1. Carbon market – A driver for Circular Economy (CE)
The carbon market is increasingly recognized not only as a climate policy tool but also as a legal mechanism to promote sustainable economic transformation. Recently, many studies have focused on integrating the carbon market with the goals of the circular economy (CE). However, structural limitations persist between the production-based calculation of emissions and the lifecycle-based resource efficiency approach, especially in offset credit mechanisms and additionality assessment. Therefore, although emission reduction and resource efficiency are complementary, integrating these two objectives requires intentional institutional design rather than simply allowing the policies to coexist.
In practice, some countries have begun to utilize the Emissions Trading System (ETS) as a tool to incentivize circular economy (CE) activities. The experience from South Korea indicates that factors such as benchmark-based quota allocation, expanded auctioning, enhanced MRV (Monitoring, Reporting, and Verification), and control over offset credits can significantly influence market behavior and emission reduction outcomes. However, the carbon market still does not automatically fully reflect circular benefits such as recycling or material recovery.
In Vietnam, the carbon market is in its formative stage, while the orientation for CE development has also been established in key policy documents. Nevertheless, the legal link between carbon market governance and CE policy remains limited; current regulations have not clarified the mechanisms for recognizing, recording credits, or providing incentives for CE activities within the carbon market framework. This gap highlights a pressing research need. Although existing studies have examined Vietnam's carbon market from technical, economic, and climate policy perspectives, few studies have focused on the legal and institutional aspects of integrating the carbon market mechanism with CE objectives, especially in the context of a newly formed ETS in developing countries.
2. South Korea - Vietnam Comparative Analysis
South Korea implemented the Korea Emissions Trading Scheme (K-ETS) in 2015 under the Act on the Allocation and Trading of Greenhouse Gas Emission Allowances, making it the first mandatory nationwide ETS in East Asia. The system covers about 75% of total national emissions, including the power, industrial, building, waste, maritime, and aviation sectors. K-ETS was implemented in phases, starting with a fully free allocation in the initial stage, transitioning to partial auctioning and benchmark allocation in the next stage, and then expanding auctioning and tightening allocation standards in subsequent stages. Legally, compliance obligations are binding, accompanied by a standardized MRV system and a third-party verification mechanism. However, South Korea has not established a separate credit category for the circular economy; circular activities are only recognized when they generate measurable emission reductions, such as converting waste to energy or capturing methane from landfills. This suggests that K-ETS has a strong institutional foundation and is operating quite effectively, but its integration with the circular economy remains structurally limited.
In Vietnam, the legal framework for the circular economy has been established through the National Action Plan on the Circular Economy until 2035 and the Extended Producer Responsibility (EPR) mechanism under the 2020 Law on Environmental Protection, but governance mainly focuses on waste management compliance. At the same time, Vietnam has also built the legal foundation for the carbon market through the 2020 Law on Environmental Protection, Decree 06/2022, Decree 119/2025, and Decree 29/2026, with a roadmap from a pilot phase to full operation of the exchange by 2029. Nevertheless, the current design of Vietnam's carbon market tends to prioritize emission reduction and compliance goals rather than promoting a structural shift towards circularity. Key barriers include the lack of a methodological basis for recognizing circular economy activities in the carbon market, an MRV system limited to calculating direct emissions at the source, the separation in management between ETS and EPR, and a market design that currently fails to create a clear link between carbon goals and circular goals.
3. Vietnam’s CE - Carbon market integration: Opportunities and Challenges
Opportunities:
Vietnam currently has many favorable conditions to promote the integration of the circular economy (CE) with the carbon market. Firstly, the 2020 Law on Environmental Protection has recognized emission quotas and the carbon credit trading mechanism, creating the initial legal foundation for the formation of a domestic carbon market. Besides, the roadmap for developing the carbon market in stages along with the development of the MRV system has created a technical and institutional basis for measuring, reporting, and verifying emissions. At the policy level, Vietnam has also demonstrated a clear climate commitment through the NDC 2030 and the net-zero emission target by 2050, and at the same time promulgated the National Action Plan on Circular Economy to 2035 and institutionalized the Extended Producer Responsibility (EPR) mechanism. These factors show that Vietnam already has a relatively complete legal and policy framework to consider linking the carbon market with the goals of efficient resource use and circular transition.
