G7 offers costly loans, few grants to help Vietnam cut coal
Group of Seven (G7) members offered Vietnam more than $300 million in grants to support plans to reduce coal use, documents seen by Reuters show, accounting for 2% of a financial package made up mostly of costly loans that Hanoi has been reluctant to accept.
The documents, which were finalised by donor countries in late October, reveal for the first time the breakdown of the $15.5 billion pledge that G7 countries and partners made in December to help the Southeast Asian manufacturing hub and heavy coal user reach net-zero emissions by 2050.
Vietnam pushed for a large share of grants and cheap funding to smooth its planned costly phase-out of coal-fired power plants and replace them with wind farms and other renewables sources, but donors offered mostly expensive loans at market rates amid chronic delays in the country’s power projects.
Donors have struggled in climate talks with other developing partners: an $8.5 billion plan for South Africa was adopted in 2021 but has yet to deliver concrete results, and Indonesia has delayed its investment plan linked to donors’ $20 billion pledges.
Vietnam remains committed to cooperating and has prepared a draft list, seen by Reuters, of reform commitments and over 400 projects which could receive G7 money, including 272 on energy infrastructure such as wind and solar farms, power grid upgrades and battery storage systems.
Ahead of the UN Climate Change Conference which begins on Nov. 30 in Dubai, the list needs the approval of international partners who have asked for more ambitious regulatory reforms and the involvement of the civil society in decisions to fight climate change, one official from a donor partner said.
Vietnam’s ministries of finance and environment did not reply to requests for comment.
EU LEADS, US LAGS
The current G7 offer, which was circulated among selected experts last week, includes $321.5 million in grants, almost entirely from the European Union and EU states, which together are the top financial supporters with total pledges of $2.6 billion.
Another $2.7 billion are in concessional loans at low interest rates, of which about two-thirds are provided by the EU, Germany and France, and the other third by the Asian Development Bank (ADB) – with a small portion from Canada.
The overall public funding was slightly increased to $8 billion from the $7.75 billion pledged in December, but over half is in commercial loans at market rates, which Vietnam has been reluctant to accept – especially in the current global context of high interest rates.
The remaining $7.5 billion are expected to come from private investors in costly loans, but those investments hinge on regulatory reforms and the quality of specific projects, the documents said.
Washington and Hanoi upgraded their relations to the highest diplomatic status in September, and the United States has pledged $1 billion, almost exclusively in loans at market rates.
A climate expert, who declined to be named amid what appears as a crackdown in Vietnam on energy experts and activists, said the amount of grants was very low and may not be enough to convince Hanoi to phase out coal.
To finance its power generation plans Vietnam needs roughly $135 billion until 2030 and much more by mid-century, according to government estimates. G7 funds are for an initial three-five year period and are meant to attract much larger private investments.
Under Vietnam’s plans which raised eyebrows among donors when they were published in May, energy generated from coal will increase until 2030, before falling in the following two decades. As a share of total power output, however, coal is expected to drop to 20% in 2030 from 31% in 2020.
By Francesco Guarascio – Reuters – October 30, 2023