Identify cciential fundamental on emission trading scheme development. Study status and potential of emission trading scheme development in Vietnam. Propose ETS’s model and its design to Vietnam.
1 INTRODUCTION: THE NECESSARY OF THE THESIS 1. The necessary of the thesis Emission Trading Scheme (ETS) development has been expanding significantly both developed and developing countries. The ETS is becoming a policy instrument to mitigate climate change globally which was launched in all levels, including, international, regional, national and subnational level In 2017, the global ETS accounted for approximatly 15% of the universal GHGs emission The dramatically changes of both global climate change and Vietnam climate change policies show that it is time to take a consideration of Vietnam’s ETS In 2017, Vietnam has signed Paris Agreement on Climate Change with a pledge of mitigation 8% of national GHGs emission in 2030 compared to 2010 baseline and up to 25% under internaional supports. On the other hand, the country has released National Green Growth Strategy in the period of 2011 2020 and a vision to 2050, National Climate Change that bring with them national climate change mitigation targets which the ETS was employed to achieve Establishing the ETS will possible support Vietnam to transfer the economy towards lowcarbon economy as well as competitiveness capacity enhancement. Vietnam’s structure economy depends deeply on high intensive GHGs emission industries such as energy, steel, cerment, construction and transportation sectors which play important roles of economic growth. So that, the country needs to consider establishing an ETS to mitigate GHGs emission with least cost in order to reduce the adverse impacts on competitiveness However, the country should take into account several factors before establishing the EST to reduce its negative effects on the ecomony such as the carbon price stability, the cost effectiveness, impacts on enterprises competiveness, low income groups, available ETS infastructure Therefore, it is nesscery to carry out the thesis “Establishing an Emission Trading Scheme in Vietnam” 2. Targets Clarifying theoretical and practical issues on establishing emission trading scheme and propose an ETS model and design to Vietnam in order to mitigate GHGs emission 3. Objectives and scopes General objective: The thesis focuses on emission trading scheme contents related to Vietnam in the period of 2007 up to now Detail objectives: + Identify cciential fundamental on emission trading scheme development + Study status and potential of emission trading scheme development in Vietnam + Propose ETS’s model and its design to Vietnam 4. The science and practical means of the thesis, new points of the thesis The thesis provides a full scenically fundamental of emission trading scheme and suggest both solutions and recommendations that match with Vietnam’s condition to mitigate GHGs emission target The thesis systematizes fundamental theories and practices on emission trading scheme (ETS) development; the design and operation of ETS, international experiences and lesson learn to Vietnam The thesis reviews current state of Vietnam’s climate change and policies; the status of the carbon market development in Vietnam. It also provides assessments on ETS development potential and condition requirement to establish ETS in Vietnam 3 The thesis brings with it both analysis and assessment of carbon market development in the future; the proposed design ETS model in Vietnam; solution and recommendations for establishment and operation of ETS’ Vietnam 5. Methodology There are several methods employed to implement the thesis, concerning: Desk research, modelling method (SWOT analysis), deep interview method, comparing method, historical and logical method, and workshop method 6. Thesis’s structure Beside of parts including: introduction, conclusion, general summary of international and national researches, list of author’s publish and references, the thesis was divided into three parts: Part one: Sciential fundamental on emission trading scheme development; Part two: The status and potential of emission trading scheme development in Vietnam and Part three: Propose ETS’s model and its design to Vietnam 4 GENERAL PART: THE CURRENT INTERNATIONAL AND NATIONAL PUBLISHES ON THE THESIS A. The current international research on the thesis: Carbon pricing under carbon tax or emission trading scheme was applied theory of pollution tax (Pigou tax) due to its cost effectiveness to deal with externalities due to pollution There are some remarkable researches, such as: Kindleberger (1986) with “International public goods without international government”; Pizer (2012) with “Combining