Attracting investment in forest carbon market

In global climate change response strategies, forests are increasingly recognised as a “carbon asset” with significant economic and environmental value. According to international studies, forest ecosystems can absorb about 7.6 billion tonnes of CO2 each year, equivalent to around 20% of total global greenhouse gas emissions. However, financial resources for forest protection and restoration remain limited.

Reports by the United Nations Environment Programme indicate that to meet global forest protection and restoration targets, annual investment needs to reach approximately 300 billion USD by 2030 and nearly 500 billion USD by 2050. In this context, the carbon credit market, especially forest carbon credits, is emerging as a highly promising green financial channel. In addition to contributing to emission reduction goals, investment in forests also brings substantial economic returns.

International studies show that every 1 USD invested in forest restoration can generate up to 30 USD in economic value through ecosystem services such as water regulation, soil protection, biodiversity conservation, and improved livelihoods for local communities. For Viet Nam, with forest coverage exceeding 42% and a large area of natural forests, deeper participation in the forest carbon market will not only help mobilise resources for forest protection but also open opportunities for green economic development. In recent years, Viet Nam has gradually built a legal framework to participate in the global carbon market.

In 2022, the Government issued Decree No. 06/2022/ND-CP (dated January 7, 2022) on greenhouse gas emission reduction and ozone layer protection, which outlines a roadmap for establishing a domestic carbon market, moving towards pilot operation of a carbon trading platform in the 2025–2027 period and full operation from 2028. According to experts, the forestry sector holds significant advantages in participating in this market through carbon sequestration and storage projects. A practical example demonstrating the market’s potential is the 2023 emission reduction purchase agreement between Viet Nam and the World Bank (WB) in the North Central region.

Accordingly, Viet Nam transferred about 10.3 million tonnes of CO2 emission reductions from forests in six North Central provinces, with a total value of approximately 51.5 million USD. This is considered Viet Nam’s first large-scale forest carbon credit transaction on the international market, opening a new direction for harnessing the economic value of forest resources.

Nguyen Tuan Quang, Deputy Director of the Department of Climate Change under the Ministry of Agriculture and Environment, said that with the formal operation of Article 6.4 of the Paris Agreement and the establishment of the Tropical Forest Forever Facility, the world is shifting from an “offsetting” mindset to making “real contributions” to global emission reductions. This sets new standards for the carbon market, requiring carbon credits, especially forest-based ones, to ensure environmental integrity, sustainability, and transparency.

Building a carbon market is not only about increasing trading volumes but, more importantly, about promoting a transition to a low-emission growth model. Despite its great potential, the development of forest carbon projects in Viet Nam still faces many challenges. One of the biggest difficulties is project risk, as these projects have long implementation periods, depend heavily on natural conditions, and are significantly affected by climate change.

In addition, forest carbon projects are often large-scale and involve multiple stakeholders, from state management agencies to local communities and businesses. This requires transparent governance mechanisms, as well as robust systems for measuring, reporting, and verifying emissions to ensure the credibility of carbon credits. Another issue is land use rights and benefit-sharing, particularly in areas involving local communities. Without reasonable benefit-sharing mechanisms, the implementation of forest carbon projects will face significant practical challenges.

To promote the sustainable development of the forest carbon market, a range of synchronised solutions is needed. First, it is necessary to continue improving the institutional framework and relevant legal regulations, including clarifying mechanisms for ownership, registration, certification, and trading of carbon credits, while building systems for management, monitoring, and transparent emission data.

Financial resources must also be diversified to expand the scale of forest carbon projects. In addition to state budget funding, it is necessary to mobilise capital from the private sector, climate funds and international financial institutions through instruments such as green credit, green bonds, and carbon finance mechanisms. In this regard, blended finance models combining public and private capital play an important role in reducing initial project risks and attracting further investment flows.

It is also essential to strengthen the role of financial institutions within the carbon market ecosystem. Banks, investment funds and insurance organisations not only provide capital but can also participate in designing green financial products, offering market advisory services and supporting risk management for forest carbon projects. Greater involvement of financial institutions will help the carbon market gradually operate under market principles and expand trading scale.

At the same time, international cooperation should be enhanced to access climate finance, carbon monitoring technologies, and advanced standards for emission measurement and verification. Through cooperation programmes and international projects, Viet Nam can not only secure additional financial resources but also improve the quality of its carbon credits, thereby increasing its capacity to participate and compete in the global market.

In addition, improving the investment environment and simplifying procedures are also crucial. When project approval, emission reduction certification, and carbon credit registration processes are carried out quickly and transparently, compliance costs for businesses will decrease, thereby encouraging more stakeholders to participate in the market.

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