INTRODUCTION
Background
Climate change is a critical global issue, with the 1997 adoption of the Kyoto Protocol marking a significant milestone as the first international agreement aimed at reducing greenhouse gas emissions This protocol established three flexible mechanisms to facilitate cost-effective GHG reductions worldwide, ultimately leading to the creation of the international carbon market.
The Clean Development Mechanism (CDM) is a key component of the Kyoto Protocol (KP), enabling 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 mechanism not only helps Annex I countries meet their targets 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), represents a significant milestone in global climate action This legally binding international treaty was reached through the consensus of 196 parties, reflecting the international community's commitment to finding alternatives to the Kyoto Protocol (KP) in addressing climate change.
The Paris Agreement (PA 2015), which took effect on November 4, 2016, aims to limit global temperature rise to well below 2°C and strives to keep the increase to 1.5°C above pre-industrial levels Each country's commitment to reducing 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 through a strong accounting framework Article 6.4 is regarded as a successor to the Clean Development Mechanism (CDM), as it shares similar procedures (Mele et al., 2021) Under specific conditions, CDM projects initiated under the Kyoto Protocol can be transitioned to the Article 6.4 mechanism (A6.4M).
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 the encouragement of new mitigation initiatives.
The Kyoto Protocol (KP) and the Paris Agreement (PA) represent distinct agreements, and it is important to note that Clean Development Mechanism (CDM) activities cannot be directly transitioned to Article 6 Furthermore, the standards for sustainable development (SD) and environmental integrity outlined in Article 6 are more intricate and demanding compared to those 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
In the last two decades, Vietnam has played a significant role in the global response to climate change, signing the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 and ratifying it on November 16, 1994 Subsequently, Vietnam signed the Kyoto Protocol (KP) in 1998 and ratified it in 2002, positioning 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 a significant increase in the emission reduction target, exceeding the previous target by over 1.5 times.
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 potentially increase to 43.5%, highlighting the importance of collaborative efforts and new mechanisms in combating 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 in the world for expected CERs (UNEP DTU, 2022).
The transition of CDM activities to Article 6.4 of the Paris Agreement has established general rules and procedures during COPs 26 and 27, yet host Parties play a crucial role in defining specific criteria tailored to their national context, NDC commitments, and sector development priorities Various transition pathways are available for consideration, including full transition, conditional transition based on factors like registration date and project type, stricter transition conditions involving technology type and Sustainable Development Goals achieved, or 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 approved by the DNA, this transition must be communicated to 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
The transition process to A6.4M of the PA involves four existing projects that enhance investor confidence in the international carbon market, broaden investment opportunities in potential emission reduction initiatives, and secure resources to meet national NDC targets.
Research question and hypothesis
The research aims to identify the 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 address 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
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:
Literature review
Recent agreements on CDM transition mechanisms were established during COPs 26 and 27; however, international research remains largely theoretical, focusing primarily on criteria for conversion Notably, there is a lack of similar studies 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 years, climate change was perceived as a natural occurrence; however, the 1992 United Nations Framework Convention on Climate Change (UNFCCC), also known as the Rio Earth Summit, marked the first global agreement recognizing human activities' role in climate change This Convention aims to address and mitigate the effects of global warming through its core principles.
The principle of "Common but Differentiated Responsibilities" (CBDR) highlights that while combating climate change is a collective obligation, developed nations bear a greater responsibility due to their significant historical contributions to greenhouse gas emissions.
The Kyoto Protocol (KP), established in 1997 as part of 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, set binding GHG emission reduction targets of 5% below 1990 levels for 37 industrialized nations, economies in transition, and the European Union To achieve 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
(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 (Annex B Parties) to trade emission units, which represent their allowed emissions This mechanism facilitates the reduction of overall emissions by allowing countries with excess units to sell them to those needing to meet their targets, promoting cost-effective emission reductions and encouraging global cooperation in addressing climate change.
"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, allowing them to count these reductions towards their own climate goals.