price and quantity controls to mitigate global climate change”; Nordhaus (2007) “To Tax or Not to Tax: Alternative Approaches to Slowing Global Warming”; Weitzman (2011) with “Fattailed uncertainty in the economics of catastrophic climate change”; Stavin (2008) with “Addressing climate change with a comprehensive US cap‐and‐trade system” Emission Trading Scheme was chose to price carbon due to its flexibility comparing to carbon tax. There are some remarkable researches, such as: Goulder (2006) with “The economics of climate change”; Neuhoff (2008) with “Tackling carbon, How to Price carbon for Climate Policy” The ETS cause costpressures on enterprises and give market signs to enterprises to choose a mitigation solution with least cost. There are some remarkable researches, such as: Smale (2006) with “The impact of CO2 emissions trading on firm profits and market prices”; Garnaut (2008) with “The Garnaut Climate Change Review”; Diekman (2013), with “EU Emissions Trading: The Need for Cap Adjustment in Response to External Shocks and Unexpected Developments” 5 Although the ETSes have the same impacts on the economy but they are different in term of the models and design through economies. There are some remarkable researches, such as: Fuessler (2012) with “Chile PMR Activity MRV, Compliance and Registry”; Kachi (2013) with “Carbon Market Oversight Primer”; Goes (2010) with “New and old marketbased instruments for climate change policy”; Aldy (2012) with “The promise and problems of pricing cácbon: theory and experience”; Haites (2013) with “Lessons learned from linking emissions trading systems: General principles and applications”; Kachi (2015) with “Linking Emissions Trading Systems: A Summary of Current Research”; Schneck (2011) with “Financial Market Reform and the Implications for Carbon Trading”; Kindleberger (1986) with “International public goods without international government”; Gilbert (2014) with “Cap Setting, Price Uncertainty and Investment Decisions in Emissions Trading Systems”; Ellerman (2010) with “Pricing cácbon: the European Union emissions trading scheme”, reports containing: “An Introduction to Emission Trading Schemes” and “Emissions Trading Worldwide ICAP Status Report” from ICAP (2015, 2016, 2017) The ETS development has contributed to GHGs emission mitigation globally There are some remarkable researches, such as: Newell (2012) with “Carbon Markets: Past, Present, and Future. Resources for the Future”; Kopp (2015) with “Allowance allocation: Assessing U.S Climate Policy Options”; Lopomo (2011) with “Carbon Allowance Auction Design: An Assessment of Options for the U.S”, Scotney (2015) with “Carbon Markets and Climate Policy in China” The ETS establishment should be employed with a policy package including renewable energy policy, energy saving policy, climate change regulation and standards in order to provide an effective legal and policy framework to mitigate GHGs emission and prevent unintented impacts of the ETS There are some remarkable researches, such as: Pizer (2008) with “Scope and point of regulation for pricing policies to reduce fossil fuel CO2 Emissions. Resources for the Future”; Nordhaus (2001) with “Climate change: Global warming economics” However, there are no perfect ETS’s model and its design that fit with all all countries. There are some remarkable researches, such as: Laing (2013) with “International Experience with Emissions Trading Climate Strategies”; Schneck (2011) with “Financial Market Reform and the Implications for Carbon Trading”, Trotignon (2011) with “Combining capandtrade with offsets: Lessons from the CER use in the EU ETS in 2008 and 2009”; Fuessler (2012) with “MRV, Compliance and Registry, Infrastructures and Perspectives”. B. The current national researches related to ETS: The national researches on ETS has developed slowly comparing to international researches There are some related remarkable researches, such as: Pham Huong Giang (2011) with “Assessement of current participantion of Vietnam into international emission trading scheme; trend, market potential of Vietnam’s ETS under postKyoto scheme”; Tran Huu Buu (2013) with “Assessement on potential of carbon credit project in waste treatment sector and propose solutions to support”; Pham Thi Nga (2014) with “GHG trading mechanisms in the world”; Bui Hoai Nam (2015) with “General issues on Emission Trading Scheme”; Pham Thi Hien (2016) with “Essential required factors to establish Emission Trading Scheme in the future”; Vi Thuy Linh (2017) with “Emission Trading Scheme and its development potential in Vietnam”; Tran Hoan (2017) with “International experiences in ETS development and learnt lessons to Vietnam” C. Assessment on current ETS publishes related