These mechanisms will significantly impact the exports of various countries. This poses an urgent requirement for governments, businesses, and relevant stakeholders to assess and prepare appropriate responses as the transitional period nears its end and the official phase begins in 2026.
To gain a deeper understanding of the mechanism and the solutions for Vietnamese businesses to adapt to the Carbon Border Adjustment Mechanism (CBAM), we had a discussion with Ms. Nguyễn Hồng Loan, Director of Green Climate Innovation Company Limited (GreenCIC).
Ms. Nguyễn Hồng Loan, Director of Green Climate Innovation Company Limited (GreenCIC).
- Could you elaborate further on the Carbon Border Adjustment Mechanism (CBAM) and how this mechanism operates?
The CBAM mechanism is a novel initiative being implemented for the first time globally, with Europe being the first region to introduce it. The CBAM is divided into two phases: starting from October 1, 2023, it enters a transitional phase affecting products in six sectors: aluminum, cement, iron and steel, chemicals, electricity, and hydrogen.
Vietnamese enterprises exporting products within these categories will need to provide information related to greenhouse gas emissions per unit of product. From 2026 onwards, CBAM will officially be enforced, requiring the verification of emission data and the payment of CBAM certificates for the embedded greenhouse gas emissions of goods imported into the EU.
Under this mechanism, importers of goods into the EU will register with national authorities and purchase CBAM emission certificates if the emissions contained in the imported goods exceed EU standards (the price of certificates will be based on the weekly emission allowance price of the EU Emissions Trading System).
EU importers will declare the emission content in their imported goods and surrender the corresponding number of certificates each year. If an importer can provide documentation proving that a carbon price has already been paid during the production of the goods, the corresponding emissions can be deducted.
By 2034, CBAM will be fully operational, and factories and businesses will no longer receive free CO2 emission allowances and will have to pay 100% CBAM fees.
- How are Vietnamese enterprises directly affected and required to adjust under the CBAM mechanism, Madam?
When Europe implements this mechanism, Vietnamese exporting enterprises will face several challenges. Firstly, businesses will need to fulfill obligations related to greenhouse gas inventory reporting. Notably, CBAM not only requires data within the scope of the enterprise but also demands emission data from the supply chain, specifically from input materials.
If enterprises use materials of unknown origin, or if suppliers do not have emission data, it will be difficult to report. Although Europe allows the use of data and applies relatively flexible calculations in the initial phase, starting from 2025, the regulations will become stricter.
This is a new mechanism, and enterprises will face difficulties related to awareness and the collection of data to meet reporting obligations. Especially as Europe concludes the transitional phase and potentially expands to other sectors, this mechanism continues to evolve and adjust, which also poses challenges for businesses to adapt.
- To prepare for the implementation roadmap starting in 2026, what specific plans and strategies do Vietnamese enterprises need to adopt to respond to CBAM in order to protect exports and minimize negative economic impacts?
CBAM certificates are not actually purchased by exporting enterprises but by importers in Europe, who must register with tax authorities and buy CBAM certificates corresponding to the greenhouse gas emissions of the goods they import. However, during negotiations, importers may seek to shift part of the cost onto exporting businesses.
Additionally, the obligations related to reporting and proving the carbon price paid in the country of origin fall on the exporting enterprises.
Vietnamese businesses will need to closely monitor the policy development process in Europe. (Illustrative image)
From 2026, the submission of CBAM certificates will be based on the emissions of the product, and these emissions must be verified by a third party recognized by European countries. Thus, during the transition phase, businesses will need to familiarize themselves with the process of third-party verification and the potential cost-sharing with importers as part of CBAM-related payment obligations, which will contribute to increased costs for Vietnamese businesses.
Moreover, Europe has so far only issued guidelines for the transition phase, and it is likely that final guidelines for the official implementation phase will not be released until late 2025.
As a result, Vietnamese businesses must closely monitor Europe's policy development process and stay updated on the regulations once CBAM is officially enforced. Additionally, regarding greenhouse gas (GHG) inventory, Vietnam began implementation in 2023 and has allocated emission quotas to 2,166 businesses.
Therefore, businesses must establish a comprehensive and regularly updated data system to meet CBAM reporting requirements. These reports must also ensure sufficient accuracy and reliability for third-party verification. Furthermore, businesses should assess costs and benefits while developing emission reduction plans for their products.
Payment under CBAM should be considered a last-resort, passive approach. To enhance market competitiveness, businesses must proactively adopt strategies to reduce GHG emissions. This includes implementing advanced technologies and transitioning toward greener production processes, ultimately lowering CBAM-related costs.
Vietnam is also preparing regulations for carbon credit trading. Under the CBAM mechanism, if a business has already paid a carbon price in the exporting country, the corresponding amount will be deducted from the CBAM certificate costs in Europe, adjusted to reflect the carbon price paid domestically.
Given this mechanism, businesses should support and collaborate with Vietnamese regulatory authorities in conducting GHG inventories and promoting domestic carbon pricing policies. This ensures that a portion of the revenue from carbon pricing remains in Vietnam and is utilized domestically rather than being entirely transferred to Europe.
- To prepare for adaptation, in your opinion, what policies and support measures should regulatory authorities implement to help export businesses comply with CBAM requirements?
For regulatory authorities, supportive policies are needed to help businesses effectively adopt the CBAM mechanism and facilitate exports.
Currently, the Ministry of Natural Resources and Environment (MONRE) is actively involved in assisting businesses in meeting CBAM obligations, developing Vietnam’s response plan to CBAM, and supporting enterprises in adapting to this policy. MONRE is also formulating regulations and guidelines related to greenhouse gas (GHG) inventory, which serve as the fundamental basis for businesses to comply with CBAM requirements.
Additionally, financial mechanisms related to green finance will provide businesses with the necessary resources to invest in technological transformation. This will help reduce GHG emissions, enhance competitiveness, expand export markets, and mitigate the impact of CBAM on businesses.
Ha An - VTCNews
