7. Ensuring sustainability through better environmental and energy management in Viet Nam
Remarkable economic development over the past 20 years has taken a heavy toll on the environment and the availability of resources in Viet Nam. Demographic and economic trends will exacerbate these environmental issues. Moreover, electricity demand is spiking, exerting pressure on national power capacity and environmental sustainability. To improve environmental quality, Viet Nam needs to strengthen horizontal and vertical institutional co-ordination, reform regulations to ensure coherence, implementability and enforceability, and streamline the use of policy instruments. Compliance assurance strategies need revision, while access to environmental information could improve their effectiveness. To achieve energy security and independence, Viet Nam has to rebalance its energy portfolio by better planning and financing the low-carbon transition.
Remarkable economic development over the past 20 years has taken a heavy toll on the environment and the availability of resources in Viet Nam. Environmental pollution is imposing severe costs on society as a whole and the exploitation of natural resources raise concerns about future energy security. A high population growth rate, rapid urbanisation and accelerating industrialisation will exacerbate these environmental issues, further affecting the quality of life and constraining sustainable growth.
Several studies have estimated the impacts of poor environmental conditions on Viet Nam’s welfare. (Forouzanfar et al., 2015[1]) calculated that almost 50% of the annual burden of disease in Viet Nam can be attributed to exposure to environmental risk factors such as unsafe water and air pollution (Figure 7.1). The annual costs that these high environmental risk factors impose on the Vietnamese economy can reach up to more than 8% of GDP. According to estimates, the cost of air pollution has risen over the last two decades and represented more than 5% of GDP in 2013 (World Bank, 2016[2]) (Figure 7.2). Outdoor air pollution in Viet Nam today causes around 60 000 deaths per year (World Health Organization, 2018[3]). Meanwhile, estimates of the cost1 of water pollution from municipal sources are projected to amount to 3.5% of GDP by 2035 (World Bank, 2019[4]).
Note: Environmental risk exposure is defined as the percentage of the total burden of disease observed in a given year that can be attributed to past exposure to environmental risk factors, including unsafe water (unsafe sanitation) and air pollution (ambient particulate matter pollution, household air pollution and ozone pollution).
Source: (Forouzanfar et al., 2015[1]).
Source: (World Bank, 2016[2]).
Major reforms and planning efforts over recent years have raised expectations that have not as yet been met. The Government of Viet Nam has integrated environmental management into the main country development planning and strategy frameworks. The Five-Year Viet Nam Socio-Economic Development Plan for 2016-2020 incorporates measures to strengthen the management of natural resources and environmental protection, with ten primary objectives and solutions (Box 7.1). Prior to this, in 2012 Viet Nam approved the National Green Growth Strategy (VNGGS) for the period 2011-20. The focus of the VNGGS was to increase sustainable growth through the promotion of environmental goals and actions across different sectors of the economy and society. However, improvement in environmental outcomes is falling short of planned objectives (OECD, 2015[5]).
In September 2012, Viet Nam approved the National Green Growth Strategy for the period 2011-20. The main objectives were to: i) restructure the economy by greening existing sectors; ii) encourage the use of technologies to promote more efficient usage of natural resources and to reduce greenhouse gas emissions; and iii) create an environmentally friendly lifestyle by generating employment in the green industry. The main strategy indicators and targets for 2020 are as follows: i) an 8-10% reduction in the intensity of greenhouse gas emissions as compared to 2010 levels; ii) 80% of commercial manufacturing facilities meet environmental standards; iii) 3-4% of GDP is invested in supporting sectors that protect the environment and enrich natural capital; iv) 60% (grade III cities) and 40% (grade IV and V cities) of wastewater collection and treatment systems meet regulatory standards; v) 100% of waste collection and treatment plants meet regulatory standards; and vi) a 35-45% share of public transportation use in large and medium cities.
Viet Nam’s Five-Year Socio-Economic Development Plan for 2016-2020, approved in 2016, acknowledges the importance of the environment for the country’s development. The Plan proposes to “effectively manage natural resources and environmental protection” as part of the country’s overall development objective. The following proposed actions are included: i) “inspect and handle environmental pollution, especially in countryside areas, traditional crafting villages and industrial clusters”, ii) “formulate and implement of natural hazards prevention”; iii) “protect the water sources, constructing infrastructure to ensure enough water is supplied for the production and consumption of enterprises and people”. Finally, the indicators and targets for 2020 related to environmental objectives are: i) 95% and 90% of the population has access to clean water in urban and rural areas, respectively; ii) 85% of hazardous waste is treated; iii) 95-100% of health care waste is treated; and iv) 42% forest coverage.
Source: Authors’ elaboration based on SEDP 2016-20 and Prime Minister’s Decision No. 1393/QD-TTg dated 25 September 2012.
In addition to depleting environmental resources, electricity demand is spiking and exerting pressure on national power capacity. Between 2001 and 2015 electricity demand in Viet Nam grew at an annual average rate of 11% (World Bank, 2019[6]), and is projected to grow at around 8% per annum through 2035 (Danish Energy Agency, 2019[7]) . By then, Viet Nam’s total final energy demand is expected to be 2.5 times that of 2015 (Danish Energy Agency, 2019[7]), much higher than peers at a comparable level of development. Supplying electricity to meet this surging demand will require continuous expansion of Viet Nam’s installed capacity, which today stands at 53.3 GW. The Power Development Plan (PDP) VII, adopted in 2016, envisages that total installed capacity will rise to 60 GW in 2020 and 129.5 GW by 2030.