to the thesis: The international and national publishes related to ETS are important references to the thesis, however, they were employed for different research purposes that not clearly related the whole content of the thesis. On the other side, those publishes are out state of art under current trends of global climate change context as well Vietnam context Therefore, the thesis, namely, “Establishing Vietnam Emission Trading Scheme” contributes new issues on idea, scope, methodology and results both theories and practices. It does not overlap with old international and national publishes 8 PART ONE: SCIENCE FUNDAMENTAL ON EMISSION TRADING SCHEME 1.1. Theoretical and practical fundamental of Emission Trading Scheme Concept and history of Emission Trading Scheme development: Emissions trading is a marketbased instrument for climate change mitigation. In an emissions trading scheme (ETS), a regulator defines an upper limit (cap) of greenhouse gas (GHG) emissions that may be emitted in clearly defined sectors of an economy (scope and coverage). Emission permits or allowances are given out or sold (allocated) to the entities that are included in the ETS. By the end of a defined timeperiod, each covered entity must surrender a number of allowances corresponding to their emissions during that period Installations that have emitted less than the number of allowances they hold can sell any excess to other participants in the scheme. Entities with low abatement costs thus have an incentive to reduce their emissions, while those facing higher costs can elect to comply by purchasing allowances from the market Emissions trading provides greater environmental certainty in controlling overall emissions compared to an emissions tax, which defines a fixed emission price without restricting the quantity of GHG emitted from industries. In both cases, rules for compliance and enforcement (MRV & enforcement) ensure that polluters pay for the environmental costs of their actions Allowing installations to determine when and where to reduce emissions makes ETS a flexible and costefficient policy instrument The institutional and legal framework in place should enable price discovery by fundamental market forces free of fraud and manipulation (market oversight) 9 The first ETS was developed in American of United State which was applied from theoretical issues into practice in the 80s. However, the year of 1997 is a turning point of ETS development when the Kyoto Protocol on climate change was signed globally where climate change mitigation target was pledged by 37 developed countries for the period 2008 – 2012 Since the introduction of the first regional ETS for GHGs emission in the European Union in 2005, many other systems have emerged in North America, Asia and the Pacific region at the regional, national, and local levels. Several other jurisdictions are currently considering implementing their own domestic ETS, while some established ETS have taken steps to reform and, in some cases, link their systems So far, ETS developments bring the global ETS count to 21 systems in operation, 5 systems in scheduled implementation and 9 systems under consideration at different levels of government and geographies, including 4 continents, 40 countries, 13 states and 7 cities/provinces. With the launch of the Chinese national ETS, the share of global emissions covered by a domestic ETS has reached almost 15%. Now, economies with an ETS in place produce more than 50% of global GDP and are home to almost a third of the global population. These figures reflect the steady expansion of ETS policy and the strengthening of implementation around the world The ETS operations will generate a common price for each carbon unit and therefore provide market signals to firm's decision to take an investment in longterm emission reductions where to invest into lowcarbon technology to increase energy efficiency or switch to clean energy, create energyefficient products Moreover, carbon pricing brings with its an increase in price of carbonintensive goods and services, therefore, consumers will move to lowerpriced substitutes and motivate firm to reduce emission in order to reduce production costs Thus, the government must identify longterm 10 emission reduction targets and develop lowcarbon economydriven policies to bolster business confidence to switch their business strategies towards lowcarbon strategies 1.2. Emission Trading Scheme Models and their operation ETS Model: Thus far, there are two ETS models employed by subnational, nationals, regional and global, including: (1) The uniform ETS Model: A model in which the determination of carbon allowances and trading activities are established and operated from the