The impact of carbon taxation on non-financial sectors in Vietnam

• Capital-energy substitution elasticities are estimated from firm data. • The GTAP-E model is recalibrated with empirically estimated elasticities. • Minimum carbon tax rates to meet Vietnam’s NDC targets are calculated. • A carbon tax of USD 10/tCO2 enables Vietnam to meet its unconditional NDC. • Carbon pricing shrinks emission-intensive sectors, boosts clean industries. • A phased carbon tax with targeted support ensures economic resilience. This paper evaluates the economic impacts of carbon taxation on Vietnam’s non-financial sectors by employing the GTAP-E model. To enhance the precision of the simulations, sector-specific capital-energy substitution elasticities are empirically estimated using data from the 2022 Vietnam Enterprise Survey and incorporated into the model. Unlike previous studies that rely on subjective assumptions, this study rigorously calculates the minimum carbon tax levels required to meet Vietnam’s unconditional and conditional Nationally Determined Contribution (NDC) targets by 2030. The simulation results suggest that achieving the unconditional NDC target would require a carbon tax of approximately USD 10 per ton of CO 2 , leading to a modest GDP contraction of 0.12%. In contrast, fulfilling the conditional NDC target would necessitate a higher carbon tax rate of USD 38 per ton of CO 2 , associated with a GDP decline of 0.81%. Emission-intensive sectors, notably coal mining, cement manufacturing, and metallurgy, are disproportionately affected, whereas clean technology industries demonstrate expansionary responses. In addition, illustrative revenue recycling scenarios indicate that reallocating carbon tax revenues can partly offset welfare losses and slightly cushion GDP impacts. Taken together, these findings emphasize the critical importance of a phased carbon tax implementation strategy, complemented by targeted support measures for vulnerable sectors, to balance emission reduction objectives with sustainable economic growth.