protocol (KP) to trade emission units Annex B Parties have established specific targets for limiting or reducing their emissions, which are quantified as assigned amounts This mechanism allows countries with surplus emission units—those that have emissions allocated to them but not utilized—to sell their excess allowances to other nations, promoting cost-effective emission reductions globally.
"used" - to sell this excess capacity to countries that are over their targets
The Clean Development Mechanism (CDM) enables countries committed to reducing their emissions under the Kyoto Protocol to implement emission reduction projects in developing nations These initiatives allow them to count the resulting emission reductions toward their own climate goals.
The Clean Development Mechanism (CDM) actively involves developing countries, including Vietnam, in implementing mitigation projects and transferring Certified Emission Reductions (CERs) to developed nations This mechanism aims to reduce compliance costs for Annex I countries in meeting their greenhouse gas (GHG) emission targets while simultaneously supporting non-Annex I countries in achieving sustainable development (SD) (Paulsson, 2009).
On December 8, 2012, the Doha Amendment to the Kyoto Protocol was adopted in Doha, Qatar, initiating a second commitment period from 2013 to 2020, though several key developed countries chose not to participate This lack of involvement, along with a growing reluctance among many nations to engage in the Clean Development Mechanism (CDM), led to a significant decline in Certified Emission Reduction (CER) prices and hindered the development of new projects The amendment only came into effect on December 31, 2020, after the necessary threshold of 144 countries had ratified it.
The late implementation of the Kyoto Protocol's second commitment period signals a strong international commitment to combat climate change through multilateral cooperation This advancement allows for the accounting of emission-limitation commitments and enables the compliance committee to effectively perform its legal functions (UNFCCC, 2020).
The PA, a successor agreement to the KP for post-2020 period, was officially adopted by the 196 parties at the COP 21 in Paris in 2015 and entered into force on 4 h
In November 2016, the Paris Agreement aimed to limit global warming to well below 2°C, ideally to 1.5°C above pre-industrial levels While it maintains the principle of "common but differentiated responsibilities," the Agreement emphasizes voluntary contributions, eliminating the distinction between developed and developing nations regarding mitigation efforts.
The Paris Agreement (PA) employs a bottom-up strategy, allowing each country to define its emissions reduction contributions, in contrast to the previous top-down method of the Kyoto Protocol (KP) Article 4 mandates that each Party must prepare, communicate, and uphold successive Nationally Determined Contributions (NDCs) that demonstrate their highest ambition while implementing domestic mitigation measures to meet their climate objectives.
The Paris Agreement emphasizes the significance of cooperative mechanisms for countries to fulfill their Nationally Determined Contributions (NDCs) It outlines three key approaches: first, bottom-up bilateral or multilateral agreements without international oversight under Article 6.2, which focuses on market-based mechanisms; second, a centralized approach to enhance mitigation and sustainable development under Article 6.4, also utilizing market-based mechanisms; and third, non-market approaches under Article 6.8 aimed at addressing mitigation, adaptation, finance, capacity building, and technology transfer.
Article 6.4 serves as a centralized mechanism managed by the Article 6.4 Supervisory Body (A6.4SB), recognized as a successor to the Clean Development Mechanism (CDM) Recent agreements on transitioning CDM activities to Article 6.4 were established during COP 26 in 2021 and COP 27 in 2022.
1.6.2 The principle of CDM and Article 6.4
The key design elements and principles of carbon crediting mechanisms encompass six critical dimensions: governance and accounting, scope and eligibility, monitoring, reporting, and verification (MRV), maintaining environmental integrity, ensuring sustainable development (SD), and establishing connections with other policies These principles are essential for the effective implementation of mechanisms like the Clean Development Mechanism (CDM) (Axel Michaelowa et al., 2019).
The basic principle of CDM is illustrated in the Error! Reference source not found.:
Figure 1.2 Outline of the CDM
Governance structure is required to maintain and operate carbon crediting schemes Governance of CDM includes governance body, validation and verification procedures, supervision and accounting and registries
The CDM operates under a centralized governance model, managed by the CDM Executive Board (CDM EB), which reports directly to the UNFCCC's Conference of Parties and the Meeting of Parties to the GHG Comprising ten members from both industrialized and developing nations, elected at COP-7, the CDM EB holds the authority to approve registrations, issue credits, and establish baseline and monitoring methodologies, as well as oversee the transaction of Certified Emission Reductions (CERs).
