Can carbon credits help SMEs cope with the European Union's Carbon Border Adjustment Mechanism (CBAM)?

In the context of the European Union implementing the Carbon Border Adjustment Mechanism (CBAM) to control the volume of carbon emissions imported into the internal market, Vietnamese exporting enterprises, especially small and medium-sized enterprises (SMEs), are facing significant challenges regarding costs and compliance capacity. CBAM requires businesses to declare the emissions embedded in exported products and may have to purchase CBAM certificates if emissions exceed the benchmark set by the EU Emissions Trading System (EU ETS). This is particularly important for sectors such as steel, cement, aluminum, and fertilizers - areas where many Vietnamese enterprises are involved in exporting.81 82

In this context, carbon credits can serve as a strategic tool to help businesses demonstrate emission reduction efforts, thereby supporting compliance with CBAM requirements and limiting resulting financial obligations. Although CBAM does not directly accept domestic carbon credits as an official offsetting tool, investing in emission reduction projects verified by international standard systems (such as VCS, Gold Standard, CDM) can help businesses build a transparent profile of lower emission levels.83 This is a crucial factor during CBAM's transitional phase and in the future when the mechanism is fully implemented starting in 2026.

Furthermore, participation in the domestic carbon credit market, combined with green financial support programs from the World Bank (WB), the International Finance Corporation (IFC), or the Asian Development Bank (ADB), will help SMEs invest effectively in emission reduction technologies and enhance their ability to adapt to the EU market's environmental standards. Concurrently, integrating carbon credits into the Measurement, Reporting, and Verification (MRV) system will help businesses better comply with the EU's transparency requirements regarding emissions.

Strategically, carbon credits also help SMEs enhance their environmental reputation, access high-end export markets, and create a competitive advantage in the global transition towards a low-carbon economy. However, to maximize effectiveness, businesses need technical support in developing carbon projects, MRV declaration, as well as actively participating in training and technology transfer programs suitable for domestic production conditions.

References

81. Southeast Asia Energy Transition Partnership. (2024). Impact assessment of EU’s Carbon Border Adjustment Mechanism and carbon tax policies for Vietnam. Energy Transition Partnership. https://www.energytransitionpartnership.org/wp-content/uploads/2024/06/20240318_Final-CBAM-Assessment-Report-final.pdf
82. Vietnam Briefing. (2023, May 8). How the EU Carbon Border Adjustment Mechanism impacts Vietnam. Vietnam Briefing. https://www.vietnam-briefing.com/news/carbon-boredr-adjustment-mechanism-vietnam.htm
83. Cornago, E., & Berg, A. (2024). Learning from CBAM’s transitional phase: Early impacts on trade and climate efforts. Center for European Reform. https://www.cer.eu/publications/archive/policy-brief/2024/learning-cbams-transitional-impacts-trade