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Publication Date: 05-2023

The EU’s Carbon Border Adjustment Mechanism (CBAM) is evolving rapidly, with many uncertainties remaining regarding its long-term scope, embedded emissions calculation, and reactions of EU-trade partners. In its current form, the CBAM can affect Vietnamese enterprises exporting to EU although its direct impacts on Vietnam’s GDP are unlikely significant. If the CBAM is expanded to other tradeintensive sectors of Vietnam or taken up by other key trading partners of Vietnam, the impacts may grow quickly. Therefore, Vietnam should engage proactively with the CBAM and prepare for mitigation of potential impacts. One of the pro-active approaches is to accelerate and deepen the adoption of carbon pricing. This will facilitate energy transition, support achievement of Vietnam’s climate change mitigation target (NDC) under the Paris Agreement and long-term net-zero targets and would allow to harness co-benefits. It is also advisable for Vietnam to engage in constructive dialogues with the EU in order to negotiate a fair implementation of CBAM that takes into account Vietnam’s efforts. A key demand here should be the use of emissions credits instead of having to buy CBAM certificates.

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