cbam-and-vietnam-journey-towards-a-circular-economy

Circular Economy – A solution for Vietnam to adapt to the carbon border adjustment mechanism (CBAM)

Vietnam is facing significant challenges as the European Union’s (EU) carbon border adjustment mechanism (CBAM) officially comes into effect. Four export industries, including steel, cement, fertilizer, and aluminum, will be strongly impacted by CBAM. To meet the new requirements, Vietnam not only needs to improve production technology but also implement measures to reduce waste and promote circular practices. This is a challenging yet necessary journey to maintain export markets in the EU and protect the environment.

The EU’s CBAM will start to significantly impact Vietnam’s key export industries when it is implemented on January 1, 2026. CBAM is a crucial part of the EU’s strategy to reduce greenhouse gas emissions, encouraging non-EU countries to adopt similar measures to reduce carbon emissions.

According to CBAM, sectors such as steel, cement, aluminum, fertilizer, electricity, and hydrogen will be taxed based on the CO2 emissions generated during production when imported into the EU. Vietnam does not export electricity and has negligible hydrogen exports to the EU. Therefore, the industries facing pressure from CBAM will be steel, cement, fertilizer, and aluminum.

Steel industry

Ngành thép sẽ chịu tác động mạnh nhất từ CBAM. Với lượng khí thải cacbon cao trong quá trình sản xuất, các nhà sản xuất thép Việt sẽ phải đối mặt với chi phí tăng lên đáng kể khi xuất khẩu sang EU. Theo ước tính, chi phí này có thể tăng lên đến 20-30% do thuế CBAM. Điều này đặt ra thách thức lớn về việc cải tiến công nghệ để giảm phát thải khí nhà kính và tối ưu hóa quy trình sản xuất.

Aluminum industry

The steel industry will be the most affected by CBAM. With high CO2 emissions during production, Vietnamese steel manufacturers will face significantly increased costs when exporting to the EU. These costs could rise by 20-30% due to CBAM taxes. This poses a big challenge in terms of improving technology to reduce greenhouse gas emissions and optimize production processes.

 Fertilizer and cement industry

The remaining two sectors, fertilizer and cement, will be less affected by CBAM due to the low volume of exports to the EU. However, the cement industry is highly polluting in terms of gas and dust emissions, making emission reduction during production highly necessary in the current period.

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Circular practices are not just a trend but a necessary choice for sustainable business development in the context of Vietnam being one of the five countries most heavily affected by climate change and increasing emission reduction requirements. Five critical sectors, including energy, agriculture, forestry, waste, and industry, will need to make significant carbon emission reductions in production. This drives Vietnamese businesses to transition to green practices, focusing on waste reduction and circular practices, supporting the journey towards a sustainable economy.

At the corporate level, many companies have pioneered the adoption of the circular economy model. For instance, VinFast has implemented waste reduction programs with priorities: reducing waste at the source, reusing, and recycling waste. VinFast’s recycling rate has increased over the years, from 69% in 2021 to 81% in 2022 and 86% in 2023. A VinFast representative shared, “Transitioning to a circular economy is essential. With the expanding scale of production, proactive efforts to reduce waste and move towards a circular economy model can make a difference, giving VinFast a competitive advantage.

Additionally, Duy Tan Recycling is a prime example of circular practices in plastic production. The company’s plant has applied the “Bottle-to-Bottle” technology to recycle used plastic bottles into high-quality plastic products. This process helps reduce dependence on fossil fuel-based raw materials and contributes to environmental protection.

Vietnamese businesses are transitioning to a circular economy but face barriers such as technology, investment costs, and legal regulations. Duy Tan Recycling struggles with waste collection and sorting in Vietnam, mainly due to improper waste sorting at the source. Small-scale recycling activities often do not comply with environmental regulations, and investing in new technologies for recycling is costly.

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Transitioning from a “produce-consume-dispose” model to “reuse-recycle-regenerate” is a long process requiring the efforts of both businesses and consumers. Legal regulations and approval processes also create challenges. For instance, to get organic fertilizer from catfish sludge recognized, businesses must develop scientific research projects and conduct numerous tests to prove its effectiveness and biological safety. Even with positive project results, strict regulations on waste management and transportation prolong the approval process.

The implementation of the EU’s carbon border adjustment mechanism presents new challenges for Vietnam’s key export sectors. However, it also offers an opportunity for Vietnam to recognize the importance of green transformation and a circular economy. Despite facing many barriers, the move towards a circular economy remains a necessary and feasible goal, requiring perseverance and support from various stakeholders to achieve sustainable development. The Vietnamese government has been actively supporting businesses in waste reduction and ESG implementation to move towards a circular economy.

Source: Compile