Energy security is at risk. The PDP VII plans to upgrade power capacity by expanding the country’s coal-fired plants. However, this represents a significant challenge for Viet Nam. New coal-fired plants will impose further costs in terms of environmental pollution, and the country will find it difficult to attract financing. For instance, of the 26 GW new coal capacity planned for installation between 2018 and 2022, only 7.9 GW was operational or under construction in 2017 (Direction Générale du Trésor, 2017[8]). Failure to install the required capacity in time risks power outages by the beginning of 2021. This has direct implications for economic growth (Vietnam Investment Review, 2018[9]) and forces the government to import expensive coal and electricity (Asia-Pacific Energy Research Centre (APERC), 2019[10]).
Rebalancing its energy portfolio to accommodate a greater share of renewables and other alternatives would help Viet Nam strengthen energy security, achieve greater energy independence and promote sustainable socio-economic development. With domestic fossil fuel resources falling short beyond 2021, exploiting domestically available renewable potential will be crucial to Viet Nam’s energy security and sustained economic growth. Thailand offers a good example in this regard (Box 7.2).
In 2015, Thailand developed the Integrated Energy Blueprint (TIEB) to align its major energy sector plans covering 2015-36. The TIEB is a good example of integrated and holistic planning to achieve long-term energy security, sustainability and economic goals. The blueprint comprises five long-term plans that mutually reinforce each other.
The Energy Efficiency Development Plan focuses on improving efficiency through a variety of compulsory measures. The Power Development Plan aims to diversify the energy mix and achieve energy security including by reducing dependence on imported gas. The Alternate Energy Development Plan (AEDP) seeks to exploit domestic renewable energy potential and enhance its share in final energy demand. The AEDP further forms the basis of a strategic roadmap that aims to operationalise the objectives of the AEDP. The Natural Gas Supply Plan, among other things, targets improved security by reducing dependence on imported gas. Finally, the Oil Supply Management Plan seeks to create a transparent liquid fuels market with a policy framework based on fuel type, price and infrastructure investment.
The TIEB is supplemented by Energy 4.0, which focuses on the development and deployment of electric vehicles, energy storage technology, the bio-economy and smart cities in Thailand. Energy 4.0 complements Thailand 4.0 – Thailand’s economic model to enhance economic, environmental and social prosperity by 2032.
Source: https://aperc.ieej.or.jp/file/2019/5/30/APEC_Energy_Outlook_7th_Edition_Vol_II.pdf, https://aperc.ieej.or.jp/file/2015/9/25/OverviewofThailandIntegratedEnergyBlueprint.pdf.
The rising levels of environmental pollution, natural resource degradation and energy insecurity will be an impediment to sustain future economic growth and the quality of life. The following sections attempt to diagnose the principal roadblocks undermining the effectiveness of Viet Nam’s environmental regulatory framework and slowing the clean energy transition in the country.
This report proposes five priority areas for public policy action:
Strengthening the institutional and regulatory framework for effective implementation
Managing water pollution
Managing air pollution
Managing natural hazards
Planning and financing the low carbon transition.
A workshop held in Hanoi in October 2019 gathered together national experts on environmental issues to discuss key obstacles to policy implementation with representatives of public agencies from the Government of Viet Nam. The discussions mostly concerned the country’s lack of a reliable environmental database, the lack of co-ordinated implementation and monitoring, the overlapping mandates between institutions, and scarce capacity to implement the environmental regulatory framework at the local level (Box 7.3).
Table 7.5 summarises the high-level and more detailed recommendations to pursue action in these five policy areas. It also includes a set of indicators to track the implementation of most of these recommendations.
Group 1: Strengthening environmental data, monitoring and information
The first group discussed the incompleteness and unreliability of existing environmental data. Coverage of the monitoring network is indeed limited, making measurement imprecise. Information is rarely disclosed to the public and sometimes does not flow between levels of government.
Participants suggested that information could become more reliable if the environmental database were to combine data collected by traditional and automatic stations, with satellite data and remote sensing data. In particular, ad hoc public-private partnerships could be created to install modern automatic monitoring stations. The Ministry of Natural Resources and Environment (MONRE) and provincial governments, as well as polluters, could establish mechanisms and protocols for information sharing – but incentives to encourage commitment are equally important. Moreover, authorities need to elaborate strategies for processing and disseminating environmental information, and making it understandable and accessible to the public.
Group 2: Improving institutional co-ordination
The second group discussed weak monitoring, co-ordination and accountability mechanisms among government institutions. Across government agencies and subnational governments, processes and procedures to implement environmental impact assessments (EIAs) and release environmental permits remain unclear.
Participants suggest that the mandates for tackling specific environmental issues (e.g. air and water quality) could be distributed more clearly and transparently among departments of MONRE. To account for the cross-cutting nature of some of the issues, there could be mechanisms to share information and co-ordinate implementation across national and subnational agencies. E-government platforms could help enhance co-ordination, transparency and efficiency in the implementation of environmental regulations. The clear distribution of assignments needs to be accompanied by an adequate distribution of resources and the establishment of specific accountability mechanisms. In particular, there could be frequent and independent evaluations of the performance of environmental administrators and agencies. Better co-ordination and transparency could then improve the way in which EIAs are implemented and environmental permits distributed.
Group 3: Fostering implementation
The third group concluded that implementation is slow because responsibilities and institutional roles overlap across numerous environmental agencies. Inspection and enforcement is often ineffective, the sanctioning system is not credible and investments in environmental protection are limited. Moreover, polluters seem to have only minimal information about environmental law and compliance requirements.
Regulatory impact assessments (RIAs) could help to streamline existing environmental regulations and fragmented institutional frameworks. To improve the effectiveness of inspections, inspectors would need specific training and a code of conduct, accompanied by standardised interpretation of regulations and an ability to impose sanctions. There should also be mechanisms in place to “inspect the inspectors” through the use of new technologies. Finally, specific campaigns targeting industry associations could help raise awareness about environmental regulations and compliance requirements among polluters.