The Clean Development Mechanism (CDM) actively involves developing countries like Vietnam in implementing mitigation projects and transferring Certified Emission Reductions (CERs) to developed nations This mechanism aims to reduce costs for Annex I countries in meeting their greenhouse gas emission targets while simultaneously supporting non-Annex I countries in achieving sustainable development.
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; however, key developed countries opted out of participation Consequently, many nations moved away from the Clean Development Mechanism (CDM), resulting in a significant drop in Certified Emission Reduction (CER) prices and a slowdown in new project developments The amendment did not come into effect until December 31, 2020, after the necessary 144 countries had ratified it, due to a high ratification threshold.
The late enforcement of the second commitment period of the Kyoto Protocol (KP) signals a strong international commitment to combat climate change through multilateral cooperation This implementation allows for the accounting of emission-limitation commitments and enables the KP's 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
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 adheres to the principle of "common but differentiated responsibilities," the agreement emphasizes voluntary contributions, eliminating the distinction between developed and developing nations regarding their mitigation efforts.
The Paris Agreement (PA) employs a bottom-up approach, allowing each country to fulfill its emissions reduction commitments, in contrast to the previous top-down method under the Kyoto Protocol (KP) Article 4 mandates that each Party must prepare, communicate, and uphold successive Nationally Determined Contributions (NDCs) that embody their highest ambitions, while also implementing domestic mitigation strategies to achieve these goals.
The Paris Agreement emphasizes the significance of cooperative mechanisms for countries to meet 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 aimed at promoting mitigation and sustainable development under Article 6.4, also utilizing market-based mechanisms; and third, non-market approaches under Article 6.8 that address 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 the successor to the Clean Development Mechanism (CDM) (UNFCCC, 2021c) Recent agreements made during COP 26 (2021) and COP 27 (2022) outline approaches for transitioning CDM activities to this new framework.
1.6.2 The principle of CDM and Article 6.4
Carbon crediting mechanisms are guided by essential design elements and principles that span six key dimensions: governance and accounting, scope and eligibility, monitoring, reporting, and verification (MRV), maintaining environmental integrity, ensuring sustainable development (SD), and fostering connections with other policies (Axel Michaelowa et al., 2019) A fundamental principle of the Clean Development Mechanism (CDM) is to promote these dimensions effectively for enhanced environmental and economic outcomes.
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 for final approvals regarding registrations, credit issuance, baseline and monitoring methodologies, and the transaction of Certified Emission Reductions (CERs).
METHODOLOGY
General approaches
To establish transition criteria for CDM activities under A6.4, it is essential to consider the international and national contexts, along with the current status of CDM projects in Vietnam, including their advantages and barriers to implementation This research utilizes both top-down and bottom-up approaches, as outlined by Paul A Sabatier (1986), as well as quantitative and qualitative methods, following the framework proposed by C.R Kothari (2016).
The top-down approach in policy research provides a comprehensive understanding of the broader context surrounding policy issues, particularly in the carbon market This method enables researchers to gain a macro-level perspective, highlighting critical aspects and major issues It also offers an overview of international commitments and the policy framework for implementing CDM projects, as well as strategies for sustainable development in Vietnam Ultimately, this approach establishes the legal basis for determining the criteria of transformed CDM projects.
The reliance on a top-down approach in CDM projects may result in missing specific characteristics and insufficient engagement from stakeholders directly impacted by the mechanism To address these gaps, a bottom-up approach is implemented, ensuring that the voices and feedback of those involved in project execution are considered.
The bottom-up approach offers a thorough understanding that identifies all relevant factors, ensuring timely updates to policies and their implementation This method actively involves all stakeholder groups, leading to greater acceptance of the final outcomes Consequently, the bottom-up approach is crucial in policy research for developing and proposing effective and widely accepted policies.
This bottom-up approach was applied to collect project information, identify
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 and a lack of cohesive 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, maximizing their advantages while minimizing the drawbacks 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, offering valuable contextual insights related to the research topic Its inherent flexibility allows researchers to adapt their methods and approaches based on findings that emerge throughout the research process This approach is especially beneficial for investigating relatively unexplored subjects or when existing frameworks are insufficient.
Given the novelty of the research topic, a qualitative approach was ideal for gaining a comprehensive understanding of the national context and identifying specific elements related to project development, ultimately providing valuable insights.