METHODOLOGY
General approaches
To establish transition criteria for CDM activities under A6.4, it is essential to assess the international and national contexts, along with the current status of CDM projects in Vietnam, including their advantages and implementation barriers This research utilizes both top-down and bottom-up approaches (Paul A Sabatier, 1986), as well as quantitative and qualitative methods (C.R Kothari, 2016).
The top-down approach is essential in policy research, providing a comprehensive understanding of the broader context surrounding policy issues This method offers a macro-level perspective, enabling researchers to grasp the overall landscape of the carbon market and identify critical aspects and major issues Additionally, it highlights international commitments and the policy framework necessary for implementing Clean Development Mechanism (CDM) projects, as well as strategies for sustainable development in various sectors of Vietnam Ultimately, this approach establishes the legal basis for determining the criteria for transformed CDM projects.
The reliance on a top-down approach in CDM projects may result in the absence of unique characteristics within the portfolio and insufficient engagement from stakeholders directly impacted by the mechanism To address these shortcomings, a bottom-up approach is implemented to fill the gaps left by the top-down strategy.
The bottom-up approach offers a thorough understanding that identifies all relevant factors, ensuring timely updates to policies and their implementation This method encourages the participation of all stakeholder groups, leading to greater acceptance of the final outcomes Consequently, utilizing the bottom-up approach in policy research is crucial for creating or proposing effective and widely accepted policies.
This bottom-up approach was applied to collect project information, identify h
36 advantages and barriers when implementing the carbon projects, and then enable the researcher to explore challenges or gaps between policies and implementation actual of projects, propose the suitable policy
The bottom-up approach emphasizes individual components, which can lead to significant efforts without a unified vision, potentially resulting in outputs that do not align with overarching goals To address this, a combination of both top-down and bottom-up approaches is utilized, allowing for the optimization of their respective strengths while mitigating the weaknesses of each method Figure 2.1 illustrates the application of these approaches in conducting this study.
Figure 2.1 Bottom-up approach and top-down approach in the research
The qualitative approach focuses on the subjective evaluation of attitudes, opinions, and behaviors, providing valuable contextual insights related to the research topic Its inherent flexibility allows for adjustments in methodology based on emerging findings throughout the research process This approach is especially beneficial for investigating relatively unexplored subjects or when existing frameworks are inadequate.
Given the novelty of the research topic, a qualitative approach was ideal for gaining a comprehensive understanding of the national context and identifying specific aspects related to project development, potentially leading to valuable insights.
The qualitative research approach emphasizes in-depth insights over broad data collection, relying heavily on subjective opinions It necessitates the researcher's flexibility and understanding to extract valuable information To mitigate the limitations of qualitative methods, researchers often incorporate official sources and gather expert opinions within the relevant field.
The quantitative approach offers statistical and objective insights into large populations, enabling researchers to draw reliable and objective conclusions This method is efficient for data analysis, requiring less time and effort, and yields quantitative results that facilitate easy comparison.
The quantitative approach was utilized to gather statistics on registered CDM projects, including a comprehensive list of projects, estimates of potential and achieved emissions reductions, and the number of potential projects categorized by sector and project type Additionally, investment parameters were analyzed The collected raw data enabled the quantification of abatement costs and potential emission reductions for each project for the period 2021 to 2030.
The limitation of the approach is lack of depth, limited contextual understanding and inflexibility in data collection The disadvantage is reduced thanks to the qualitative approach above.
Methods
In the study, five distinct methods were utilized to examine various perspectives and reveal the connections between the complex layers of research questions, as illustrated in Figure 2.2.
Figure 2.2 The approach and method utilization in this study
This article examines the international market-based mechanisms and national legal frameworks for carbon project development under the Kyoto Protocol (KP) and the Paris Agreement (PA), highlighting the current state and gaps in carbon projects in Vietnam and globally A systematic literature review was conducted, focusing on Vietnam's climate change policies and actions in relation to international requirements outlined in Article 6.4 The study included a desk review of international implementation arrangements, criteria for registering and transitioning Clean Development Mechanism (CDM) projects to Article 6.4, and relevant timelines and templates Additionally, the national context was analyzed through the legal framework, including pertinent laws and regulations, connections to national strategies and action plans, and the existing practices of carbon projects in Vietnam.
Statistical analysis was conducted using Microsoft Office Excel to gather information on registered projects in Vietnam that adhere to carbon standards and mechanisms, as well as other environmental credits This analysis includes a comprehensive list of registered projects, estimates of potential and achieved emissions reductions, and highlights their contributions to environmental sustainability.
