Vietnam is planning to implement a new environmental tax law in 2012. The objective of the study is to provide a predictive quantitative evaluation of the impacts of the proposed draft environmental tax law of Vietnam on producer and user prices, sectoral output and employment, the commodity structure of demand, government tax revenue, CO2 emissions and household welfare.The assessment is based on a multisectoral computable general equilibrium (CGE) model calibrated to a new social accounting matrix that represents the current structure of the Vietnamese economy. The model distinguishes 33 production sectors, 20 household groups, and incorporates a sophisticated treatment of energy substitution in production, allowing substitution possibilities between liquid fuels and gas, coal, and electricity as well as technology switches towards less energy-intensive modes of production.• Among the various environmental taxes, the refined liquid fuels taxes will be the dominant source of tax revenue. • To have a discernible impact at all, the initial nominal tax rates for gasoline and diesel oil must be set at higher rates than the lower limit specified in the draft law, given that existing fees/surcharges at rates equal to these lower limits will be abolished once the environmental tax is implemented. The mere replacement of one tax by another with a different label but the same rate will have zero allocative effects • If the aim is to move tax rates in real terms gradually to the upper limit of the tax band, actual nominal rates need to rise at a rate higher than the rate of inflation, and once the nominal upper limit specified in the tax law is reached, this upper limit needs to be indexed to the rate of inflation in order to keep the real tax rate permanently at the upper level. • At the higher end of the proposed tax rate band, the environmental tax on fuels will have noticeable economy-wide repercussions. • The results suggest that CO2 emissions drop by around 2.3% under the Low and by 7.5% under the High tax rate scenario. • The tax-induced fuel price increase raises the production cost and output prices of other fuel-intensive sectors to some extent – notably for fishing and the transport sector. • The tax-induced rise in the cost of transport services spreads the impact of the fuel tax widely across the economy through its effect on transport margins for all non-service commodities. • At high levels of the tax rate, the environmental tax shifts a significant amount of purchasing power from households to the government. • As the additional tax revenue is spent on environmental protection measures (or other non-traded goods and services), the real exchange rate appreciates to some extent and real exports decline slightly relative to the no-eco-tax growth path. • Household welfare – narrowly defined as utility derived from the consumption of private goods – declines significantly across all households groups. However, this result does not take account of future welfare gains due to beneficial environmental impacts. • The analysis suggests that higher real tax rates for fuels should be phased in gradually according to a transparent pre-announced time schedule to allow firms to plan investments in fuel-efficient technologies. • There is a need for supportive measures to facilitate a smooth low-carbon technology transition. • The proposed tax rates raise the price of refined oil relative to coal. The relation of coal tax rates to fuel tax rates should be reconsidered to avoid potential unintended substitution effects from relatively clean refined fuels towards relatively “dirty” coal. • Taxation of HCFC, avoidable harmful chemical substances and plastic bags is good economic policy despite insignificant tax revenue and economy-wide repercussion effects. Convergence of tax revenue to zero should be seen as success of policy.