Group 4: Promoting environmental management at the local level
A major obstacle to implementation is the limited technical capacity of districts and communes to enforce regulations. The necessary human resources are often unavailable and the understanding of laws is limited. Co-ordination mechanisms between local and other government levels is weak, with local administrators often failing to report upwards. Communication is moreover insufficient between local government, communities and enterprises, exacerbating the lack of awareness of regulations among polluters.
The group participants proposed to establish minimum technical qualification criteria for local environmental managers and to organise periodical training courses. The establishment of official channels and communication platforms at the local level could facilitate the flow of information and increase awareness among citizens and entrepreneurs in communities.
Strengthening the institutional and regulatory framework for effective implementation
Improve horizontal and vertical institutional co-ordination
Strengthen MONRE’s leadership in environmental management and establish information-sharing and accountability mechanisms with national and subnational level agencies for implementation
The institutional framework for managing the environment has evolved over the years. While MONRE2 has played a leading role in policy development, enforcement and implementation responsibilities have been gradually transferred to provincial and local governments. Joint responsibilities for policy implementation still exist between MONRE and subnational governments, creating overlaps and co-ordination problems (Table 7.1). For example, MONRE, provincial and local-level governments can all review and issue environmental permits. Similarly, inspection and administrative sanctioning of polluting facilities can be performed at both central and local level.
At the central level there are also gaps and inconsistencies in the definition of roles and responsibilities relating to environmental management between MONRE and other sector ministries.3 An example of this occurs in air quality management (Table 7.1). Over the years, the Ministry of Transport (MOT) has been assigned responsibility for steering activities to control urban air pollution, including air pollution from vehicle traffic; the Ministry of Industry and Trade (MOIT) has been assigned responsibility for controlling pollution in industrial parks (IPs) and industrial clusters (ICs); and MONRE has been given responsibility for managing the quality of ambient air and greenhouse gases. Such fragmentation means that no single authority has sole responsibility for consolidating and supervising efforts, which results in difficulties in co-ordinating air quality management (JICA, 2015[11]). Similar issues occur with respect to water quality and the roles played by the Ministry of Agriculture and Rural Development (MARD) and MOIT with respect to managing water pollution sources.
MONRE’s leadership role must be strengthened to enable it to supervise and consolidate efforts across sectoral ministries and subnational governments, particularly with regard to air and water pollution management. Information-sharing mechanisms and co-ordination protocols among different government levels should also be strengthened to ensure consistent implementation and monitoring of policies.
Another important issue raised by the decentralisation of policy implementation is conflicts of interest. While decentralisation has brought responsibilities to agencies that are closer to local environmental issues, this has resulted in potential conflicts of interests between local development and environmental protection. This is particularly apparent in cases where permit issuing and enforcement functions are conducted by the same subnational government institution. The political emphasis of local authorities on economic growth increases the risk of interference in favour of local development at the expense of the environment. Local development planning focuses more on meeting targets related to economic growth, employment generation and the reduction of poverty. As a consequence, environmental quality targets that could increase accountability in environmental management are often absent at the subnational level and should be given more attention. However, proper incentives and accountability mechanisms could be established using environmental targets to assess the performance of subnational governments with respect to environmental management. In this regard, the lessons learned in countries such as China provide a relevant example for Viet Nam (Box 7.4).
In recent years, China has undergone a paradigm shift in terms of strengthening top-down incentives for environmental management. The 11th Five-Year Plan (2006-10) established environmental targets as part of performance evaluations for subnational governments. High-priority quantitative pollution reduction and energy efficiency performance targets were assigned by the central authorities to governors, mayors and SOEs leaders through the cadre evaluation system. This top-down bureaucratic personnel evaluation system was used by the central government to harness the decentralised governance system by establishing stronger incentives for local leaders. It was expected that this approach would overcome an extensive environmental regulatory framework that had achieved few results. The resulting implementation process provided lessons and key information about remaining challenges.
Initially, the new environmental targets triggered major investments in pollution control infrastructure as well as other actions such as the closure of thousands of outdated industrial production facilities. However, some of these measures produced counter-productive outcomes due to the shutdown of pollution control equipment, the falsification of environmental information by local agents and the reopening of some of the closed factories.
Reforms had to be undertaken to strengthen supervision at the local level. The central authorities invested significantly in top-down environmental monitoring, both in terms of infrastructure and capacity building of staff. New technologies were introduced to allow independent assessments of pollution reduction, circumventing local data manipulation in official local government’s reports. Public participation in supervision was also enhanced, providing an independent third-party check of local governments and enterprises. NGOs were allowed by law to sue polluters in the public interest and 24-hour hotlines were established for citizens to make environmental complaints.
Overall, the paradigm shift resulted in the empowerment of environmental authorities, promoting greater co-operation among agencies and fostering public participation in supervision. The effects of the initial paradigm shift have produced results over time, although challenges remain. Political incentives have contributed to more effective pollution reduction (He, Wang and Zhang, 2019) and the country’s expenditure on environmental protection has increased reaching 1.2% of GDP. Approximately USD 130 million was spent in 2015, mostly on industrial pollution reduction. The 13th Five-Year Plan for 2016-20 continues to include binding targets for key environmental parameters such as pollutant discharges and air quality.