The article discusses project sustainability, including key dates such as registration and start dates, as well as the commencement of the crediting period and the types of projects within various sectors It highlights the analysis of raw data to determine abatement costs and potential emission reductions for each project type and sector from 2021 to 2030.
Potential emission reduction (ER) for post-2021
To estimate the amount of Emission Reductions (ER) post-2021, the calculation depends on the crediting period (CP) associated with the activities There are two types of CP for Clean Development Mechanism (CDM) projects: renewable, which lasts for seven years and can be renewed twice for a maximum of 21 years, and fixed.
The migration of CDM activities to Article 6.4 allows for the issuance of A6.4ERs, which can be renewed for a maximum of five years, up to two times This framework encompasses three distinct scenarios.
The CP are fixed or expired for renewal (i.e over 1 year from the end of first crediting period), potential ERs are only estimated from 2021 to the end of CP
The CP was renewed for the second crediting period, it could be renewed for the third crediting period of 5 years under Article 6.4
The CP has not been yet renewed for the second crediting period and still eligible for renewal, it could renew twice 5 years under Article 6.4
Finally, the estimated ER value of each project in each year is summed up into potential ERs for periods of 2021 - 2030, project types and sector level
A marginal abatement cost (MAC) curve is a valuable policy tool that enables organizations and businesses to evaluate the potential for reducing greenhouse gas (GHG) emissions alongside their associated costs Increasingly utilized in various countries, MAC curves play a significant role in addressing environmental issues and are becoming integral to government climate change policies and corporate sustainability strategies.
To determine the necessary support for advancing the chosen technology within the crediting program and establishing it as a transition criterion, the calculation of Marginal Abatement Costs (MAC) is utilized The Simplified Marginal Abatement Costs, expressed in US dollars per ton of CO2 equivalent (US$/tCO2e), are computed using a specific formula.
The method for the analysis was based on calculation of the Net Present Value (NPV) of the investment following the steps below:
(i) Converting all future costs and benefits of the project to present values;
(ii) Subtracting the present values of all costs from the present values of all benefits gives the NPV of the project;
To determine the viability of an investment, assess the Net Present Value (NPV) A positive NPV indicates that the benefits exceed the costs, suggesting the project will eventually become profitable Conversely, a negative NPV signifies that the project will not recoup its costs, making it an unwise investment choice.
NPV is calculated using Excel Software with input information and assumption as follows:
Discount rate: It is assumed as 10% for comparation purpose
Project information: project lifetime, estimated annual emission reduction, capital cost, operating cost, revenue Data was taken from project development design published on the official website of CDM
A comprehensive policy analysis was undertaken to evaluate the existing policy framework and implementation requirements for Article 6, while also identifying key policy gaps The findings from this gap analysis led to the proposal of institutional arrangements, criteria, and scenarios for the effective transfer of carbon credits under Article 6.4 in Vietnam.
Given the novelty and specificity of the research topic, consulting experts in international climate policy and the Clean Development Mechanism (CDM) is essential Their insights will provide valuable input on institutional policies related to Vietnam's Nationally Determined Contributions (NDC), the Paris Agreement (PA), and the carbon market at both the sectoral and national levels.
Semi-structured expert interviews were carried out with key stakeholders involved in the project implementation process throughout its entire cycle A stakeholder mapping exercise was conducted to identify essential stakeholder groups, including project owners.
41 project developers, validation and verification body, carbon credits buyers
Figure 2.3 presents a general carbon project cycle and relevant national and international stakeholders:
Figure 2.3 CDM project cycle and relevant stakeholders
Tailored questionnaires were developed for each stakeholder group to evaluate international interests in various sectors from Vietnam and to identify the advantages and disadvantages of transitioning CDM projects to a new mechanism The design focused on the purpose, content, and specific interviewees targeted for insights.
Table 2.1 Purposes, key questions and targeted interviewees
Q1: In which sectors has your entity/organization developed/ consulted the implementation of CDM projects?
Purpose Key questions Interviewees mechanisms/standards and/or activities related to emission reduction has your entity/organization participated in?
Determine advantages and barriers when implementing the
Q1: Which project types were implemented?
Q2: What is motivation to promote the organization participating in the CDM?
Q3: What are advantages and barriers and lesson learnt when implementing the projects?
Project owner/developer Validation/ verification body
Which types of sectors are the buyers interested in?
Q1: Which project type was the organization purchased?
Q2: What is the purpose of buying carbon credit?