beginning This is the general model adopted by almost countries and regions in the world such as EUETS, US RGGI, ChinaETS (2) The hybrid ETS Model: This is a twostage ETS, in which the first stage of ETS acts as a carbon tax that the government setting a fixed tax rate per carbon emissions unit and after that when the market operates stably, the ETS will shift to “cap and trade” model Required components of the ETS: (1) Set Emission Target (cap): (2) Select the scope, including the type of gases and the size of total emission form each enterprises; (3) Establish emission allowance allocation mechanism: free allocation or through auction, or a combination of both; (4) Set up sstock exchange rate market; (5) Selection flexibility in the operation of the ETS: allow emission deposit, borrow and loan emission; Set ceiling price, floor price; allow using of emission credits obtained from outside the ETS; (6) Form of MRV and Enforcement system (MRV & E); (7) Linking among ETSs Conditions for operating the ETS: The conditions for the successful operation of the ETS include: (1) must have MRV system; (2) be fair in implementation; (3) connected between policies and objectives; (4) be stable and predictable; (5) costeffectiveness; (6) be practicality and integrity of the environment; (7) be flexibility; (8) 11 match with the conditions of specific markets; (9) be compatibility with other systems in the economy and (10) be transparency in design and implementation The sequence of steps to establish an ETS: There are 10 steps as follows: Step 1: Determine the sector scope / type of emissions included in the ETS; Step 2: Identify emission target (cap); Step 3: Determine allowance allocation method; Step 4: Consider using the offset emission rate implemented from outside the ETS; Step 5: Select flexible operating mechanism for ETS; Step 6: Dealing with price and cost of emissions in the market; Step 7: Control and monitor the implementation of enterprises within the system; Step 8: Encourage stakeholder, communication and capacity building; Step 9: Consider linking to external ETS; and Step 10: Implementation, evaluation and improvement 1.3. International experiences in establishing Emission Trading Scheme and lesson leant to Vietnam EU ETS: This is the second largest carbon emissions market in the world (behind China) with 31 participants from EU member states and 11,000 energy intensive companies. According to the European Environment Committee, CO2 has fallen by approximately 19% between 2005 and 2013, closely to the EU target of 21% by 2020 There are a number of features of construction, operation and improvement of the EUETS model as follows: (1) EUETS model and allowance: Total allowance emission was designed to decrease annually in order to allow enterprises adjust their business strategy accordingly to meet an increase in emissions permit; (2) Auctions and price control mechanisms: trading activities can take place directly between buyers and sellers, either through a stock exchange, or through intermediaries in the stock market. The (3) adjustment of cap: Allow the backdrop emissions in case of supply surpluses and allow for the release a certain allowance in case 12 of deficit; (4) MRV system design and market oversign: The stock exchanges take this process; (5) Establish flexible mechanism: allow lending and borrowing emissions mechanism; drawback and and reserve emission limits mechanism, allow use external emission credits outside the system to achieve targets The United State of American: The US ETS is formed by states and interstates RGGI ETS is a regional ETS of the American of United States established in 2009 with the participation of 09 states in the Eastern America, focusing on reducing CO2 emissions from fossil fuel power companies. There are a number of remarkable characteristics of the construction, operation and improvement of the RGGI ETS include: (1) Auction and pricing mechanism: The auction is conducted with a oneway mechanism, closed bidding mechanism to form a common price; (2) MRV system and market oversign: RGGI monitor was implemented by an independent agency to ensure effective and transparent RGGI operations; (3) Establish flexible mechanism: allow enterprises to deposit extra allowance to the bank, set a floorprice for the system; allow enterprises use carbon offset; (4) Use of revenues: Used for climate change adaptation and addressing the effects of rising electricity prices China: So far, China is the largest greenhouse gas emitter globally. The country is also the first developing country in the world establishing ETS in order mitigate climate change. China has set up ETS pilots for seven provinces/cities nationwide and has officially established