Can Vietnam achieve its goals on net-zero emissions?

Patrick Lenain, former assistant director at the Organisation for Economic Co-operation and Development

The World Bank has recently estimated that Vietnam’s rapid economic growth has led to a quadrupling of per capita greenhouse gas (GHG) emissions this century and that the country’s emissions “are accelerating at one of the fastest rates in the world”.

It is now a consensus among scientists around the world that GHG emissions are fuelling a rapid deterioration in the planet’s climate, with dangerous consequences. Timely action is urgent to curb this trend before it is too late.

In Vietnam, the bulk of GHG comes from electricity generation, agriculture, manufacturing, and transport. Traditional hydro-based power has given way to dirty coal-fired electricity generation. Vietnamese farmers emit large quantities of methane – a gas that heats the planet dangerously fast. Manufacturing industries such as steel and cement production rely on cheap fossil fuels. In cities, bicycles have been replaced by polluting motorcycles and passenger cars.

The ambitious announcement made at COP26 by Prime Minister Pham Minh Chinh that Vietnam will achieve net-zero carbon emissions in 2050 has therefore been acclaimed by all stakeholders. This is testimony to the country’s sense of global responsibility.

Fighting global warming makes sense for countries, like Vietnam, that are highly vulnerable to climate risks. Urban centres located in low-lying areas, such as Ho Chi Minh City, are already prone to repeated flooding. Extreme heat temperatures make working conditions unhealthy and reduce workers’ productivity. Farmland in the Mekong River and Red River Delta is retreating due to saline water intrusion. Crops are ravaged by recurrent droughts. Natural disasters like typhoons inflict severe damage to housing, factories, and transport infrastructure. According to the Climate Change Vulnerability Index, Vietnam is considered one of 30 “extreme risk countries” in the world.

Of course, cutting down on carbon emissions is easier said than done. Replacing equipment using fossil fuels – such as furnace burners, heaters, and stoves – will come at a great cost. Energy will be more expensive for consumers, at least initially. Low-income families will be hit by energy price increases.

Workers with jobs in fossil fuel industries – coal miners, oil platform workers, and car assembly employees – will need to be retrained. Small farmers will have to change their farming techniques. Solving these challenges will be essential to achieving a transformation that is socially acceptable and economically sustainable.

Decarbonising electricity

Power generation is the largest source of Vietnam’s carbon emissions (30 per cent of the total), due to the high share of coal-fired plants. The sector has started its transformation. Generous feed-in tariffs have encouraged independent producers to invest in solar photovoltaic panels and wind turbines. Yet, coal-fired plants remain dominant. To decarbonise electricity, Vietnam has announced that no new coal-fired thermal power projects will be developed after 2030 and that the scale of coal power will be reduced after 2035.

Vietnam may also consider developing nuclear power plants if technological and safety conditions are met. Full implementation of this strategy would lower the share of coal in electricity generation from 50 per cent presently to about 10 per cent in 2040, thus making a great leap forward in the direction of net zero.

A difficulty with wind turbines and solar panels is that they supply electricity intermittently. The peak time of supply may not match the peak time of demand. The government therefore rightly plans to encourage private investment in electricity storage technologies such as lithium batteries, pumped hydropower, heat storage, and smart transmission grids interconnected across regions and countries, so as to ensure a high level of stability.

Agriculture is also responsible for a large quantity of greenhouse gas emissions — especially rice farming (15 per cent of emissions). Vietnamese farmers traditionally flood their rice fields with water, thus preventing the exchange of air between the soil and the atmosphere and feeding the development of methane-producing bacteria.

The change will not come easily. Agriculture has a key social role in Vietnam, as it provides income for a large share of the rural population. While difficult, transformation in farming techniques is made inevitable by the effects of dry weather, high temperatures, and the intrusion of saline water in rice fields. Farmers will have to adapt.

The government has encouraged pilot projects to reduce the emission of methane in rice fields, such as alternating wetting and drying techniques, together with different methods of irrigation and drainage. Farmers are also encouraged to diversify their activities, such as taking up shrimp farming and aquaculture opportunities. Converting livestock waste into biogas is also a new potential source of income. Forestry management, new crop techniques, and the use of biomass have the potential to reduce net emissions. All these initiatives can contribute to an inclusive transformation of agriculture.

Manufacturing and transport

Decarbonising the manufacturing sector (17 per cent of emissions) is made complicated by the diversity of technologies used in production facilities. For instance, steel and cement production emit large volumes of carbon, but with very different equipment. Carbon pricing provides a framework to address this difficulty.

A sufficiently high carbon price would encourage producers to invest in low-carbon equipment, starting with the least-cost solutions. This has been done successfully with the European Trading System (ETS), established in 2005 in 31 countries, and now covers 45 per cent of the EU’s total GHG emissions. Research shows that the ETS has encouraged businesses to invest in low-carbon equipment, and therefore has reduced pollution levels.

Vietnam rightly plans to launch such a carbon market. The revised Law on Environmental Protection requires large carbon emitters to own emission allowances starting from 2025, either obtained via free allowances granted by the government, or bought on the market. To prepare for it, the government is currently establishing an inventory of greenhouse gases.

Vietnam’s carbon market will come at the right time: the European Union has recently approved a carbon border adjustment mechanism, which will require that products imported into the EU are subject to the same level of carbon pricing as products made in the EU. Vietnamese exporters to EU markets will have to comply with these requirements and make sure that their products have been subject to a carbon pricing mechanism. As Vietnam will deploy its own system of carbon pricing, Vietnamese exporters to the EU will be compensated for the cost of carbon already paid in their country.

Transportation accounts for about 10 per cent of Vietnam’s GHG emissions. All modes of transport based on internal combustion engines are increasing fast: trucks, passenger cars, and motorcycles.

The country’s objective of net-zero emissions cannot be achieved without radical changes in transportation. About half of the population owns motorcycles, and metropolitan areas have registered a sharp increase in traffic congestion. Many countries have adopted policies to discourage the use of polluting vehicles and to encourage the take up of electric vehicles. A massive shift to electric vehicles will require making recharging stations available throughout the country. The supply of renewable electricity will have to increase in order to recharge the larger fleet of electric vehicles.

Many countries use tax incentives to promote the adoption of electric vehicles. In Vietnam, this could include cuts in registration fees and lower import duties for electrical vehicles. A “feebate” system would involve higher excise taxes on polluting cars, thus providing resources to subsidize the purchase of electric vehicles.

Taxes on gasoline and diesel also send a strong price signal, encouraging drivers to shift to electric vehicles. Vietnam collects an environmental protection tax (EPT) on products deemed to cause negative environmental impacts. The EPT is charged on petroleum products (gasoline, diesel, fuel oil, and jet fuel), which raises their prices and discourages consumption.

Together with other taxes, this puts the retail price of gasoline at the equivalent of $1.43 per litre in July, higher than in Malaysia, Indonesia, and the United States but lower than in Thailand, China, and Singapore. Keeping the EPT at an elevated level will make a large contribution to the country’s decarbonisation strategy.

Vietnam has rightly decided to embark on the journey of green growth. This will help to protect the planet, but it will require a lengthy effort and will be costly.

Attracting private investors, green finance and concessional lending will be essential to obtaining the necessary funding.