Q3: Which aspect is considered for making decision of carbon credit purchase?
Criteria for selection of projects contributing to the
NDC, projects that can be converted and registered under
Q1: What criteria should be set in your opinion to convert CDM projects to the new credit mechanism under Article 6 of the PA? Which is transition scenario preferred?
Q2: What approach should be taken to ensure that carbon projects contribute to Vietnam's NDC goals?
Q1: Recommendation for criteria of CDM transition to Article 6.4
Q2: Other policies to overcome barriers when implementing the carbon credit project
Data collection
An interview was conducted with key national and international stakeholders, including project owners, consultants, and carbon credit buyers, to gather insights on project information, assess global interests, and identify potential advantages and barriers to project implementation The contributions from national experts across various roles and countries serve to enhance and fortify the analysis.
Data on all registered CDM projects can be obtained from the official CDM mechanism website This data encompasses a comprehensive list of projects, along with estimates of both potential and actual emissions reductions Additionally, it includes crucial details such as registration dates, project start dates, crediting period commencement, sectoral project types, and financial metrics like Capital Expenditure (CAPEX) and Operating Expenditure (OPEX).
RESULTS AND DISCUSSION
Overview on development of CDM projects in Vietnam
3.1.1 Historical development and current status of CDM projects in Vietnam
Vietnam has initiated the implementation of CDM projects; however, the progress has been relatively slow compared to other Southeast Asian developing countries Figure 3.1 illustrates the development of CDM projects across Southeast Asia.
Figure 3.1 Development progress of CDM projects in Vietnam
Source: Elaborated from CDM - Database for PAs and PoAs
In 2004, Vietnam received approval for two projects from the Designated National Authority (DNA), including the Rang Dong Oil Field Associated Gas Recovery and Utilization Project and the Song Muc Hydro Power Station Regeneration Project (2 MW) These projects were subsequently registered with the Clean Development Mechanism (CDM) in 2006 (Nhan T Nguyen et al., 2010).
Vietnam has significant potential for Clean Development Mechanism (CDM) projects, particularly in renewable energy, including small-scale hydropower and wind power, as well as biomass, biogas, waste management, fossil fuel switching, and energy efficiency in both industrial and building sectors However, as of the end of 2009, the number of registered CDM projects remains limited, with only 20 projects registered cumulatively.
Nu m b er o f reg is ter ed p ro jec ts
Development of CDM projects in Southeast Asia
Indonesia Cambodia Laos Myanmar Malaysia
December 2009, Vietnam has only 20 registered CDM projects, while there are 78, 42,
As of 2022, Malaysia, Indonesia, the Philippines, and Thailand have registered 40 and 30 projects, respectively, according to UNEP DTU The limited number of registered projects at this early stage can be attributed to regulatory barriers, including a lengthy Letter of Approval (LoA) issuance process that takes approximately 4-6 months Additionally, there is a lack of awareness regarding the potential of the Clean Development Mechanism (CDM) among enterprises, private sectors, public entities, and NGOs (Nhan T Nguyen et al., 2010).
The period from 2011 to 2012 marked a significant surge in registered projects in Vietnam, with a total of 205 projects registered within just two years This increase can be attributed to the rapid growth of projects in the pipeline from previous years, valuable experiences gained during the initial testing phase, enhancements in CDM rules, and the looming registration deadline at the end of 2012 under the first commitment period of the Kyoto Protocol However, following this peak, the number of registered projects sharply declined, with only 23 projects registered thereafter.
Between 2013 and 2020, uncertainties surrounding future climate schemes, particularly the second commitment period of the Kyoto Protocol, coupled with the collapse of Certified Emission Reduction (CER) prices, led to a decline in registered projects globally and in Vietnam In response to the new international commitments under the Paris Agreement, the establishment of Article 6.4 Mechanism (A6.4M) aims to enhance the credibility of transitioned CDM projects and new initiatives, along with a projected increase in CER prices, serving as a crucial catalyst for revitalizing the registration of new projects.
Despite a decline in new projects registered under the Clean Development Mechanism (CDM) after 2012, Vietnam remains a leading country in hosting and issuing Certified Emission Reductions (CERs) As of December 31, 2022, Vietnam ranks fourth globally in the total number of registered CDM projects, as illustrated in Figure 3.2.