a national ETS for the power sector by the end of 2017. There are a number of the remarkable features of operation, construction and improvement China ETS pilots containing: Each ETS is designed differently which depend on the specific characteristics of each locality and built by local authorities. (2) Set cap and allocate emission allowances: combine between free 13 allocation and auction that based on firm's past GHG emissions; (3) Auctions and price control mechanisms: implemented at local stock exchanges that managed by the Development and Reform Council at each locality; (4) MRV and market oversign: each enterprises must provide reports on their performances that was certified by an independent third party; (5) Punishment for violated enterprises: Mainly monetary penalties; (6) Establishment of flexible mechanism: There are a number of ETSs allowed enterprises to lend overuse their allowance for future use Lessons learned for Vietnam: There are 04 lessons learned for Vietnam are as follows: (1) must establish an ETS pilots before launching an official ETS with a number of carbon intensive sectors, GHS emission measurable and can be easy monitored; (2) MRV system is a prerequisite to ensure ETS can operate transparently and transparently. Penalties and control of market fraud should also be considered to ensure the firm's credibility in the market; (3) Establish flexible mechanisms to adjust the market cap to address the risks of fluctuating carbon prices and the cost of reducing emissions (3) Promote the linking of ETS with other ETSs to create opportunities for lower emission cost; (4) A policy package should be developed parallel with ETS in order to deal with complexities of climate change issues with the following emphasis: (1) Invest into R&D for lowcarbon technologies as well as renewable energy technologies; (2) Design an electricity price support programs for low income groups in society to compensate an increase in goods and service's prices and (3) Invest in modernizing of the ETS system such as technological improvements. MRV system to improve the efficiency, accuracy and transparency of the system 14 PART TWO: THE CURRENT STATUS AND POTENTIAL OF ESTABLISHING VIETNAM’S EMISSION TRADING SCHEME 2.1. Current status of Vietnam climate change In Vietnam, during the period 1994 2010, total GHGs emissions of the economy (including land use, land use change, and forestry LULUCF) increased sharply from 103.8 Mt CO2 equivalent in 1994 to 246.8 million tons of CO2 equivalent (including LULUCF) and 266 million tons CO2 (excluding LULUCF) in 2010 According to Vietnam National Communication Update Report (first time) in 2014, Vietnam's GHGs emissions was forecasted to increase around three times in 2020 and fivefold in 2030 compared to 2010. GHGs emissions in energy sector keep increasing and account for more than 90% of the total GHG emissions while predicted to decline in manufacturing industry. 2.2 Current status of mitigation climate change policies in Vietnam In order to cope with climate change and reduce negative impacts of climate change to socioeconomic development, Vietnam has actively participated in and implemented international treaties to cope with climate change as well as promoting priority domestic policies to dealing with climate change. Year of 2012 was a turning point in Vietnam climate change policy to move significant to national emissions mitigation strategy which was officially mentioned in national socialeconomic policies and strategies of the country 15 Vietnam policy framework on climate change mitigation On September 25, 2012, the Prime Minister approved the "Vietnam's National Green Growth Strategy" in which an emission climate change mitigation target was released for the first time, including: reducing GHG emissions in energy activities from 10% to 20% compared to BAU, with a voluntary mitigation of 10% and up to 20% under international support. On April 22, 2017, Vietnam and more than 170 countries signed the Paris Climate Change Agreement that officially come into force on 4 November 2017 with a binding commitment to reduce by 8% GHG emission and up to 25% under international assistance. Previously, on 21 November 2012, the Prime Minister approved a Project, namely, "Management of greenhouse gas emissions and carbon credit trading to the world market “and then approving the World Bank's technical assistance project" Preparing for the Carbon Market Readiness in Vietnam ". The project focus on piloting Vietnam's ETS in three sectors including coalfired power sector, steel sector and waste treatment sector; forming GHGs' databases and reporting system for GHG emission mitigation, piloting NAMA for carbon credit, strengthen management