Selling Forest Carbon Credits: High Demand, No Supply

12 August, 2024

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High demand for carbon credits from Vietnam’s forests

In late 2023, Vietnam transferred 10.3 million tons of CO2 to the World Bank at a price of $5 per ton, earning $51.5 million. This was the first time Vietnam received payment for forest carbon credits. Soon after, forest owners in several provinces received a share of this revenue.

According to a report by the Department of Forestry (MARD), some localities have received proposals from domestic and international organizations and individuals interested in exploring and offering forest carbon absorption, storage, and trading services. The provinces of Quang Nam, Son La, Lao Cai, and Thanh Hoa have proposed pilot projects for investing in and trading forest carbon credits.

Speaking at a recent seminar on “Green Finance Prospects,” Dr. Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council and Director of the Carbon Development Institute (CODE), said that carbon credit prices are “hot,” but the policy-making process is challenging.

Many organizations and businesses are interested in purchasing forest carbon credits from Vietnam. Photo: Hoang Anh

CODE is currently measuring carbon credits in its forests, using both manual and machine methods for comparison.

“Manual measurement costs VND 178 million per hectare, which is very expensive when multiplied by the 500 hectares we own,” he said.

CODE has since engaged foreign experts to assist in various tasks, such as sample selection based on sunrise or sunset orientation and measuring carbon in mixed forests of trees and bamboo (which have the highest carbon content). They are also working on measuring different types of biomass, which can only be done with specialized equipment to assess roots and treetops. The results will be reported to the Ministry of Science and Technology and the Government.

Dr. Le Xuan Nghia emphasized that for CODE, afforestation is both a scientific endeavor and a profitable business, with potential earnings of around $2 million per year.

“We deliberately chose a severely degraded forest area to restore the ecosystem. Today, this forest has regained the characteristics of a tropical rainforest, with the return of birds and wildlife. Over 10,000 mahogany trees are thriving, and we recycle all fallen leaves and branches by turning them into compost for our nursery,” he shared.

The director recalled how scientists from France and the Netherlands approached CODE to study the Southeast Asian biosphere and purchase carbon credits.

“Initially, we purchased 11 ancient stilt houses and a stone church to develop eco-tourism. However, due to the offer to purchase carbon credits, we shifted our focus from eco-tourism to forestry,” Dr. Le Xuan Nghia recounted.

During this process, CODE firmly advocated for land certificates for local communities, enabling them to sell carbon credits.

Businesses are willing to pay a premium for forest carbon credits.

High prices offered, but bureaucracy hinders sales

Dr. Le Xuan Nghia shared some of the challenges faced in developing forest carbon finance. Firstly, there are legal issues regarding carbon ownership. While forests are state-owned, it is unclear if carbon is also considered state property. After the six provinces in North Central Vietnam sold forest carbon credits to the World Bank, the revenue was intended for local communities. However, this arrangement contradicts the regulations governing state-owned forests.

Regarding the establishment of a carbon credit exchange, Dr. Nghia pointed out that when selling carbon credits across provinces, the Ministry of Agriculture and Rural Development (MARD) acts as the seller. However, when provinces sell individually, they handle the transactions themselves. This arrangement makes it challenging to bring these credits to the exchange, as they need to be coded and assigned clear ownership.

Therefore, CODE is proposing amendments to Decree 06 to facilitate the trading of carbon credits on the exchange.

Secondly, carbon prices are surging, and CODE has negotiated a price of $30 per credit. However, bureaucratic hurdles have prevented them from finalizing the sale.

Dr. Nghia recalled the first sale of forest carbon credits to the World Bank at $5 per ton, a relatively high price at the time. The World Bank generously donated 95% of the value back to Vietnam to support its NDC (Nationally Determined Contributions) in alignment with the country’s commitment to achieving net-zero emissions by 2050.

Additionally, Vietnam is negotiating the transfer of 5.15 million forest carbon credits from 11 provinces in the Central Highlands and South Central Coast. The proposed terms include purchasing and donating back to Vietnam for its NDC at $10 per ton or selling outright at $20 per year. However, MARD aims to negotiate a higher price or a time-limited sale (3-5 years).

The third challenge relates to the remaining 4.9 million tons of carbon credits from the initial sale. Several businesses have approached CODE for assistance in purchasing these credits, even though they are only valid for another 17 months. However, discussions with MARD have not led to a sale due to the need to follow various procedures.

According to Dr. Nghia, selling these credits requires an auction process, oversight, technical dossier preparation, and consultations with relevant ministries. “It’s uncertain if we can sell these 4.9 million carbon credits before they expire. There is a lot of external interest and funding, but our mechanisms for accessing them are lacking,” he said.

By Tâm An