Thursday , December 1 2022

Vietnam should assure investors with stable regulatory frameworks: IFC


Kim See-Lim, regional director, East Asia and the Pacific, for the World Bank’s International Finance Corporation (IFC), says Vietnam should set up stable regulatory frameworks and make quicker decisions to realize its carbon-neutral target.

Q: Vietnam has some very ambitious goals for its green transition; for instance, it wants to be carbon-neutral by 2050. They require a lot of investment. How can Vietnam mobilize the resources, and how should it use them to achieve the best results?

I think Vietnam has as you said, set very ambitious goals. It wants to be a high-income country and also to achieve net-zero, by 2050. And while it’s ambitious, I think it’s not impossible under the right conditions. And you may have read our recent Climate Change Development Report, we laid out a pathway and in a nutshell, we think that, based on our estimates, Vietnam will need about $368 billion to achieve the net-zero target by 2050.

In 2020, Vietnam has suffered about a $10 billion loss, or about 3.2% of its GDP due to climate incidents. And if nothing is done, this loss is just going to get bigger over time and grow to be about 14% or 15% of its GDP in the next 20-30 years. So Vietnam has to do something.

Now, the good news is that the capital is there. When you look at the amount of assets under management of equity funds and pension funds globally, that amount is trillions of dollars. How many trillions does not matter, but we’ve seen in reports that it could be up to $200 trillion, globally. Vietnam needs $368 billion over a 20-30 year period. As of now, there is already $200 trillion, the money is there. Now why is it not coming, why is it not flowing? There are a number of constraints.

One is the regulatory framework, there is no framework to provide comfort to investors to invest for the long-term because climate projects and climate change impacts are seen over a period of time. They are not immediate, so they are not short-term type investments. In order for investors to make long-term decisions, there needs to be a very stable regulatory framework to provide the comfort for the long-term. What do I mean? It means bankable PPAs – power purchase agreements for concessions. As for Environmental, Social and Governance (ESG) reporting, the standards need to be there so that investors are able to track, not just commercial performance, but also the ESG impacts of these climate-related investments.

So I think Vietnam is working towards that framework, but it is not quite there yet, some reforms, some changes, and modifications to some of the PPA frameworks need to happen first.

Q: How do you think these financial resources, trillions of dollars as you have mentioned, should be used for Vietnam to achieve its carbon-neutral goal?

There are a number of very obvious and large contributors to greenhouse gas (GHG) emissions. And it is largely similar across Asia. The first sector is energy, and in countries like Vietnam, a large proportion of the power is coal-fired energy sources. Not just Vietnam, but generally in many other countries. And therefore the energy sector has an important role to play in the transition to net-zero. Other sectors that are big contributors as well are transport, so “greening” the transport sector would be important. And a big way to make a difference is, for instance, “greening” the public transportation system, because you have a whole fleet, you can “green” it all in one go, as opposed to one car by another in the consumer sector. Having more green public transportation, for example electric trains and electric buses, can be very effective.

Another large contributor is the industrial space. We can have some of these large industrial plants become more energy efficient and use less energy. And one of the biggest and most important areas to us all is the food chain. The agriculture sector is quite energy-intensive. So meat production, for example, beef or pork, is more carbon-intensive than, say, fish or chicken. So we need to look at how we can make some of these agriculture production chains more efficient and less energy-intensive. And then as you distribute food all along the way, you have trucks, and especially the cold storage. The cooling is very carbon-intensive. These are just some of the sectors that are huge contributors to the GHG.

Q: What do you think should be the priorities for the Vietnamese government to achieve the carbon-neutral goal? We spoke about energy, transport, food … In what order should these be prioritized?

I think that those areas you mentioned are the priorities. I do not know if a sequential way is better, or it should be done all at once, because the energy sector powers the transport sector. This is an example, if your grid is coal-fired, but all your buses are electric, you lose the benefits because you are powering your electric vehicles with coal. And the same applies for the agriculture chain. If your agriculture manufacturing facilities are powered by coal and you are using solar panels to offset that impact, it is still pretty much coal-fired because solar is not up and running 100% of the time, because the sun does not shine all day. So you still have the coal component in there, and as you distribute your agriculture products through electric vehicles, they are still powered by coals. I think it should be a unified approach, and because these few sectors contribute tremendously to the carbon footprint, they should be addressed as a priority all at once.

Q: What do you think are the lessons that Vietnam can learn from its regional peers?

I think Singapore is an example that has advanced quite quickly. I think there is more to be done across the world, for Singapore or for anywhere else, a lot more needs to be done to achieve the net-zero goals. Singapore is a small country, which is easy to manage. Meanwhile, Vietnam has many provinces and many decision makers, and it takes a while for those decision makers to come together and agree on a decision. I would urge that momentum to move faster. There are lots of great plans that are already in the works, and I think the urgency now is to move to implement those plans, and we at the IFC and the World Bank Group are ready to help to implement these green plans.

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