The qualitative research approach emphasizes gathering in-depth insights over broad data, relying heavily on subjective opinions It necessitates the researcher's flexibility and comprehension to extract valuable information To mitigate the drawbacks of qualitative methods, researchers often incorporate official sources and seek expert opinions within the relevant field.
The quantitative approach offers statistical and objective insights into large populations, allowing researchers to draw reliable and objective conclusions It streamlines data analysis, saving time while providing quantitative results that facilitate easy comparison.
A quantitative approach was utilized to gather statistics on registered CDM projects, including a comprehensive list of these projects, estimates of potential and achieved emissions reductions, and the number of potential projects categorized by sector and project type The analysis also encompassed investment parameters, enabling the quantification of abatement costs and potential emission reductions for each project from 2021 to 2030 based on the collected raw data.
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
The research utilized five distinct methods to investigate various perspectives and reveal the connections among the complex layers of research questions, as illustrated in Figure 2.2.
Figure 2.2 The approach and method utilization in this study
A comprehensive review of the international market-based mechanisms and national legal frameworks for carbon project development under the Kyoto Protocol (KP) and Paris Agreement (PA) was conducted to identify gaps in current carbon projects in Vietnam and globally The systematic literature review encompassed the national context of climate change policies and international obligations under Article 6.4 A desk study analyzed the implementation arrangements, registration criteria for transitioning Clean Development Mechanism (CDM) projects to Article 6.4, and relevant timelines and templates Additionally, the national context was examined through an analysis of 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 conducted with Microsoft Office Excel Software provided insights into registered projects under carbon standards and other environmental credit mechanisms in Vietnam This analysis included a comprehensive list of registered projects, along with estimates of both potential and achieved emissions reductions, highlighting their contributions to environmental sustainability.
The article discusses the sustainability of 39 projects, detailing key aspects such as registration dates, start dates, and the commencement of crediting periods across various sectors By analyzing collected raw data, it identifies the abatement costs and potential emission reductions for each project type and sector for the period of 2021 to 2030.
Potential emission reduction (ER) for post-2021
To estimate the amount of Emission Reductions (ER) post-2021, the calculation is based on the crediting period (CP) of the activities CDM projects have two types of CP: renewable, which lasts for 7 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 under its CP, which can be renewed for a maximum of five years, with the possibility of two renewals This framework is interpreted through three distinct cases.
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
The 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 the associated costs Increasingly utilized across various countries, MAC curves play a significant role in tackling environmental issues and are becoming integral to government climate change policies and corporate climate strategies.
To determine the necessary support for advancing the selected technology in the crediting program, the calculation of Marginal Abatement Costs (MAC) is utilized Simplified Marginal Abatement Costs are expressed in US dollars per ton of CO2 equivalent (US$/tCO2e) and are calculated 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, it's crucial to assess its Net Present Value (NPV) A positive NPV indicates that the benefits surpass the costs, suggesting the project will eventually become profitable Conversely, a negative NPV signifies that the investment will not recoup its costs over time.
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 performed to evaluate the existing policy framework and identify the necessary requirements for implementing Article 6, revealing key policy gaps The findings 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 feedback on Vietnam's Nationally Determined Contributions (NDC), the Paris Agreement (PA), and the carbon market, addressing both sectoral and national implications.
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
Questionnaires were specifically tailored for each stakeholder group to evaluate international interests in various sectors from Vietnam and to identify the strengths and weaknesses of transitioning CDM projects to a new mechanism The design focused on the purpose, content, and targeted interviewees for effective assessment.
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 details, evaluate international interests, and identify potential advantages and challenges in project implementation The contributions from national experts across various roles and countries enhance the analysis and provide a comprehensive understanding of the project's landscape.
Data on all registered CDM projects was extracted from the official CDM mechanism This data encompasses a comprehensive list of registered projects, along with estimates of potential and actual emissions reductions Additionally, it includes critical information such as the registration date, project start date, crediting period start date, sectoral project types, and financial details including Capital Expenditure (CAPEX) and Operating Expenditure (OPEX).