Late final yr, Vietnam turned one of some international locations to signal a Just Energy Transition Partnership (JETP) with the International Partners Group (IPG), comprised of the European Union, United Kingdom, United States, Japan, Germany, France, Italy, Canada, Denmark, and Norway. The multi-billion-dollar settlement is an important step in the direction of the Communist Party of Vietnam (CPV)’s objective of attaining internet zero carbon emissions by 2050. Still, regardless of initiatives like JETP, Vietnam wants considerably extra funding to satisfy this bold objective, which additionally requires reforms to its regulatory course of.
Carbon emissions disproportionately affect Vietnam. The World Bank has ranked it as one of many 5 international locations almost certainly to be affected by local weather change as rising sea ranges and excessive warmth put the areas alongside its 3,200-kilometer coast in danger. Already we’re seeing the affect on Vietnam’s economic system: in accordance with the World Bank’s preliminary calculations, local weather change-related prices trimmed Vietnam’s GDP by 3.2 p.c in 2020. When projecting to 2050, it predicts a discount of 12 to 14.5 p.c of its GDP.
Despite these dangers, Vietnam has notably elevated its carbon emissions. In 1991, Vietnam’s carbon emission in tons was 21.38 million; in 2019, this quantity jumped to 341 million.
Largely this enhance has come from the nation’s escalating dependence on coal. Coal at the moment makes up about half of Vietnam’s vitality portfolio, with hydropower comprising 30 p.c, adopted by pure fuel (14 p.c), and non-hydropower renewables (5 p.c). Overall, Vietnam used 53.53 million tons of coal in 2021, a rise from 38.77 million tons in 2015.
Vietnam’s reliance on coal is a provide and demand downside ensuing from its phenomenal financial development and the elevated vitality consumption obligatory to take care of that development. Vietnam’s economic system reached a pivot level when the CPV launched into market-oriented financial reforms (Doi Moi) in 1986. The outcomes have been staggering; in 1985, the general GDP of Vietnam was $14.09 billion; by 2021, it elevated to $366.14 billion. Vietnam has emerged from the COVID-19 pandemic with continued sturdy financial development and notable investments in its manufacturing sector. As a consequence, the Ministry of Industry and Trade predicted in 2018 that vitality demand would enhance yearly by 8 p.c till 2030.
JETP is crucial if Vietnam is to extend renewable vitality sources to satisfy this demand. At least initially, it performed a job in Vietnam’s diminished coal use projections. When setting its vitality targets for 2030 at the newest G-7 assembly, the federal government plan elevated its coal use from its present 24 gigawatts (GW) of put in capability to 36 GW in 2030 and envisioned the development of 11 new coal-fired energy crops. Yet, after the IPG introduced JETP, Vietnam diminished its projected coal use peak to 30 GW in 2030 and mentioned that it could supply 47 p.c of its vitality from renewables by the identical yr.
Nevertheless, Vietnam requires extra funding whether it is to attain internet zero carbon emissions throughout the timeframe envisioned by the federal government. In 2022, the consulting group McKinsey launched a report that estimated Vietnam would require an annual $30 billion funding to satisfy the 2050 internet zero emissions objective, an quantity equal to about 10 p.c of its present GDP. Current funding comes overwhelmingly from home sources: 58 p.c of renewable vitality tasks are developed by Vietnamese corporations, and solely 12 p.c have been developed and not using a Vietnamese companion.
This long-term hurdle comes on prime of unpredictable short-term shocks that affect Vietnam’s potential to put money into renewable vitality. Take the current credit score crunch, which threatened the nation’s credit-dependent renewable trade, or Russia’s invasion of Ukraine, which closely influenced vitality markets and costs. Moreover, regardless of its relative success withstanding the implications of the worldwide pandemic, the CPV has needed to divert sources from renewable funding.
To attain internet zero by 2050, the CPV should entice international funding, which requires reforms to its cumbersome regulatory construction. For instance, its Power Purchase Agreement places the vast majority of the chance on these growing renewable vitality tasks. It prohibits these builders from instantly offering vitality to companies whereas additionally missing a “take or pay” obligation, authorities assure, or procedural recourse. As a optimistic improvement, the Ministry of Industry and Trade lately introduced a Direct Power Purchase Agreement pilot program that can permit companies to buy a restricted quantity of electrical energy instantly from builders.
Equally problematic is the truth that the Vietnamese authorities doesn’t do sufficient to incentivize funding on the entrance finish. In 2018, the federal government launched a profitable feed-in tariff program for tasks constructed earlier than November 2021 (later prolonged to 2023). The program’s success was evident within the tens of billions of {dollars} of funding it incentivized. Since its expiration, the Ministry proposed a transition to an auction-based course of {that a} Mayer Brown report predicts will lower the interior charge of returns for builders by 10 to 11 p.c.
Overall, Vietnam has taken necessary steps to scale back its reliance on fossil fuels, together with becoming a member of JETP. Still, Vietnam wants vital international funding to satisfy these bold targets, necessitating regulatory reforms to incentivize international funding.
Source web site: thediplomat.com