Source: Adapted from (World Bank, 2019[6]; Wang, 2013[12])
Increase the local presence of MONRE and the VEA through local office delegations in order to improve co-ordination with subnational governments on environmental permits and enforcement functions
In addition to information sharing and co-ordination mechanisms, the increased local presence of central government agencies such as MONRE and the VEA can contribute to more effective implementation. Local delegations can contribute to improving the following aspects: i) dialogue with local governments in terms of regulation design and application in local areas; ii) capacity building of local officials for regulation implementation; iii) co-ordination of monitoring and enforcement activities between central and local agencies to avoid duplication of inspections; and iv) monitoring of policy implementation, with local officials better trained in reporting mechanisms. Recent approaches to increase the local presence of national environmental enforcement agencies in Mexico and Peru can be adopted in Viet Nam (OECD, 2013[13]; OECD, 2016[14]).
Formulate national environmental programmes for co-ordination by MONRE and implementation by subnational governments
The transfer of environmental responsibilities to subnational governments over recent decades has not always been accompanied by adequate allocation of financial resources, hampering the implementation capacity of provincial and municipal governments. Furthermore, consultation on environmental policy design and guidance regarding implementation at the local government level has been limited. As a result, uneven local capacity has resulted in regionally differentiated implementation outcomes. This situation is especially visible in terms of air, water and waste management, three environmental policy areas where subnational governments need to engage in significant public investment and require the technical capacity to undertake implementation. The formulation of national programmes, with earmarked funds co-ordinated by the central environmental authority and implemented by subnational governments, can be an effective means to build local capacity. National, specialised environmental programmes have the advantage of providing consistent technical capacity building across regions, while providing funds to implement best practice measures to reduce pollution. International experience provides examples of how countries have improved local capacity for environmental policy implementation through national programmes (Box 7.5).
In Mexico, the Ministry of Environment (SEMARNAT) and the Environmental Enforcement Agency (PROFEPA) have delegations at the state level as well as a presence at the subnational level. This has resulted in the following achievements: i) the creation of dialogue with local governments in terms of regulation design and applicability in local areas; ii) capacity building of local officials for the implementation of regulation; iii) improved co-ordination of monitoring and enforcement activities between federal and local agencies, avoiding duplication of inspections; and iv) improved monitoring of the implementation of policies, with local officials better trained in reporting mechanisms.
Mexico has also addressed the local implementation capacity gap (due to the lack of funding and technical capacity) by creating national programmes for the environmental management responsibilities transferred to subnational governments. The National Programme for Air Quality (ProAire) and the National Waste Management Programme are good examples in this regard. Joint action between federal and state authorities proved effective in implementing ProAire, a programme created to improve air quality in more than 15 metropolitan areas. Similarly, the National Waste Management Programme operated more than 30 state and 84 municipal programmes for integrated waste management and prevention. Such programmes can be an effective mechanism for implementation provided that: i) the central government transfers funds to subnational governments in cases where the local government has a limited budget for environmental management; ii) the use of funds is linked to standardised best-practice measures (including investment in waste management or air emissions reductions), thereby reducing the arbitrary use of funds; iii) technical assistance is provided to local governments as part of the programme; and iv) monitoring and reporting is standardised, facilitating co-ordination and supervision.
Finally, in Peru, results-based budget programmes were created at the national level with specific sectoral goals and targets such as environmental protection or disaster risk management. National-level agencies and subnational governments can access these funds, which are earmarked for sector-level interventions. These programmes ensure that the use of funds is aligned to efforts to obtain specific results and outcomes for the environment.
Source: (OECD, 2013[13]; OECD, 2016[14]).
Reform regulations to ensure coherence, implementability and enforceability
Environmental regulation has been developed through a process of continuous updating and improvement over recent decades. The first Law on Environmental Protection (LEP) was approved in 1993; this was replaced by a new law in 2005 and ultimately superseded by the LEP of 2014. Numerous decrees, circulars and decisions have been introduced to amend various parts of the regulation and also provide specific guidance on how to implement different regulatory aspects.4 However, weaknesses remain in terms of applicability and enforceability. A lack of adequate environmental information and regulatory analysis has hampered the regulation’s design and effectiveness, while other approved laws covering aspects related to the environment overlap with the LEP or create inconsistencies.5
Strengthen the environmental information base for adequate regulation and enforcement
The existing system for monitoring environmental quality and pollution sources is inadequate and unable to generate reliable information for effective regulation design and enforcement. Coverage of the environmental monitoring network is limited and quality assurance is hampered by a lack of technical and financial resources. Additionally, fragmentation of the monitoring system has contributed to a reduction in the reliability of information available at the local and central level. Current mechanisms and protocols for exchanging information between provincial governments and the main environmental agency have not been effective. Ultimately, monitoring coverage has concentrated on selected pollutants, with inventories of polluters developed for particular hotspots such as Hanoi and Ho Chi Minh City.
The first step in re-designing the system would be an evaluation of the existing environmental quality monitoring programme with respect to its purpose and objectives. A balance will need to be struck between the financial and human resources available to operate and sustain the monitoring network, taking into account its size, sophistication and coverage (Box 7.15). The main objectives to be considered for the re-design of the system relate to the need for timely public reporting (e.g. pollution levels and environmental quality) and compliance (e.g. exceedance of permitted levels with respect to standards, pollution trends, causes of elevated concentrations, and formulation and evaluation of pollution control strategies). Finally, quality assurance and control protocols and procedures must be established to verify and maintain the precision, accuracy and validity of measurements (Clean Air Asia, 2016[15]).
In addition to environmental quality data, polluter inventories are critical pillars for effective environmental management (UNECE, 2012[16]). According to the (EEA, 2019[17]), inventories are suitable for: i) defining environmental priorities and identifying the activities responsible for the problems; ii) assessing the potential environmental impacts and implications of different pollution strategies and plans; iii) evaluating the environmental costs and benefits of different policies; and iv) monitoring the state of the environment, checking that targets are being achieved and helping to ensure that those responsible for implementing policies comply with their obligations.