capacity on MRV of NAMA and NAMA carbon credits 16 2.3 Assessment of potential and conditions for establishing Vietnam’s Emission Trading Scheme The selected method is SWOT analysis This is a simple, flexible and effective analytical tool that provides a comprehensive assessment compared to other analytical tools that provide effectiveness in the case of lacking information. Moreover, SWOT analysis is suitable for analyzing and evaluating a future scenario, thus it was employed for assessing the potential of Vietnam's ETS SWOT analysis results on Vietnam’s ETS potential development Strengths Opportunities (1) Viet Nam has set targets for emission reductions, especially in energy intensive sectors which is a prequite condition of ETS; (2) Vietnam has experience in joining the carbon market such as CDM, REDD +, JDM; (3)Vietnam has received a number of technical and financial support from international organizations to build ETS; (4) The ETS's revenue will be used to promote renewable energy development, low carbon technologies R&D, assist the poor from adverse impacts due to rising prices from ETS; (5) Vietnam's energy prices are among the lowest country group in the world, so that an increase in energy prices from the ETS market will have less impact on countries than other high energy prices (1) Vietnam has the opportunity to enhance export competitiveness in ETSbuilt markets such as the EU, South Korea and the US; (2) A number of new industries and new job opportunities will be created in renewable energy, energy saving industries; (3) Vietnam has the opportunity to participate in international ETS, and therefore, can achieve emission mitigation with a lower cost; (4) Vietnam has the opportunity to improve technology, production productivity and 17 countries; (6) Vietnam energy saving is low; (7) Vietnam has developed stock exchange that providing infrastructure for auction; competitiveness in energy activities; (5) Provide enterprises options to reduce emissions at the least cost Weaknesses Threats (1) Vietnam is lack of MRV system which is still in the process of designing; (2) There are lack of options for reducing carbon emissions due to financial and technological issues; (3).There is no roadmap for reducing emissions for each industries so that it is lack of confidence for businesses to make decisions in the long run; (4) Key industries of the country are high intensive GHG emission so that, employ ETS will cause an increase in goods and services' price of the economy (1) Vietnam's exports will be affected by rising export prices, thus limiting the competition of products on the international market; (2) Vietnam's energy prices are not fully marketbased mechanism which bring with it difficultly to form ETS that depend deeply on demand and supply relationships With the results of using SWOT analysis to assess the strengths, weaknesses, opportunities and challenges for building Vietnam's ETS as mentioned above, some conclusions are given as follows: 1. Vietnam has had a number of convergence conditions to establish a ETS as it has had experience in this market and targets for GHGs emission reduction. The development of the ETS provide also an opportunity for the government to have more revenue to support emission reduction activities. However, in the beginning stage, the country should develop ETS pilot scheme for specific sectors, 18 especially some high intensive emissions sectors, which are easy to measure and monitor emissions before employing an official ETS In order to successfully build ETS, Vietnam needs to develop comprehensive policy packages that can address full climate change issues, especially policies in low carbon, energy saving areas to provide businesses with optimum options for emission reduction; At the same time, it is an opportunity to develop new industries, contribute to new job in order to promote economic growth. Policies should also address the negative impact of rising goods and services' prices, especially to the poor. Furthermore, Vietnam should take a consideration on competitiveness of businesses, especially exporters as well as improving the ETS system such as MRV system to control the implementation of enterprises and the operation of the market 19 PART THREE: PROPOSE EMISSION TRADING SCHEME MODEL AND DESIGN TO VIETNAM 3.1. Trends of Emission Trading Scheme and Climate change Tripling the share of global emissions capped by ETS: ETS has advanced both in established markets and in emerging economies, now covering 15% of global emissions. The initial launch of China’s national ETS for the power sector in 2017 is a remarkable and rapid first step for an emerging economy that is home to the world’s largest coal fleet This development