[06 January 2022] — Green growth, as defined by the Global Green Growth Institute (GGGI), is “economic growth that is environmentally sustainable and socially inclusive”. Countries pursuing green growth hope to achieve economic growth – often measured in terms of GDP and employment outcomes – while at the same time ensuring social equity, protecting the environment, and taking climate action.

Suitable policies for green growth

In October, Vietnam approved its National Green Growth Strategy for 2021-2030, with a vision towards 2050. The key targets for this strategy are set in intensity of greenhouse gas (GHG) emissions per unit of GDP, with aims to reduce the intensity by at least 15 per cent by 2030 and 30 per cent by 2050. To achieve the 2050 target, renewable energy would make up 25-30 per cent of installed power generation capacity.

Amid ongoing revisions to the National Power Development Plan VIII (PDP8) and calls to raise its renewable energy ambition, Prime Minister Pham Minh Chinh last month pledged at the COP26 climate summit in Glasgow to reach net-zero emissions by 2050, noting that “Vietnam will capitalise on its advantage in renewable energy and take stronger measures to reduce GHG emissions.”

The government went on to endorse the Global Coal to Clean Power Transition statement and its pledge to transition away from “unabated coal power generation” by the 2040s. This includes a pledge to cease the issuance of new permits for unabated coal-fired power generation projects that did not reach financial closure as of November 4.

Demonstrating further commitment, the PM notified the Ministry of Industry and Trade last month to update the PDP8 to reflect the developments in Glasgow. The government will now need to redouble efforts to improve its technical and institutional capacity and create an enabling environment for sustainable energy investments.

Such lofty climate goals will require substantial international support. Yet, developed countries have not managed to fulfill their climate finance pledge of up to $100 billion annually by 2020. While Vietnam has managed to experience growth through the pandemic, it cannot go it alone.

Cooperation in international carbon markets may offer some of the additional resource boost needed. Article 6 of the Paris Agreement, for example, allows governments to sell emission reductions that go not just beyond business as usual, but beyond their unconditional Nationally Determined Contributions (NDC) commitment. Article 6.4 establishes a centralised global mechanism for trading carbon credits. Article 6.2 is an innovative, more flexible mechanism through which countries can engage in cooperative approaches (for example, crediting based on policies instead of projects) as long as they ensure environmental integrity, avoiding double-counting of emissions reductions.

Carbon finance – proceeds from the sale of emissions reductions – can open a potential revenue stream for Vietnam that can be used to catalyse green growth. These revenues, when managed properly, can help governments address financial barriers and incentivise investment in key green growth priorities such as constructing critical energy infrastructure, promoting poverty reduction or achieving food security.

The implementation of these priorities can enable further technology deployment, build local skills and create new markets, thereby stimulating further green growth opportunities.

Some parties signaled initial hesitation to engage in Article 6 trading until official rules were negotiated, despite explicit support for market-based approaches in their NDCs. Fortunately, the Glasgow Climate Pact was adopted on November 13, which includes the “Article 6 Rulebook”.

Parties now have the necessary framework in place for a functioning international carbon market. Key decisions made include a formal commitment to corresponding adjustments to avoid double-counting, an agreement on the use of Certified Emission Reductions prior to 2020, a 5 per cent share of proceeds contribution to adaptation for Article 6.4 projects (with more flexibility for 6.2), and a 2 per cent discount on credit issuance to ensure overall mitigation in global emissions.

In such context, the GGGI aims to help Vietnam make full use of cooperative approaches under Article 6 of the Paris Agreement. While the country’s previous experience in the carbon market largely relied on private sector developers, in the future, government institutions will play a pivotal role.

As such, the Vietnamese government will need to take measures to enable participation. Regulations and collaborative structures are needed to assess, approve, and facilitate transactions. A broader range of government stakeholders should be involved in the trading process.

And most importantly, as was the case in the beginning years of the Kyoto Protocol, piloting approaches and a will to learning by doing are needed. The Article 6 carbon market is a new frontier that will require institutions to adapt and evolve, but with help from its partners, a greener economy is within reach for Vietnam – written by Marshall Brown, GGGI for the Vietnam Investment Review..