As the quality of environmental information improves, it can be integrated with economic information to provide valuable inputs for policy assessment at a macroeconomic level. This new information can be instrumental in mainstreaming environmental sustainability into the design of country development strategies and sector policies. Many countries have in fact expanded their Systems of National Accounts to include environmental components, resulting in a System of Integrated Environmental and Economic Accounting (SEEA), based on a methodology developed by the United Nations Statistics Division. A SEEA can bring coherence and consistency across different sets of environment statistics and provide a more complete picture of the economy, taking into consideration resource flows and stocks and the corresponding monetary transactions. Several countries have used SEEAs as a key measurement framework for environmental and economic trade-offs, enabling them to standardise the reporting of relevant data. Additionally, SEEAs have been used as inputs for policy analysis in emerging countries (Banerjee et al., 2019[18]). For countries where there is as yet little active environmental protection, such as Viet Nam, the measurement of flows of residuals (e.g. emissions and solid waste) can be used to determine the urgency of environmental protection regulation (UN, 2014[19]). Box 7.6 provides a brief description of the recommended approach to implement a SEEA at country level.
Implementation of a SEEA as part of a country’s national statistical system is a valuable and significant investment. The main phases and steps that should be considered are as follows:
Phase 1: Strategic planning
This phase involves establishing a core group on environmental-economic accounting consisting of participants familiar with national sustainability, economic and environmental policies, national accounts and environment statistics. The group should include a senior representative from the government agency considered to be the “sponsor” of environmental-economic accounting in the country, such as a planning agency. In addition, it should feature a senior representative from the government agency that will take the lead role in compiling the SEEA accounts, typically the central statistical agency. The core group should complete an initial national assessment report which will provide complete coverage of the institutional and data environment where implementation of the SEEA will take place. This report should cover the following aspects: stakeholders and institutional arrangements; policy priorities, targets and indicators; data sources; existing accounts; challenges and opportunities; recommendations for priority accounts and next steps.
Phase 2: Building mechanisms for implementation
The first part of this phase builds on the initial core group established in Phase 1 to create an authorised senior board or group capable of overseeing and facilitating implementation of the work programme. A strategy statement can be prepared for implementation of the SEEA and the operation of the senior group, including a mission statement, values, high-level goals, specific objectives and required activities.
The second part of the phase involves the formation of relevant implementation teams. These should be technically focused on the issues involved in compiling specific sets of accounts, and draw on the national assessment report for direction. They will be responsible for developing a more detailed assessment of specific information needs and requirements for policy purposes and a more detailed assessment of data availability. The teams will involve all relevant stakeholders, working across agencies and building support for ongoing collaboration, in particular by establishing data-sharing agreements based on the requirements for environmental accounting.
Phase 3: Compiling and disseminating accounts
This phase is the most resource demanding, and thus it is important that adequate funding is available to finance upfront costs for training and systems development.
Initially the compilation of environmental-economic accounts should focus on developing experimental or preliminary accounts at a summary level. Available data should be used to start the process, demonstrating the potential of the approach to users and building an understanding of compilation using an accounting approach. This learning-by-doing method is an essential aspect of implementation and should include the release of preliminary data to encourage feedback from as broad a constituency as possible. Based on feedback and increasing confidence in compilation it should be possible to progressively develop any set of accounts to improve data quality, the degree of detail in response to user demands and ultimately the range of different accounts.
Phase 4: Strengthening national statistical systems
This phase focuses on ensuring that the selected accounts are produced regularly, and will require not only a commitment in terms of long-term funding, but also a training and knowledge transfer programme to ensure succession after staff turnover. At the same time, outreach programmes should be designed to promote usage of the accounts.
Source: Adapted from (UN, 2014[19]).
Introduce ex-ante regulatory impact analysis as well as consultations with the public and the agencies responsible for enforcement and implementation
The process leading to the drafting of laws and regulations suffers as a result of being top-down and having limited ex-ante analysis of regulatory impacts and implementation requirements. As a result, regulations are difficult to comply with and enforce. For example, although several national technical regulations (QCVNs) for emissions standards on air pollutants have been approved, enforcement is difficult to implement at the central and local level due to lack of technical and administrative capability (JICA, 2015[11]). In some cases, technical regulations contain hundreds of substances listed as targets and enforcing them all is not practical. In other cases, the measurement methodologies and onsite calibrations are not clearly specified. Regulations also tend to introduce new actions without clearly specifying the means nor a target for completion. For example, the proposal to build an industrial emission database from Decree No. 40/2019/ND-CP of 2019 dated 13 May 2019 on “Amending and Supplementing a Number of Articles of Decrees Detailing and Guiding the Implementation of Environmental Protection Law” has no target date.6 In other cases, targets are unrealistic and difficult to meet.
International experience in the assessment of environmental regulations can be useful in the re-design of existing regulations for increased effectiveness (Box 7.7). Regulatory impact analysis can be used to better inform regulations for increased compliance, and assessment of policy implementation needs can be used to set more realistic goals for the enforcement and implementation of environmental policies.
In the policy debate on better legislation at the European and national level, there is growing consensus on the need to address the implementation deficit. EU legislation, including environmental legislation, is too often not properly or fully implemented across Europe. There is real evidence of practicability and enforceability problems caused by the way in which legislation is designed and written, and by poor implementation conditions. In this context, the Better Regulation Initiative promulgated the following criteria for effective regulations:
Regulations should be well-founded, based on facts and with knowledge of their expected impacts.
Regulations should be prepared in a transparent way, involving all parties concerned.
