Vietnam has a long way to go towards decarbonization – The Diplomat

At the end of last year, Vietnam became one of the few countries sign Just Energy Transition Partnership (JETP) with the International Partners Group (IPG) consisting of the European Union, United Kingdom, USA, Japan, Germany, France, Italy, Canada, Denmark and Norway. The multi-billion dollar agreement is an important step towards the Communist Party of Vietnam’s (CPV) goal of achieving zero carbon emissions by 2050. However, despite initiatives such as JETP, Vietnam needs significantly more investment to achieve this ambitious goal. which also requires regulatory reforms.

Carbon emissions disproportionately affect Vietnam. The World Bank ranked it is one of the five countries most affected by climate change, as rising sea levels and extreme heat put areas along its 3,200 km coastline at risk. We are already seeing the impact on the Vietnamese economy: according to the World Bank initial calculationsclimate change-related spending reduced Vietnam’s GDP by 3.2 percent in 2020. When forecasting until 2050, Vietnam’s GDP is projected to contract by 12–14.5 percent.

Despite these risks, Vietnam has significantly increased its carbon emissions. In 1991, Vietnam’s carbon emissions in tons were 21.38 million tons; in 2019 this number jumped up to 341 million

Much of this increase was due to the country’s growing dependence on coal. Coal at present is about half Vietnam’s energy portfolio, with hydropower at 30 percent, followed by natural gas (14 percent) and non-hydro renewables (5 percent). Overall, Vietnam used 53.53 million tons of coal in 2021, up from 38.77 million tons in 2015.

Vietnam’s dependence on coal is a supply and demand issue arising from its phenomenal economic growth and the increase in energy consumption needed to sustain that growth. Vietnam’s economy reached a turning point when the CPV embarked on market-based economic reforms.Doi Moi) in 1986. The results were stunning; in 1985 general Vietnam’s GDP was $14.09 billion; by 2021 it has increased to $366.14 billion. Vietnam started appeared from the COVID-19 pandemic thanks to continued strong economic growth and significant investment in the manufacturing sector. As a result, the Ministry of Industry and Trade predicted in 2018, energy demand will increase annually by 8 percent until 2030.

Do you like this article? Click here to sign up for full access. Only $5 per month.

JETP is needed if Vietnam wants to increase the amount of renewable energy to meet this demand. Initially, at least, this played a role in forecasts of declining coal use in Vietnam. When parameter its energy goals for 2030 at the last meeting of the G7, the government’s plan increased coal consumption from its current 24 gigawatts (GW) installed capacity to 36 GW in 2030 and provided for the construction of 11 new coal-fired power plants. However, after IPG announced the JETP, Vietnam lowered its projected coal consumption peak to 30 GW in 2030 and said it will get 47 percent of its energy from renewables by the same year.

However, Vietnam needs more investment if it wants to achieve zero carbon emissions within the government’s time frame. In 2022, the McKinsey consulting group released report it is estimated that Vietnam will need an annual investment of $30 billion to reach its zero net emissions target by 2050, equivalent to about 10 percent of its current GDP. Current funding comes in in the vast majority of cases from domestic sources: 58 percent of renewable energy projects are developed by Vietnamese companies, and only 12 percent were developed without the participation of a Vietnamese partner.

This long-term hurdle is superimposed on unpredictable short-term shocks that affect Vietnam’s ability to invest in renewable energy. Take the recent credit crisis, which threatened the country’s leveraged renewable energy industry or Russia’s invasion of Ukraine, which has greatly affected energy markets and prices. Moreover, despite its relative success in weathering the effects of the global pandemic, CPV has had to divert resources away from renewable energy investments.

To reach zero by 2050, CPV must attract foreign investment, which requires reforms of the cumbersome regulatory framework. For example, his Electricity purchase agreement exposes most of the risk to those developing renewable energy projects. This forbidden these developers to directly supply energy to enterprises, as well as lacks a take-or-pay obligation, a government guarantee, or a procedural appeal. On a positive note, the Ministry of Industry and Trade recently announced a pilot direct electricity purchase agreement program that will allow businesses to purchase limited amounts of electricity directly from developers.

Equally problematic is the fact that the Vietnamese government is not doing enough to stimulate investment initially. In 2018, the government introduced a successful FIT program for projects built before November 2021 (later extended to 2023). The success of the program was evident in the tens of billions of dollars of investment it has stimulated. After it expired, the ministry proposed moving on to the auction process, which Mayer Brown report predicts a 10-11 percent decline in the internal rate of return for developers.

Overall, Vietnam has taken important steps to reduce its dependence on fossil fuels, including joining JETP. However, Vietnam needs significant foreign funding to achieve these ambitious goals, which requires regulatory reforms to encourage foreign investment.