Forest carbon credits priced based on quality

Circular No. 31/2026/TT-BNNMT of the Ministry of Agriculture and Environment is the first legal document to provide specific guidance on the methodology for determining payments for forest carbon sequestration and storage services. The regulation establishes a technical basis for project developers to determine carbon credit prices before negotiating contracts or listing credits on a carbon trading exchange.

Importantly, a forest carbon credit is no longer assigned a uniform price across all forest areas. Instead, its price must reflect the cost of generating the credit, project quality, the project's ability to maintain carbon stocks, and market trading conditions.

Under Circular No. 31, the payment level is determined by two methods: the cost-based method and the comparative method. After both calculations are completed, the higher value serves as the basis for contract negotiations or for listing carbon credits on a carbon trading exchange.

Under the cost-based approach, project developers must calculate all expenses required to generate the volume of carbon credits available for sale. These costs include expenses for project development and registration; measurement, reporting, and verification (MRV) of emission reductions; carbon credit issuance; trading and transfer transactions; and applicable taxes and fees.

The calculation also includes costs for supporting forest protection and development and local livelihoods. This component is capped at 15% of the state budget allocated for forest protection during the project implementation period, based on the forest area, the level of financial support per hectare, and the project duration.

However, the total cost is not divided by the project's entire projected carbon volume. Instead, projects must determine the actual volume of carbon credits available for supply, based on verified emission reductions, credits already issued, and the projected volume for subsequent crediting periods.

Emission reductions allocated for Nationally Determined Contributions (NDCs) must also be accounted for separately where they are not eligible for transfer. This provision aims to prevent the same emission reductions from being counted toward the country's commitments while also being sold to another buyer.

In addition to the cost-based approach, Circular No. 31 requires project developers to benchmark prices against the market. Under the comparative method, each project must use at least three forest carbon projects as references, provided they have recorded domestic or international transactions within the previous 24 months.

The reference projects must be similar in terms of carbon credit-generating activities, the carbon standards applied, and buyers’ intended use of the credits. This means that a natural forest conservation project cannot arbitrarily use the price of an afforestation project or another type of carbon credit as its benchmark. Reference prices are also adjusted based on three groups of criteria: credit quality, the risk of emission leakage or reversal, and project scale.

In terms of quality, projects involving natural forests, mangrove forests, the restoration of degraded land, or planted forests with a high proportion of native tree species and long-term permanence are ranked more highly. For projects certified under international standards, credits meeting high-integrity carbon standards or eligible for use under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) also receive higher valuations.

Regarding risk, projects must assess the likelihood that previously credited carbon stocks could be lost due to forest fires, deforestation, or forest degradation. The proportion of credits required to be placed in a buffer reserve is used to classify project risk, with a 20% threshold applied.

Project scale is also taken into account. The circular classifies projects according to the volume of carbon credits generated and adjusts prices when comparing small-scale and large-scale projects. 

These technical requirements provide businesses and local communities participating in forest carbon projects with a clearer framework for developing financial plans, while helping reduce information asymmetry during negotiations with international partners.

Circular No. 31 also requires price updates. If a project records no transactions for 12 consecutive months, its payment level must be adjusted based on the average price of the three most recently traded projects. If fewer than three eligible reference projects are available, the payment level must be determined using the cost-based method.