Figure 3.2 Distribution of registered projects by Host Parties by 31/12/2022
Also, according to UNFCCC statistics as of December 31, 2022, the number of expected CERs from registered projects in Vietnam ranked fifth globally and shown as Figure 3.3
Figure 3.3 Distribution of expected CERs from registered projects by Host Parties by 31/12/2022
Distribution of registered projects by Host Party
Data as of 31 Dec 2022 Source: UNFCCC - insights
Distribution of expected CERs from registered projects by Host Party
Total expected CERs is the sum of each projects average annual reductions: 1,013,228,341 t CO2e
Data as of 31 Dec 2022 Source: UNFCCC - insights h
As of December 2022, Vietnam had 258 registered Project Activities (PAs), with hydropower leading significantly with 200 projects, accounting for 77% of the total Methane avoidance projects followed with 22 projects (8%), and biomass energy projects comprised 16 projects (6%) Among the 85 projects that received Certified Emission Reductions (CERs), hydropower maintained its dominance, issuing 16,268,074 tCO2e, which represents 56% of the total Other notable contributors included fugitive projects, such as the Rang Dong project at 8,856,673 tCO2e (31%), while landfill gas, methane avoidance, wind, solar, and biomass energy projects contributed 4%, 4%, 3%, 1%, and 1%, respectively The prominence of hydropower in Vietnam's registered projects is largely attributed to its substantial potential in small-scale hydropower development.
T Nguyen et al., 2010) and massive development of hydropower project during period 2010-2014 in Vietnam
Details on distribution of project types and issued CERs of PA is presented in Figure 3.4:
Figure 3.4 Number of projected PA by project types
Source: Elaborated based on CDM - Database for PAs and PoAs
Number of registered projects by project types
Hydro Landfill gas Methane avoidance Reforestation Solar Wind h
Figure 3.5 Volume of issued CERs of PAs by project types
Source: Elaborated based on CDM - Database for PAs and PoAs
A total of 16 Project Activities (PoAs) have been successfully registered in Vietnam, with 60 Certified Project Activities (CPAs) included Renewable energy sources represent 25% of the registered PoAs but contribute to 81% of the total issued Certified Emission Reductions (CERs), with energy-efficient household initiatives, such as improved stoves, following closely.
Figure 3.6 Number of projected PoA and volume of CERs issued by project types
Source: Elaborated based on CDM - Database for PAs and PoAs
Though large numbers of projects were developed under CDM, mostly projects have been registered when the market opportunity created by the first KP period had almost
Number of registered PoA and issued CERs by project types, thousand CERs
Share of issued CERs by project types, thousand CERs
Hydro Landfill gas Methane avoidance Reforestation Solar Wind h
49 closed, while the second commitment period has not entered into force until 31 December 2020
3.1.2 Legal framework for development of CDM projects in Vietnam a) Institutional arrangement for CDM in Vietnam
As mentioned above, the legal basis for the implementation of CDM was first developed with the Prime Minister‘s Directive No.35/2005/CT-TTg dated 17 October
In 2005, an institutional framework was established for implementing the Kyoto Protocol (KP) Following this, Decision No 47/2007/QD-TTg, issued by the Prime Minister on April 6, 2007, designated the Ministry of Natural Resources and Environment (MONRE) along with relevant ministries and local authorities to execute the KP and Clean Development Mechanism (CDM) To further operationalize these directives, the MONRE released Decision No 743/QD-BTNMT on April 20, 2009, which consolidated the Steering Committee for the Framework Convention on Climate Change and Greenhouse Gases (GHG).
As a focal point of Vietnam Government in participating and implementing UNFCCC,
The Ministry of Natural Resources and Environment (MONRE) of Vietnam has formed a Steering Committee, led by the Vice Minister, which includes 14 representatives from various ministries, agencies, and organizations This committee is tasked with supporting the MONRE Minister in the direction, management, and coordination of the United Nations Framework Convention on Climate Change (UNFCCC) and the Clean Development Mechanism (CDM) in Vietnam.
Figure 3.7 Institutional set-up for CDM in Vietnam
The system facilitates the issuance of endorsement letters for project idea notes and approval letters for Project Design Documents (PDD) related to Clean Development Mechanism (CDM) projects and programmes of activities The Designated National Authority (DNA), operating under the Department of Climate Change (DCC), is directly responsible for managing CDM projects.
Measurement for CDM projects occurs at the project level, with monitoring reports submitted directly to the CDM Executive Board (EB) Independent Designated Operating Entities (DOEs), accredited by the CDM EB, are responsible for conducting the verification process.
Decision No 1775/QD-TTg, dated November 21, 2012, approves a scheme for greenhouse gas (GHG) emission management and the regulation of carbon credit business activities in the global market This decision establishes a legal framework for Vietnam's participation in international carbon trading, focusing on the Clean Development Mechanism (CDM).
