As Vietnam prepares to operate a carbon market by 2029, the potential its forests hold in the green finance space grows in importance.

Forest carbon credits
are generated from the volume of carbon reduced or absorbed through projects that
prevent deforestation and forest degradation, promote sustainable forest resource
management, and conserve or enhance carbon stocks. In Vietnam, forest carbon absorption
and storage services were codified in the Law on Forestry 2017, making them one
of the five recognized forest environmental services.

The country is now
accelerating efforts to finalize the legal framework needed to operate a carbon
trading exchange by 2029. This represents an important step towards linking the
country’s forest potential with the rapidly-growing global stream of carbon finance,
while creating significant space for the development of a domestic forest carbon
market.

Path forward

According to the
United Nations Environment Programme (UNEP)’s “State of Finance for Forests 2025”
report, global capital flowing into forest development projects and nature-based
climate solutions doubled during 2020-2024 compared with the previous five-year
period. Approximately $23.5 billion a year is being invested in protecting and restoring
forests worldwide, up significantly from less than $12 billion annually in the preceding
period. This surge underscores why forest carbon credits are increasingly viewed
as a promising “green finance channel” within the global carbon market.

Vietnam’s carbon
trading exchange is yet to be officially launched, but the country has already achieved
an important milestone in successfully selling 10.3 million forest carbon credits
internationally through the World Bank at $5 per credit, generating $51.5 million.
With its substantial forest area and ongoing sustainable forestry initiatives, this
deal is seen as a landmark transaction that helps define Vietnam’s capacity to supply
forest carbon credits. It also signals strong prospects for future market activity.

Experts estimate
that with 15 million ha of forest, Vietnam could generate $50-100 million annually
from forest carbon credits. To develop the market and unlock this potential, Ms.
Nghiem Phuong Thuy from the Forestry and Forest Protection Department at the Ministry
of Agriculture and Environment, said the Ministry is building four central policy
directions to institutionalize forest carbon absorption and storage services and
to establish the foundations for a transparent, effective and sustainable forest
carbon market.

The first direction
focuses on completing the legal framework for forest carbon absorption and storage
services. This framework must also ensure compliance with Vietnam’s Nationally Determined
Contribution (NDC), preventing the issuance or sale of credits beyond the country’s
emission reductions commitments. In parallel, the government is drafting decrees
related to managing the domestic carbon exchange, including provisions for a compliance
market, trading mechanisms, and monitoring systems.

The second direction
involves building technical frameworks and standards for the forest carbon market.
This includes developing a national forest carbon standard that will serve as a
foundation for project registration and validation under a unified domestic system,
rather than relying entirely on international standards. Pilot projects aligned
with the national standard during the carbon market’s trial phase (ending in 2028)
will help refine measurement, reporting and verification (MRV) methods and test
their applicability, providing a basis for future expansion.

Ms. Thuy stressed
that allocating NDC quotas to individual projects will be crucial to avoid overselling
beyond national commitments, and Vietnam will also need a national registry system
for carbon quotas and credits to issue, track, and store credits before they are
traded.

The third direction
centers on mobilizing resources. Alongside international financing and private sector
investment, Vietnam is working to effectively channel funding from local budgets
and national programs to support forest carbon initiatives.

The fourth direction
emphasizes communication, training, and capacity building. “Developing a forest
carbon market is a new endeavor that requires consistent understanding across government
agencies, local authorities, forest owners, businesses and civil society organizations,”
Ms. Thuy said. Training in carbon market mechanisms, technical standards, MRV methodologies,
credit trading, and risk management will help ensure that all participants can operate
projects efficiently and transparently.

Role of financial institutions

To build a viable
forest carbon market, experts recommend that Vietnam strengthen its institutional
and legal frameworks, diversify financial resources, and expand access to carbon
finance and blended finance models. They also highlight the importance of international
cooperation and proactive engagement with global funding programs.

At the same time,
simplifying administrative procedures and improving implementation guidelines will
be essential to attract investment and enhance stakeholder readiness. Financial
institutions are also expected to play an increasingly critical role in scaling
both forest carbon projects and the broader market.

According to Ms.
Tran Hong Nhung from Flinders University in Adelaide, Australia, limited State budget
capacity and constraints in domestic enterprises mean commercial banks, insurance
companies, investment funds, guarantee funds, and local financial mechanisms will
become key providers of capital, technical assistance, and confidence building for
green forestry projects. “These institutions not only provide credit but also offer
flexible and diversified financial mechanisms, from loan guarantees to equity investment
and public-private partnerships – helping businesses leverage capital more effectively
to implement forest carbon projects,” Ms. Nhung said.

Small and medium-sized
enterprises (SMEs), which often face procedural barriers and high collateral requirements,
could benefit significantly from financial products tailored to reduce administrative
burdens and offer more flexible terms. Financial institutions can also support project
preparation, risk assessment and documentation, enabling enterprises to meet MRV
requirements and secure project verification; an essential step before credits can
be commercialized.

Regarding the potential
role of financial institutions, Ms. Nhung outlined three principal functions. First,
they can supply capital, both directly or indirectly, for carbon project implementation,
forest management and protection, reforestation, and investment in technical MRV
infrastructure. Second, they can provide advisory support and develop specialized
financial instruments such as green loans, carbon bonds, credit guarantees, and
profit-sharing models. And third, financial institutions also play a vital role
in helping businesses connect with international standards and markets, ensuring
higher value and more tradable carbon credits.

With Vietnam’s net-zero
commitments to 2050, rich biodiversity, and the significant potential of its forest
carbon market, the opportunities to mobilize resources for forest carbon services
are substantial. However, experts emphasize that turning this potential into reality
will require collective action from all levels of government, development partners,
researchers and the private sector to create additional value for forests and effectively
mobilize resources for conservation and sustainable forestry development.

VET-Bao Tram