Regulations should be effective, efficient, proportional and not lead to undesirable economic, social or environmental consequences or to unnecessary administrative burdens for businesses, citizens or authorities.
Regulations should not lead to unwanted discrimination, frustrate a level playing field or hinder innovation.
Regulations should be clear, consistent, understandable and as simple as possible. They should not contradict other regulations.
Regulations should be compliable, practicable and enforceable.
The “Better Regulation” initiative was applied to environmental regulation on air quality in the European Union. The European Commission adopted an air quality thematic strategy in 2005 together with focus on ambient air quality and cleaner air for legislation in 2008 and 2013, respectively. This air quality package merged five separate legal instruments to control air pollution into a single directive, taking into account the difficulties encountered by EU countries in complying with existing regulations. The main objective was to simplify regulations and introduce flexibility in meeting deadlines. Work with Member States on improving monitoring tools and simplifying reporting was also undertaken. The quality of the preparations of the air quality package, including the modelling and cost-benefit analysis, assisted policy makers in deciding on targets for air pollution reduction efforts. Furthermore, impact assessments were useful in measuring progress and taking costs and benefits of regulation more clearly into account throughout implementation. As progress was monitored and new data were available, the regulation focused more on the challenges of implementing existing legislation rather than introducing more stringent standards. In fact, regulation allowed Member States to set less stringent emission limit values if the application of best available techniques would lead to “disproportionately higher costs” compared to the environmental benefit.
The European Union Network for the Implementation and Enforcement of Environmental Law (IMPEL) assessed the practicability and enforceability of existing and new environmental regulation, and provided several recommendations on how to improve the efficiency of environmental inspection authorities:
Promote greater use of alternatives to bespoke permits (e.g. general binding conditions).
Sector-based approaches can be effective (i.e. seeking to agree performance objectives beyond minimum regulatory standards).
Streamline or integrate approaches for companies which are carrying out similar activities across multiple sites.
Bring different types of inspection activity together in a single or harmonised process in order to increase coherence and reduces cost to business and authorities.
Identify opportunities for other inspectorates, or even commercial organisations, to undertake areas of inspection activity where it is more effective to do so.
Relatively few initiatives include an assessment of the intended benefits regarding environmental outcomes, or cost savings to business and regulatory bodies.
Source: adapted from (OECD, 2019[20]; Golberg, 2018[21]; IMPEL, 2013[22]; IMPEL, 2009[23]; IMPEL, 2006[24]).
Assess ambient quality standards and emission limits based on technical and economic feasibility
An important instrument contemplated by the Environmental Protection Law is the system of environmental ambient quality standards (EQS).7 EQS stipulates maximum allowable concentrations of pollutants by environmental media (air, water or land) with the objective of protecting human health and the environment. Emission limits values have also been developed for different air and water pollution sources.8 However, enforcement of and compliance with existing emission limits has been difficult for several reasons. As a result, environmental quality standards have not been met in several parts of the country.
Lack of accurate environmental quality information, inventories of emitters and available technologies have resulted in the setting of unrealistic standards at the outset. Standards were initially transposed from other countries’ regulatory frameworks and resulted in very strict emission limits that required high levels of investment to ensure compliance. They were revised afterwards. However, the technical complexity of the subject matter and the lack of qualified experts to assess alternative standards have also limited efforts to set more realistic, achievable targets. International best practices suggest that local industries need adequate support and guidance – as well as sufficient time – to comply with the standards. For each equipment and process, information on best available technologies, guidelines on design operation and maintenance for emission reduction should be developed in close co-ordination with the industry (Box 7.8). In several cases, the standards do not prescribe specific abatement methods, but their values are set based on reference end-of-pipe pollution control technologies instead of integrated process solutions (i.e. cleaner production technologies).9
There is now widespread recognition of the need to reform several of the emission limits and ambient quality standards. However, the limited information and analysis of air and water pollution sources, and their impact on ambient quality, precludes meaningful re-design of the environmental standard system. It is therefore critical to focus resources on monitoring and analysis of pollution sources as a first step towards reforming the system. Building on improved environmental information, the revision of standards should strike a balance between what is feasible from a technical and economic standpoint from the perspective of both the polluter and the enforcement agency (Box 7.8). Efforts should be concentrated on polluting substances that pose the greatest risk to human health and the environment.
The Industrial Emissions Directive (IED) is the main EU instrument regulating pollutant emissions from industrial installations. Approved in 2010, the IED recasts seven existing Directives into a single clear and coherent legislative instrument. The directives in question were the Integrated Pollution Prevention and Control (IPPC) directive, the Large Combustion Plants Directive, the Waste Incineration Directive, the Solvents Emissions Directive and three Directives on Titanium Dioxide. The IED aims to achieve a reduction in industrial emissions harmful to human health and the environment. Installations undertaking industrial activities with specific characteristics need to operate in accordance with a permit that sets their emission limits. The following best practice aspects of the regulation are worth emphasising:
The integrated approach of the IED takes into account the overall environmental performance of the plant, covering air, water and land emissions, the generation of waste, etc.
The IED is based on a practical approach to emissions reductions. The permit conditions include emission limits based on the best available techniques (BATs). BATs are defined based on an assessment and discussion among technical experts, industry and environmental organisations. They provide information to decision makers about relevant techniques that are economically viable and technically available to industry in order to improve their environmental performance.
Flexibility is allowed in setting emission limit values if the application of BATs would lead to “disproportionately higher costs” compared to the environmental benefits. In other cases, provisions such as transitional plans allow additional time for installations to comply with limits.
The public has the right to participate in the decision-making process and has access to permit applications and the results of pollutant monitoring. A European pollutant registry was created and made publicly available.