KP is poised to leverage the opportunity for a low-carbon economy and green growth, collaborating with the international community to reduce greenhouse gas emissions and support the achievement of the country's Sustainable Development Goals (SDGs) Additionally, understanding the procedures for implementing the Clean Development Mechanism (CDM) is essential for fostering these initiatives.
Proposed in-country criteria for CDM projects transferred to the new market
market mechanism following Article 6.4 of PA
3.3.1 In-country criteria for projects transition to the new mechanism in Vietnam
As mentioned above, the A6.4M allows the transition of CDM PAs/PoAs that have a crediting period continuing after 2021 Thus, details on full eligible projects are shown in Figure 3.11 and Figure 3.12
Figure 3.11 Number of full eligible projects for transition to A6.4M
Source: Elaborated and calculated based on UNEP ETP, 2022
Number of full eligible projects by project types
Landfill gas (1 ) Composting (2 ) Methane avoidance (19 ) Reforestation (1 ) Solar (5 ) Wind (4 ) Mixed renewables (2 )
Potential ER for 2021 – 2030 by project types
Landfill gas Composting Methane avoidance Reforestation Solar Wind Mixed renewables
Figure 3.12 Potential ER for 2021 – 2030 of full eligible projects
Source: Elaborated and calculated based on UNEP ETP, 2022
Hydropower projects significantly lead the eligible projects under A6.4M in Vietnam, with 200 out of 258 registered Project Activities (PAs) and 4 out of 16 registered Programmes of Activities (PoAs) Following hydropower, methane avoidance and biomass energy projects also contribute to the landscape of registered projects.
According to RMP regulations, only Certified Emission Reductions (CERs) from Clean Development Mechanism (CDM) Project Activities (PA) or Programmes of Activities (PoA) registered on or after January 1, 2013, can be utilized for Nationally Determined Contributions (NDCs) Therefore, it is essential to evaluate potential CERs for both NDC compliance and other applications A summary of the number of projects that satisfy the requirements of Article 6.4 and contribute to NDCs is presented in Table 3.6.
Table 3.6 Summary on status of CDM activities
Crediting period active as of 01/01/2021
Sustainable Development (SD) is a key objective of Article 6.4 under the Paris Agreement and is essential for obtaining a Letter of Approval (LoA) for Clean Development Mechanism (CDM) activities in Vietnam Consequently, SD should be mandatory information provided by project participants (PPs) rather than merely a criterion for evaluating transited CDM activities.
From above analysis, some scenarios for CDM transition are come up corresponding to assessment approaches:
Scenario 1: Full transition, corresponding to blanket assessment
Scenario 2: Transition with certain conditions on project types, corresponding to grouped assessment h
Scenario 3: Transition based on projects features which its abatement cost is higher than corresponding mitigation measure in NDC, corresponding to case-by-case assessment
Rationale and impacts of scenarios on GHG emission are analyzed as below:
Scenario 1: Full transition to Article 6.4
Vietnam, with its numerous registered projects, may contemplate allowing unrestricted migration of all registered Clean Development Mechanism (CDM) projects, provided that procedural requirements, including host country approval, are met This approach presents both advantages and disadvantages that warrant careful assessment.
- The amount of time and technical effort needed less due to not depend on the diversity and number of eligible projects
Improving regulatory efficiency and minimizing the administrative burden on Project Participants (PPs) and Designated National Authorities (DNAs) is essential By ensuring that PPs are only minimally involved, DNAs can streamline their processes, reducing the need for extensive communication with PPs This approach fosters a more efficient workflow, benefiting both parties.
Excluding certain projects from consideration introduces significant uncertainties in assessing the overall impact of each activity on the host country's Nationally Determined Contributions (NDC) emissions balance, as it neglects important factors that are integral to NDC evaluation.
- The scenario would not follow the international recommendation of basis for adopt of A6.4M, i.e., not take into account experience gained in the CDM, or performance of CDM activities
The potential for oversupply of carbon credits in the international carbon market poses significant risks, potentially leading to a decrease in credit prices This decline may discourage new investments in carbon offset initiatives.
The complete range of CDM activities aligns with the potential sectors for the upcoming domestic ETS in Vietnam A summary of the scenario and its potential contributions to Vietnam's Nationally Determined Contributions (NDC) is presented in Table 3.7 below.