alone sends a strong signal to the international community as the trajectory of Chinese coal consumption has recently been one of the key drivers of global emissions. The next years give the national government time to build the foundation for a robust, economywide carbon market that can be ratcheted up in line with the ambition of the Paris Agreement Efforts to price carbon are also progressing in Latin America and subnational in North America. Mexico, Latin America’s second largest economy, will start piloting a mandatory ETS later this year. In addition, Chile, Colombia and Mexico are jointly exploring regionally consistent carbon market design elements such as Monitoring, Reporting and Verification (MRV). In North America, subnational jurisdictions continue to lead with capandtrade The largest Canadian province, Ontario, linked its system to the joint carbon market of California and Québec as of beginning 2018. As part of the PanCanadian Framework on Clean Growth and Climate Change, all Canadian provinces and territories will have a price on carbon by the end of this year Interest in several US States, like Virginia and New Jersey, could also see an expansion of capand trade despite inaction on the federal level 20 From policy pioneers to longlasting mitigation tool: The world’s more established systems – the EU, California and Québec, RGGI and New Zealand – have enacted major reforms to ensure their systems can deliver on increasingly ambitious climate targets post 2020 These renewed commitments to emissions trading give low carbon investors certainty and has resulted in rising carbon prices, with the EU allowance price passing 10 EUR for the first time since 2011. These reforms have seen some common elements: Steeper cap trajectories aligning with 2030 climate targets; market stability measures are becoming standard practice with continuing design innovation; offset policies focus on domestic abatement with direct local environmental benefits. Together, these two trends – the continual spread of ETSs and reforms of major systems – will continue to change the landscape of emissions trading – widening and deepening its role in the low carbon transformation process worldwide. 3.2. Propose a Vietnam’s ETS model and design ETS Model selection: There are a number of suggestions on the choice of the design of the market for emissions in Vietnam are as follows: (1) Vietnam should consider selecting a two phases model, which will initially operate as a carbon tax scheme and after that, when the market operate stability, the scheme will moves to a "cap and trade" mechanism; (2) Vietnam should develop a road map for building ETS based on country's GHG emission targets; (3) Vietnam should consider building pilot ETS in highintensive industries in advance before moving to official Scheme; and (4) It is necessary to call for stakeholder participation in the development process of ETS in Vietnam. 21 Unsucess Unsucessful Adjust tax level Điều chỉnh Initial phase: Tax scheme for some sectors (23 period of year) Phase I: Cap and Trade scheme to some sectors (23 period of years) Sucess Phase II: Expand to whole economy Sucess A recommendation of ETS model to Vietnam Source: Author Design Vietnam's ETS: (1) Vietnam needs to set a longterm emissions reductions targets, at least for 10 years. The climate change policies need to be consistent in long term in order to create confidence for the business; (2) emission allowance should be combined between free allowance and auction; (3) ETS coverage: CO2 is main GHG emission while coalfired power generation, transportation, high energyintensive manufacturing (iron, steel, chemicals, cement ), waste treatment should be involved in the Scheme; (4) Selection of flexible mechanisms for the market: emission permit borrow, emission permit lend, floor prices and celling price need to be developed; (5) Consider linkage with other ETSs in order to achieve lower GHG mitigation; and (6) develop MRV system in order to control the implementation of enterprises and the operation of the market Identification of the participating agencies: (1) Ministry of Natural Resources and Environment will be responsible for setting up the ETS in Vietnam, identifying and selecting sector participation, market organization model; organization of MRV activities; (2) Ministry of Finance will be responsible for setting up a carbon auction operating mechanism, responsible for developing the process, identifying the way the auction is conducted, and implementing the 22 MRV. with these activities; (3) Sector Ministries shall be responsible for sector management, coordinate with the Ministry of Natural Resources and Environment and the Ministry of Finance to carry out their