Vietnam’s challenge to wean off coal

Fossil fuels have driven rapid growth but the country has pledged – with global help – to be carbon neutral by 2050.

Northeast of Hanoi, the capital of Vietnam, is Quang Ninh province, home of the famous UNESCO World Heritage site, Ha Long Bay. Tourism is part of Vietnam’s economic success story and each year Quang Ninh province welcomes 11 million tourists to enjoy the natural beauty. The province is also home to another driver of Vietnam’s economy – the massive coal reserves and power plants that have fuelled the country’s manufacturing miracle and enabled Vietnam’s rapid transition from one of the world’s poorest countries to a vibrant middle-income country.

Yet Vietnam stands at a crossroads in the global economic and energy transition to net zero. The country’s climate change commitments, coupled with domestic environmental and health concerns, mean power generation in Vietnam needs to change drastically. Transitioning away from coal will impact many of these mines, the livelihoods of 100,000 people and 40 per cent of Quang Ninh’s fiscal revenue. A successful transition in provinces such as Quang Ninh is of central importance to Vietnam in realising its targets and contributing to the international goal of limiting global temperature rises to 1.5°C.

Coal has fuelled Vietnam’s recent economic development

In 2022, Vietnam’s economy grew by eight per cent. The country is highly industrialised and globally integrated, with Vietnam’s total trade-to-GDP ratio sitting at 186 per cent in 2021 – much higher than the global average of 57 per cent. Rapid industrialisation necessitates very large increases in energy use.

Total energy consumption doubled between 2010 and 2020. As a consequence, Vietnam has the youngest fleet of coal-fired generators in Southeast Asia, with 82 per cent of power plants less than ten years old. This is a major concern, as climate commitments will likely require their early retirement. Vietnam is also the world’s tenth-largest coal power generator, with its coal share in the electricity supply rising to 52 per cent in 2020 from just 25 per cent in 2010.

With this backdrop, it was a welcome surprise that Prime Minister Pham Minh Chinh used his first overseas trip as Vietnam’s leader to attend COP26 in Glasgow and commit the country to achieving net zero by 2050. During his visit, Vietnam, among a group of 46 countries, also joined a pledge to accelerate a transition away from unabated coal power generation. This was a commitment that major economies such as the United States, Japan, China and India failed to match.

Climate commitments address challenges and bring opportunities

In taking this step, Vietnam recognises significant and increasingly urgent domestic challenges and risks that the country is facing. Ho Chi Minh City, Vietnam’s business and financial hub, which contributes 23 per cent of Vietnam’s GDP, is among the most vulnerable cities to rising sea levels globally. Vietnam’s Mekong delta, which accounts for 50 per cent of the country’s rice production and 90 per cent of rice exports, is threatened by floods and climate-induced salinity of water.

The international community has taken some important steps to recognise Vietnam’s needs and increased ambition by jointly declaring a Just Energy Transition Partnership (JETP) last December. The partnership will help to mobilise US$15.5 billion of public and private capital for climate investment to help Vietnam accelerate its energy transition for the next three to five years while ensuring positive economic and social outcomes. These joint efforts are important to support Vietnam to achieve its ambitions, given the country only reached middle-income country status in 2010, with current GDP-per-capita still less than US$5000 per annum. The partnership is timely, announced right before Vietnam is supposed to finalise the Power Development Plan 8 (PDP8), which shapes the future of energy planning in Vietnam.

JETP presents several opportunities for Vietnam, where discussions on shifting investment from brown to green energy to ensure prolonged growth have been long ongoing. At the centre is an ambition for Vietnam to be known internationally as a global economic and environmental player. The JETP being signed with the International Partnership Group (IPG), consisting of G7 countries, the European Union, Denmark and Norway, all of which have strong political and economic interests with Vietnam and the Indo-Pacific region, reflects that this vision is likely shared.

A just energy transition will not be plain sailing

While JETP is important, the deal alone is unlikely to finance a wholesale and rapid coal phase-out. As seen in South Africa, funding far in excess of the JETP deal will be required for a just energy transition. Under the JETP, Vietnam is committed to increasing its renewable energy target to at least 47 per cent by 2030. This will require significant investment in new technologies including the expansion and modernisation of the transmission and distribution grids. Meanwhile, half of the $15.5 billion offered through JETP is to be secured through private finance, facilitated by the Glasgow Financial Alliance for Net Zero (GFANZ) Working Group. Success here is uncertain and will depend especially on the availability of “a robust pipeline of competitively tendered projects”, which has long been identified as a gap for scaling up energy transition in Vietnam.

Effective governance will also be important. The JETP requires the establishment of a secretariat comprising members of the IPG and the Vietnamese authorities by April 2023, at a critical time of high-level leadership transition in Vietnam. While this might lead to some early speculation on how the leadership change will impact the JETP implementation, one positive indicator is the promotion of the Minister for Natural Resources and Environment – a key figure behind Vietnam’s net zero commitment and JETP – to Deputy Prime Minister.

Overall, Vietnam’s climate ambitions should be strongly supported as an important test case of whether rapidly growing middle-income countries can move from poverty alleviation through industrialisation to a more modern green economy on the timescale necessary to contribute meaningfully to the global goals enshrined in the Paris Agreement – while providing a genuinely just transition for affected communities, such as those of Quang Ninh.

By Trang Nguyen – The Interpreter – February 28, 2023