Table 3.7 Number of eligible projects and potential contribution to Vietnam NDC under scenario 1
Type of CDM proje ct
Projects with registration date as of 2013
Other projects for other purposes
Potential ER for each sector in period of 2021-2030 under NDC 2022 Potential contributi on for NDC unconditio nal target
Potential contribut ion of CDM projects for NDC condition al target
Numb er of projec ts
Unconditio nal contributio n (mil tCO2e)
Condition al contributi on (mil tCO2e)
(Conversion fuel to biomass for boiler)
Not covered (EE improved stove)
Not covered (Construction of unfired brick)
Mitigation measures with character ―s‖ at ending word are mitigation measures for conditional target of NDC Mitigation measures are taken from Vietnam Technical report NDC in 2022
E9 & E9s - Waste heat from cement production to generate electricity
E28 7 E28s - Developing small-sized hydropower plants
E35 & E35s - Developing waste to energy landfill
W3 & W3s - Producing compost from solid waste
W7 & W7s - Reducing methane emission via LFG recovery
W11s - CH4 recovery from industrial wastewater treatment conditions
F5 & F5s - Replicating agro-forestry models to improve carbon stock and soil conservation
A full transition to Clean Development Mechanism (CDM) projects could potentially yield 0.56% of emission reductions (ERs) from 2021 to 2030 under an unconditional target if implemented in the host country, or 0.37% of ERs under a conditional target with support from international climate finance Experts suggest that a contribution rate for Nationally Determined Contributions (NDCs) should remain below 1%, as this could facilitate the initiation of new markets and allow ample opportunity for further development of new registrations.
Scenario 2: Transition with certain conditions based on grouped assessment
Certain conditions may be considered including project type, project scale, vintage of project (Juerg Fuessler et al., 2019; Luca Lo Re & Jane Ellis, 2021) h
For vintage projects, the suggested start date is either January 1, 2016, the year after the Paris Agreement was approved, or January 1 of the year following the adoption of the Article 6 rulebook.
In 2019, a limited selection of projects, specifically nine, became eligible under a specific option Alternatively, the cut-off date for registration could be set to January 1, 2013, marking the beginning of the second commitment period of the Kyoto Protocol.
Vietnam has 21 eligible projects out of a total of 136 CDM projects, indicating a significant gap between the number of eligible and registered projects This disparity suggests that Vietnam, ranked fourth in the world for registered CDM projects, should not be disadvantaged by this consideration Therefore, it is recommended that this factor be excluded from evaluations.
In terms of project scale, small-scale CDM project activities and CDM PoAs are prioritized in transition process as per paragraph 74 of the RMP
Regarding the project type, it is necessary to consider whether the project types fall within scope of NDC or non-continuing risks on GHG abatement
The types of projects covered under the Nationally Determined Contributions (NDC) encompass a range of renewable energy sources, including hydropower, solar power, and wind power Additionally, initiatives such as composting, landfill gas management, and methane avoidance are included Energy efficiency projects, such as generating electricity from waste heat in cement production and utilizing energy-saving lighting in households, also fall within this scope.
Renewable energy (hydro power, solar power, wind power)
While some experts, like Juerg Fuessler et al (2019), suggest excluding renewable energy from transition discussions due to its resilience against discontinuing abatement, the prevailing consensus among specialists is that these projects should be integrated with specific limitations.
Mr Vinod Kesava, CEO, Climate Resources Exchange International Pte Ltd (Singapore)
Many international practices regarding Voluntary Carbon Markets (VCM) exclude grid-connected renewable energy projects, such as Verified Carbon Standard (VCS) initiatives These practices often permit only project types where the technology's penetration in the national electricity grid's total capacity is below 5%, particularly in non-Least Developed Countries (LDCs) like Vietnam However, certain renewable energy types should be considered for inclusion in these frameworks.
77 considered to transfer to A6.4M to get additional revenue from low-hanging fruit activities, and then reinvest of other project technologies‖
Mr Hoang Anh Dung, Director, INTRACO (Vietnam)
CONCLUSIONS AND RECOMMENDATION
Conclusions
The development of Clean Development Mechanism (CDM) projects in Vietnam highlights several key lessons: the importance of establishing efficient and flexible institutional and legal frameworks, simplifying administrative procedures, and enhancing the capacity of local entities.
The A6.4M mechanism differs from CDM in its context, objectives, and decentralization Participants in A6.4M will have mitigation pledges, focus on delivering OMGE, and play a role in defining approval processes for mitigation activities while authorizing A6.4ER for international use Key elements of this new mechanism include ensuring environmental integrity aligned with NDC sectors, promoting quantifiable sustainable development, and implementing Corresponding Adjustments for international transfers.