assigned tasks; (4) Other Ministries such as the Government Inspectorate, the State Audit, the Ministry of Security, and the Ministry of Justice are responsible for the contents related to the guidance to ensure the implementation of market operations and compliance Comply with the regulations on inspection, audit, inspection and legal adherence of enterprises participating in the market 3.3 Solutions for establishing Vietnam’s Emission Trading Scheme Comprehensive set of emission reduction policy package: It is necessary to combine ETS policy with other policies such as command and control instrument; education instrument and financial incentives such as taxes, subsidies in renewable energy development; soft instruments such as low carbon labels or energysaving labels in order to sign customer awareness on lowcarbon products in the market. The ETS is just an indirect instrument to reduce emissions, so direct emissions reduction instruments need to be developed to enhance the development of lowcarbon technology, renewable energy, energy saving sectors in order enhance energy efficiency as well as shifting from fossil fuel based energy towards renewable energy based. Setting up a carbon market will have an impact on the labor market, technology markets, etc. Therefore, it is necessary to build in line with the policy packages on energy, labor and technology Design solutions for using ETS's revenues: ETS will bring significant revenues to the Government from market trading, so that the Government must take into account solution for effective expenditure such as reinvest in the development of alternative 23 energies (renewable energy, lowcarbon technology), to support low carbon technology R&D; assist social groups affected by rising energy prices and related commodities; design electricity support programs for low income households in society, invest in modernization of the system to improve efficiency and accuracy, transparency of the system Linking to bank system and stock exchange: Building a new independent system for ETS will not be feasible because of cost issues. In addition, activities such as banking or borrowing will also require the involvement of bank system 24 CONCLUSION AND RECOMMENDATIONS ETS revolution to support GHG emission mitigation has emerged significanlty with the participation of both developed countries and developing countries, including Vietnam. In particular, in the context of recently change in international climate change mitigation policy, Vietnam needs to consider building an ETS in order to provide incentives for businesses to reduce emissions at the least cost so as to achieve international climate change mitigation commitment under Paris Agreement as well as participating in the global carbon market. There are a number of remakble results of the PhD thesis as follows: 1. The thesis result in three contributions as follows: Firstly, systematize the scientific fundamental of the ETS development; ETs's models, design and operation mecharnism; international experiences and learnt lessons for Vietnam; Secondly, it reviewed Vietnam's climate change policies and implementation as well as the process of joining the emissions market of Vietnam; carryout an analysis and assessment of potential and conditions for Vietnam's EST; Propose a Vietnam's ETS model, design and provide solutions and recommendations for Vietnam's ETS development 2. There are three remakble conclusions as follows: Firstly, the carbon market has been developed and implemented in many countries and regions around the world, however, there is no model fit all countries and territories. Furthermore, Base on theoretical and practical fundamental as well as specifical conditions and circumstances of the country, it is possible to build Vietnam's ETS to mitigate GHG emission with lower cost. Finally, the country should take into account hybrid ETS model with flexible mechanisms, while in the begining stage must employ carbon tax model to reduce unstable of carbon prices due tu uncertantly and after market operate stabilty, moving to the "cap and trade" scheme./ ... Ellerman (2010) with “Pricing cácbon: the European Union emissions trading scheme , reports containing: An Introduction to Emission Trading Schemes” and “Emissions Trading Worldwide ICAP Status Report” from ICAP (2015, 2016, 2017)... SCIENCE FUNDAMENTAL ON EMISSION TRADING SCHEME 1.1. Theoretical and practical fundamental of Emission Trading Scheme Concept and history of Emission Trading Scheme development: Emissions trading. .. accuracy and transparency of the system 14 PART TWO: THE CURRENT STATUS AND POTENTIAL OF ESTABLISHING VIETNAM S EMISSION TRADING SCHEME 2.1. Current status of Vietnam climate change In Vietnam,