Introduction
The Copenhagen Accord called on Annex I countries to make their climate change pledges, and on Annex II countries to identify their nationally appropriate mitigation actions by 31 January 2010.
In this edition of the Asia Pacific climate change policy series we examine the regulatory framework and climate change investment opportunities in Vietnam.
Key points on Vietnam:
- no formal commitments or voluntary targets under the Copenhagen Accord
- one of the fastest growing economies in South East Asia and forecasted electricity demand is likely to more than treble in the next decade
- a demonstrated commitment to renewable energy and its Renewable Energy Action Plan identifies small hydropower and solar electricity as the renewable energy sources with the highest potential for development
- active participant in the global primary carbon market as a host country for emissions reducing projects with 34 registered CDM projects
- rapid growth in its power sector, along with increased impetus for the development of renewable energy, will create strong potential for foreign investment.
Copenhagen Accord commitments
Vietnam, an Annex II country, has not made any commitments or set voluntary targets under the Copenhagen Accord. However, it has written to the UNFCCC advising that the Government of Vietnam associates itself with the Copenhagen Accord with the understanding that it is a political document rather than a treaty instrument that legally binds the Parties to the UNFCCC and its Kyoto Protocol.
Regulatory framework
Vietnam is one of the fastest growing economies in South East Asia. Its power supply is currently insufficient and, in line with the country's GDP growth, it has been forecast that electricity demand in Vietnam is likely to more than treble in the next decade. While Vietnam has not implemented any measures specifically directed at meeting international greenhouse gas reduction commitments, several steps have been taken in relation to renewable energy. Renewable energy (other than hydropower) forms only a very small part of Vietnam's power supplies however the government aims to increase this to 3 per cent in 2010, 5 per cent in 2020 and 11 per cent in 2050.
The Renewable Energy Action Plan, jointly developed by the World Bank and State-owned power company Vietnam Electricity, serves as the framework for development of Vietnam's policies regarding renewable energy. The plan, which has been in place since 1999, has identified small hydropower and solar electricity as the renewable sources with the highest potential for development. The plan follows a number of key principles designed to inform the structure of government as an "enabler" for the commercialisation of renewable energy projects.
To encourage renewable energy projects, Vietnam has introduced two incentives, the Regulation of Avoided Cost Tariff and Standardised Power Purchase Agreement for Small Renewable Energy Power Plants (SPPA Regulation) and the Avoided Cost Tariff for 2009 (ACT Regulation). Further information on the SPPA Regulation and the ACT Regulation is provided in our Asia Pacific renewable energy manual.
As part of this the Vietnamese government has embarked on a scheme for the development of biofuels. Production of ethanol and vegetable oil is planned to satisfy one per cent of the country's gasoline and oil demand by 2015 and five per cent by 20251.
Vietnam is heavily reliant on international development assistance to develop and implement policies to mitigate climate change. In addition to renewable energy initiatives, supported by international development assistance, there are also a number of energy-efficiency initiatives being implemented in Vietnam.
Vietnam is also an active participant in the global primary carbon market as a host country for emissions reducing projects. It is engaged in the UNFCCC's Clean Development Mechanism (CDM) and has a fully operable Designated National Authority under that scheme, the Ministry of Natural Resources and Environment of Vietnam. There are 34 registered CDM projects currently in Vietnam with an expected production of CERs of around 2.15 million per year.
Key areas of CDM project investment to date include:
- hydropower
- land-fill gas recovery power generation
- biomass energy production
- reforestation.
Easily the largest CDM project in Vietnam is the Rang Dong Oil Field Associated Gas Recovery and Utilization Project which earned 4.5 million CERs.
Investment in these projects flows principally from Europe and Japan.
Investment opportunities
Vietnam's economy is in the relatively early stages of development and has recently experienced rapid growth. The concomitant rapid growth required in its power sector, along with increased impetus for the development of renewable energy, will create strong potential for foreign investment in that sector. Indeed, renewable energy projects have, over the past two to three years, become more attractive to private investors who have been active in exploiting renewable energy resources to sell electricity to the national grid. Power plants with a capacity of more than 30MW can sell their electricity to Vietnam Electricity for a guaranteed price. Further, there are major tax incentives for renewable power projects for the first 15 years of their operation.
Vietnam is currently dependent on hydropower for around 35 per cent of its electricity use. Investment in renewable energy also focuses on hydropower projects which comprise over 70 per cent of the CDM projects approved by the Ministry of Natural Resources and Environment as the Designated National Authority under the Kyoto Protocol. There are also other opportunities in the biomass industry, such as ethanol production from cassava. There is high potential in Vietnam for the development of wind projects, however owing to high development costs, the process of implementing wind power projects is expected to be slow.
Experience
Norton Rose Group has one of the leading and best resourced legal practices across Asia Pacific and have acted and advised on a number of carbon investment projects in the region. We have provided advice in relation to a number of climate change related issues in Vietnam including:
- providing ongoing advice to a Japanese client in connection with purchase of Certified Emission Reductions from a CDM project in Vietnam. Advice has included structuring advice, together with drafting and negotiation of the purchase documentation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