Article 6.4 of the Paris Agreement emphasizes the importance of contributing to sustainable development (SD), which is essential for obtaining a Letter of Approval (LoA) for Clean Development Mechanism (CDM) activities in Vietnam Consequently, information regarding the SD contributions of CDM projects is mandated as a necessary document from project participants (PPs) for eligible projects undergoing migration.
Scenario 2: Transition of PoA and PA types within scope of NDC (except hydropower of above 15 MW) is suitable and recommended for Vietnam to migrate CDM activities to A6.4M The scenario may contribute 0.55% of ERs in period of 2021 - 2030 for unconditional target if transferred in host country or 0.37% of ERs in period of 2021 -
2030 for conditional target if get support from international climate finance.
Limitation and Recommendation
With limitation of time and sources, the research has shortcomings, which need to be improved for making decision with higher certainty:
Criteria and scenarios have not yet accounted for ―zombie projects‖, which has not h
Since their registration date, 90 projects have remained active, while many others, like GS and VCS, are transitioning to VCM These projects are not required to deregister from CDM; however, they cannot claim emission reductions under both GS4GG and CDM for the same vintage year.
The estimation of emission reductions (ERs) and abatement costs relies on uncertain assumptions regarding the crediting period and annual ex-ante ER Abatement costs are derived from financial data in the Project Design Document (PDD) and converted to present value for investment decision-making; however, this comparison may lack fairness It's important to note that the calculation of abatement costs serves only as a preliminary screening tool and will be evaluated on a case-by-case basis if a specific scenario is chosen.
Financial sources for projects have often been overlooked When activities receive foreign direct investment, a carbon credit sharing model can be implemented, allowing a portion of the issued credits to be allocated to the investing countries This approach also influences decisions regarding the transition, particularly by considering the volume of estimated emission reductions (ERs).
For making decision on transition criteria, recommendation is given to the DNA A6.4:
Vietnam's CDM projects are monitored through a periodic reporting mechanism established by Circular No 15/2014/TT-BTNMT and Circular No 11/2022/TT-BTNMT This process involves gathering information on the operational status of projects, financial sources, and the credit-sharing model for CDM activities The goal is to provide state agencies with a comprehensive overview, eliminate "zombie projects," and reduce uncertainties in estimated emission reductions (ERs).
Assessing eligible CDM activities for transition based on grouped assessment to reduce burden of administrative procedures, technical assessment activities for DNA and PPs
To effectively contribute to Nationally Determined Contributions (NDCs) and meet climate goals, it is essential to collect a percentage of carbon credits generated from Article 6.4 projects Additionally, careful consideration is required to determine which projects should focus on fulfilling internal targets and which should be aimed at the international market, thereby preventing the overselling of credits.
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List of interviewees Group List of interviewees General information
Mr Nguyen Nhat Khanh, Position: Project Manager,
Organization: Vietstar Joint Stock Company (Vietnam)
The interviewee is directly involved in the CDM composting project from development phase to credit issuances
He has knowledge on advantages and barriers in implementation and establishment of MRV system of CDM project
Mr Vinod Kesava, Position: CEO
Organization: Climate Resources Exchange International Pte Ltd (Singapore)
The interviewee is an expert in development of carbon projects on renewable energy at many countries such as Singapore, Myanmar and Vietnam
Ms Nguyen Hong Loan, Position: Partner – Advisory Manager
Organization: Energy and Environment Joint Stock Company (VNEEC) Vietnam)
The interviewee has been the advisory manager since 2011 and has more than
With a decade of expertise in climate change and the carbon market in Vietnam, her company stands out as a leader in consultancy services for carbon credit projects They specialize in a diverse range of projects, including renewable energy, waste management, and energy efficiency, all adhering to both compliance and voluntary standards such as CDM, VCS, GS, and GCC.
Mr Hoang Anh Dung, Position: Director, Organization: Investment and Trade Consultancy Company Limited (INTRACO) (Vietnam)
Since 2001, the interviewee has successfully led INTRACO, recognized as one of the top 10 CDM consultants in Vietnam The company specializes in a diverse range of projects, including renewable energy, waste management, land use, land-use change and forestry (LULUCF), as well as energy efficiency initiatives in both industrial and household sectors.
EE service in compliance and voluntary standards including CDM, JCM, GS, VCS h