From Policy to Practice: Vietnam’s ETS Pilot Phase Marks a Milestone in Climate Governance
- Sep 3
- 4 min read
The beginning of the Emissions Trading System (ETS) pilot program is a significant step in Vietnam's climate policy as the nation accelerates its efforts to create a low-emission economy. Issued in June 2025, Decree No. 119/2025/ND-CP sets the specific guidelines for ETS's operation, transforming it from a policy concept into a real implementation. Even though it is still in its early stages, ETS is anticipated to have a significant impact on numerous related industries in addition to the businesses directly involved.
ETS Overview and Pilot Scope
Conceptually, governments use the Emissions Trading System (ETS) as a tool to limit the overall quantity of greenhouse gases that can be released into the atmosphere. Instead of imposing strict limits on every business, the government gives a specific number of emission allowances to each company. Those who produce fewer emissions than allowed can sell the extra allowances to other counterparts. On the other hand, businesses that emit more must buy additional allowances from others. This system creates a carbon market where cutting emissions can save money and improve efficiency.
As for the Vietnam ETS system, the pilot phase will start from August 2025 and end in 2028. This phase will be applied to around 150–200 facilities in three high-emission sectors: thermal power, cement, and steel, which together account for 40% of Vietnam’s total emission. These sectors were chosen because they already have basic data systems and the ability to monitor emissions. This helps ensure that ETS can be tested in a controlled and practical way. It is worth noting that companies will receive free emission allowances based on “emission intensity” (the number of emissions per unit of product) rather than total emissions. This approach helps companies adjust gradually and build their capacity to measure and manage emissions, rather than pressuring them to reduce emissions immediately.
Transitional Flexibilities for Regulated Firms
One special feature of Vietnam’s ETS design is that it offers flexibility for businesses during the early phase. Companies are not obligated to cut their emissions right away. Rather, they are allowed to use offsets to satisfy a portion of their emission obligations. Specifically, they can use valid carbon credits from various organizations and international projects, such as the Clean Development Mechanism (CDM), the Joint Crediting Mechanism (JCM) between Vietnam and Japan, and those are under Article 6 of the Paris Agreement, to cover up to 30% of the emissions they need to reduce. Compared to other countries with comparable systems, this 30% limit is quite high. It shows Vietnam’s practical and open approach during the testing period, providing companies, especially those in high-emission sectors, more room to manage costs and technical challenges while they adjust.
Additionally, companies can "borrow" up to 15% of allowances from the next cycle if they face difficulties in the current one. Meanwhile, any unused allowances can be carried forward and used until 2030. These flexible rules give companies valuable time to comply while slowly building stronger and more effective emission control systems.
Indirect Impacts on Non-Regulated Businesses
Your business may still be affected even if it is not in one of the three pilot sectors. In fact, many other companies may be involved indirectly. For example, suppose you supply goods or services to companies in the electricity, cement, or steel sectors. In that case, they may ask you to provide data about emissions from your production or transportation so that they can complete their supply chain emissions report (commonly called Scope 3). Also, the extra cost of emissions that ETS companies face might be passed on to your business through higher prices for products or services, which then raises your input costs over time. In short, if you are part of their value chain, you might be pulled into the process sooner than expected.
More importantly, according to Vietnam’s roadmap for developing the carbon market, sectors such as transportation, commercial real estate, and other industries may join ETS after 2028. If your company is part of these groups or works closely with them, it is important to start preparing now.
Currently, Vietnam lacks an official exchange for the trading of emission allowances, and the database for emissions monitoring is still being constructed. Therefore, organizations that have already been granted allowances are unable to exchange them on the market at this time. However, this does not imply that companies can simply wait and observe. The information that businesses provide during this period, such as emission measurements and compliance efforts, will likely be used to determine future obligations and allowance levels. In other words, companies that start building systems to measure, report, and manage emissions now will be in a much better position when ETS is fully in place. Early action not only reduces future risks of non-compliance, but also helps build trust with partners, investors, and the broader market.
In conclusion, the ETS pilot phase should not be perceived as a test that is distinct from actual business. It is a critical opportunity for organizations to evaluate their readiness, enhance internal systems, and develop sustainable development strategies that are consistent with global trends. Soon, carbon costs and hazards can be mitigated through the implementation of current measures.
At Mt.Stonegate, we assist businesses in navigating Vietnam’s evolving carbon market. For organizations preparing for the Emissions Trading System (ETS) or developing carbon management strategies, our ESG specialists provide expert guidance to support informed, future-ready decisions.
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