Existing analysis of the results of IED implementation suggests that trends in air emissions have been negative for the installations under regulation. EU industry emissions of sulfur dioxide (SO2) and dust particles have halved since 2007. The leather industry reduced emissions of harmful water pollutants, such as heavy metals, by over 90%.
Source: (European Commission, 2018[25]; European Commission, 2017[26]; European Commission, 2016[27]).
Streamline the use of policy instruments such as SEAs, EIAs and environmental permits
The strategic environmental assessment (SEA) and environmental impact assessment (EIA) are among the main environmental policy instruments proposed by the Environmental Protection Law. The SEA was envisioned to identify and mitigate possible environmental impacts of plans, policies and programmes. However, limited progress has been made in terms of implementation and further technical guidance and capacity needs to be developed.
The EIA was originally envisioned as an instrument to aid the public administration in identifying the potential impacts of an operation of activity on the environment. EIAs are also used to develop environmental protection plans to reduce impacts to an acceptable level based on existing environmental standards and pollutant limits. Depending on the type of environmental impact, an EIA is approved by a national or subnational environmental authority and an environmental permit or license is issued. The competent authority is then responsible for monitoring implementation of the environmental protection plan approved in the EIA.
The EIA process and permit system have undergone several revisions since its original adoption.10 While progress has been made in conducting EIAs, their effectiveness has been limited by regulatory design and institutional weaknesses. Currently, they are required for a large list of activities;11 however, agencies have a limited capacity to supervise and monitor both EIAs and environmental permits. The existing process can be simplified for activities with a low impact on the environment, with prioritisation focused on efforts to screen and monitor the environmental protection plans of activities with a high impact on the environment. Integrated pollution permits12 can also be introduced for large stationary sources to reduce administrative burdens.
The EIA appraisal and monitoring process could benefit from standardisation. Specialised technical guidelines for different sectors can be developed and EIA reporting requirements standardised, thereby streamlining the process and making it more objective. Cumulative impacts to the environment should also be appropriately assessed as part of the EIA process13 and public consultation further developed.14 Finally, the introduction of online management systems for EIAs and licensing has the potential to: i) expedite processes; ii) improve co-ordination and information sharing across government levels; and iii) compile relevant information of polluters and environmental quality. International experience in the use of new technologies and the redesign of environmental permitting systems is presented in Box 7.9.
The European Union Network for the Implementation and Enforcement of Environmental Law (IMPEL) has documented good practice cases related to the Integrated Regulation Programme established in England and Wales. This programme was established to streamline regulatory activities such as permitting, reporting and inspections. A national managed ICT framework was created to integrate all data and ensure that activities were not duplicated, and data were used to improve results. The countries then introduced integrated environmental permitting. The new system incorporated all licensing requirements into a single system, without changes to any environment or health protection standards. The system also enabled the planning of combined environmental inspections, thereby decreasing workloads per inspection while increasing coverage.
Another example of good practice is the EU centralised online database created for the Industrial Emissions Directive. This database provides citizens with information on environmental permits for installations and fosters their participation in the process. Implementation of the database has created incentives and opportunities for EU countries to: i) ensure transparency when applying environmental rules, and facilitate public participation and objections; ii) improve communication among regional governments, permit applicants, communities and the public; and iii) streamline permitting procedures for companies.
El Salvador provides a best practice example from a developing country of an effective reform to streamline and increase the transparency and accountability of an EIA and permit system. The strategic approach taken for the reform involved different phases and produced several results: i) stakeholders were engaged to develop new categorisations and clear rules; ii) administrative requirements were simplified from 14 to only 1; iii) the new categorisations for activities were approved based on the scope and sensitivity of the environment (for each project); iv) standard terms of reference were developed (one general TOR and technical guidelines for sectors); and v) application forms were reduced from 27 to only 1, which could be submitted via an online platform.
Additionally, an online platform was created containing the following features: i) online permit applications with built-in categorisation and streamlined requirements; ii) automated draft permits generated for low-impact project proposals, including municipal permit issuance; iii) tailored standard self-reporting forms for monitoring; and iv) a web-based system to enable public access to permits, monitoring, complaints and enforcement. Finally, plans were made to link the online system to a GIS-driven analytical tool in order to provide instantaneous access to distributed environmental, social and economic data via web services for reviewers and preparers of EIA documents.
The case of El Salvador illustrates how the introduction and use of new technologies has the potential to strengthen the EIA and permit process through greater access, transparency, accountability, and ultimately improved environmental results and environmental management efficiency.
Source: Adapted from (Castaneda, 2018[28]; European Commission, 2018[29]; Wasserman and Nieto, 2015[30]; IMPEL, 2009[23]).
Revisit compliance assurance strategies for increased effectiveness
Viet Nam has made some progress with respect to compliance assurance. The Vietnam Environment Administration (VEA), the central government’s enforcement agency, has been operating for almost a decade and has received international technical support. While their technical capacity has been strengthened, existing regulatory weaknesses combined with limited co-ordination mechanisms with local governments have limited the VEA’s effectiveness.
Increase inspection and enforcement capacity at the local level and strengthen supervision mechanisms
Overall, the capacity to detect non-compliance has been limited. Scarce human resources and unclear enforcement procedures have hampered the effectiveness of inspections, particularly at the local level. Indeed, public complaints about pollution incidents have proven more effective in detecting non-compliance. While the new requirements for continuous environmental monitoring set forth by Decree No. 40/2019/ND-CP may help strengthen the capacity to detect non-compliance, additional resources and capacity are needed for effective implementation.