Challenges:
However, the process of integrating the CE with Vietnam's carbon market still faces many significant challenges. One of the prominent issues is the difficulty in determining the additionality of CE activities when many contents have become mandatory obligations under the EPR (Extended Producer Responsibility) mechanism, thereby raising the risk of overlap between EPR compliance and carbon credit recognition. Furthermore, the coordination between the existing ETS (Emissions Trading System) and EPR policy frameworks is still limited, while the MRV (Monitoring, Reporting, and Verification) system mainly focuses on direct emissions at the source and lacks the capacity to fully reflect the circular benefits through a lifecycle approach. Additionally, the institutional capacity of the carbon market is still being finalized with a roadmap for full operation by 2029, and small and medium-sized enterprises may encounter many barriers to participation. These limitations show that integrating the CE into Vietnam's carbon market requires not only legal framework completion but also close policy coordination, enhanced MRV capacity, and appropriate support mechanisms for businesses.
4. Lessons for Vietnam
Drawing from South Korea's experience, it is clear that the carbon market can only become a tool to support the circular economy when placed within a synchronous legal and institutional framework. As Vietnam is gradually completing the legal framework for the carbon market, learning from international experience is necessary to build a suitable roadmap, one that both ensures emission reduction targets and enhances resource efficiency and promotes the transition to a sustainable development model. On that basis, several legal and institutional measures can be considered to strengthen the linkage between the carbon market and the circular economy in Vietnam:
- Legal recognition of CE - related offsets
Vietnam should establish a clear legal basis for recognizing carbon offsets generated from eligible CE activities, including advanced recycling technologies, industrial symbiosis arrangements, and waste - to - energy projects. However, such recognition must be subject to strict additionality criteria and environmental integrity safeguards. Circular activities that are already mandated under existing environmental regulations, particularly under EPR schemes, should not automatically qualify for carbon credit issuance. Instead, eligibility should depend on demonstrable emissions reductions beyond regulatory baselines, supported by standardized accounting methodologies.
- Development of dedicated MRV methodologies for circular activities
To address current technical limitations, regulatory authorities should develop and standardize MRV protocols tailored to circular - economy - related mitigation activities. These methodologies should incorporate lifecycle-based carbon accounting approaches capable of quantifying avoided and indirect emissions resulting from material substitution, reuse, and resource recovery. Clear verification standards and accreditation mechanisms should accompany methodological expansion to maintain market credibility.
- Regulatory coordination between ETS and EPR frameworks
Rather than treating carbon governance and resource governance as parallel regimes, Vietnam should introduce coordination mechanisms ensuring accounting clarity between ETS and EPR compliance. This may include the development of cross - referencing provisions clarifying how emissions reductions arising from EPR - related recycling activities are treated within carbon accounting systems. Any form of cross - recognition between recycling certificates and carbon credits must be carefully designed to prevent double counting and preserve market integrity, rather than establishing unrestricted fungibility between distinct environmental instruments.
- Targeted facilitation for small and medium - sized enterprises
Given the structural role of SMEs in Vietnam’s industrial landscape, a differentiated compliance framework should be considered. Simplified reporting templates, tiered verification requirements, and dedicated technical assistance funds could reduce participation barriers. Such measures would prevent the concentration of market benefits among large emitters and ensure broader diffusion of circular business models.
- Phased implementation and institutional sequencing
Consistent with lessons drawn from the Korean ETS, Vietnam should adopt a phased approach to integrating CE elements into its carbon market architecture. An initial pilot phase could focus on developing sector - specific emission factors and testing MRV methodologies in selected industries. A subsequent operational phase may introduce circular offsets into the national trading platform under capped eligibility thresholds. Finally, a consolidation phase could gradually shift toward benchmark-based allocation mechanisms rewarding high-efficiency performers and encouraging the adoption of best available techniques (BAT) in circular production systems.
- Transition toward benchmark - based allocation
To strengthen incentive structures, Vietnam should progressively transition from historical emissions - based allocation (“grandfathering”) toward benchmark - based allocation systems. Benchmarking rewards firms that outperform sectoral efficiency standards and encourage technological upgrading. When aligned with CE objectives, benchmark design may incorporate material - efficiency indicators alongside carbon intensity metrics, thereby reinforcing the integrative function of the carbon market.
For Vietnam, the central challenge lies not in establishing separate climate and circular policies, but in ensuring their interaction. With deliberate institutional design and phased reform, the carbon market may evolve into a meaningful legal instrument supporting both low - carbon and circular development pathways.
- Minh Hung -
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