The capacity to enforce environmental regulations such as emission limits will benefit from an improved environmental information monitoring system for polluters and pollution substances. In some cases, the number of pollutants to be monitored will have to be adjusted based on existing capacity. For example, over 100 parameters pertaining to surface water quality standards are regulated, yet the number of parameters that can be monitored in practical terms is smaller. Enforcement procedures must also be clarified to allow for effective implementation. Additional inspectors need to be hired and existing ones must be trained to adequately perform their tasks at the local level. Laboratories also need to be equipped to analyse samples with the required level of specificity for pollution issues (World Bank, 2019[4]). Finally, supervision mechanisms between the VEA and local environmental enforcement authorities should be strengthened.
Revise the administrative penalty system
Administrative penalties for violation do not seem to effectively deter behaviour for several of the polluters. This raises the question of whether penalties are not sufficiently high or are not really collected,15 with only limited information publicly available on fines both imposed and collected. Environmental liability must be aligned to the polluter-pays principle since payments are not entirely based on actual harm to the environment and the cost to remediate it. In fact, additional assessments need to be conducted to evaluate the extent of environmental damage, available remediation measures, their costs and the criteria for selection. International best practice suggests that the rates applicable and fines should be realistic, transparent and aligned with environmental policy objectives (OECD, 2009[31]).
Use information and market-based instruments to promote compliance
Opportunities exist to expand the use of information and market-based instruments to complement existing compliance assurance strategies. The existing experience of the Vietnam Environment Protection Fund (VEPF), which provides access to financing and technical assistance for pollution control technologies, can be scaled up. The use of information-based instruments such as public disclosure schemes and education and awareness raising campaigns (school curriculum, use of role models, advocacy by leaders, advertising, etc.) can also contribute to galvanising support towards further compliance (Box 7.10).
The Vietnam Environmental Protection Fund (VEPF) is a state-owned financial institution under MONRE that was created in 2002. The VEPF provides concessional loans (under better conditions than the market) and other financial services (grants, post-investment interest rate subsidies, subsidies) for environmental management activities. At the end of 2018, concessional loans represented 84% of capital allocation, grants accounted for 7%, interest rate incentives represented 4.8% and wind-power subsidies amounted to 3.7%. The main sources of capital for the VEPF have been state budget, fees from selling certified emissions reduction, and domestic and international organizations. The priority sectors of intervention of the Fund are: i) industrial wastewater treatment (in industrial zones); ii) domestic wastewater treatment; iii) wastewater and emissions treatments (factories and craft villages); iv) domestic waste treatment; v) energy-efficient production and renewable energy.
Up until the end of 2017, the VEPF has allocated USD 106 million in credits distributed in 293 projects, in 56 provinces of the country (Table 7.2). Industrial and domestic wastewater treatment have represented more than 35% of fund allocations, followed by energy-efficient production and renewable energy with a 19% allocation.
Other market-based mechanisms such as charges, taxes, subsidies, fees or tradable permits may contribute to promoting pollution reduction. Experience in implementing these types of instruments in non-OECD countries has achieved positive results. For example, in China, pollution discharge levies were imposed on a number of pollutants that were discharged into the air, water or land (Box 7.11). Observations indicate that firms reduced their pollution intensity due to the discharge levies (He, Wang and Zhang, 2019[32]; Blackman, Li and Liu, 2018[33]).
The Green Watch programme was a public disclosure programme for industrial polluters in China. Local government agencies were required to publish lists of polluters exceeding discharge limits. Information on the regulated community was compiled by local environmental agencies and used to evaluate firms’ environmental performance. The programme used a colour code to indicate compliance with the colours green, blue, yellow, red and black indicating performance (from best to worst). The colour rating results were published in local newspapers and broadcast on local TV and radio (and in some provinces on the Internet). Local agencies used this information to better target their inspections, thereby ensuring that limited resources were used more efficiently.
Other instruments were also used to exert public pressure on polluters in China. Databases of environmental offenders were created and shared with banks and other regulatory bodies. Poor environmental compliers would have to pay higher interest rates when applying for a loan, and in some cases, would be denied credit.
Source: Adapted from (OECD, 2009[31]; OECD, 2006[34]).
The use of economic instruments needs to be aligned to contribute to the achievement of key environmental policy objectives. The system of pollution charges is used only for water emissions, although there are discussions underway to introduce it for air emissions.16 Additional information on actual emissions must be collected to assess the right price level to encourage behaviour change and achieve better environmental outcomes. Effective collection mechanisms must then be established accordingly. The experience with water pollution fees17 suggests that fees are not always charged, and their collection is not always used towards environmental protection activities (World Bank, 2019[4]). This reinforces the idea that a reliable system for monitoring and enforcement of emission levels will also be critical for the effectiveness of market-based instruments.
As significant additional private and public investments will be required to improve environmental outcomes, adequate incentives need to be provided to ensure that outcomes are achieved in the most efficient and effective manner. Information and market-based instruments can play a significant role in providing adequate incentives.
Public participation and access to environmental information need to be strengthened
Although the regulatory framework contains provisions for public participation and access to environmental information, in practice the system for public participation and access to information on environmental matters is fairly restricted. International best practice is available on how to improve these aspects related to environmental democracy (UNEP, 2010[35]).
While NGOs are involved in strategic policy discussions, public participation in law making remains limited. Public participation in the EIA and SEA is restricted to residents of the area affected by the proposed project or plan and does not include the wider public. EIAs are not normally announced in the mainstream media, and public hearings serve mostly to inform rather than seek comments. Moreover, the authorities are not obliged to accept citizen’s proposals. Developing an effective conflict resolution mechanism to ensure that the government works in partnership with civil society and NGOs could help to alleviate future tensions due to environmental incidents.
MONRE provides a range of environmental information to the public, including an annual state of the environment report and an annual environment statistics yearbook. Records on permit applications and inspection reports are not readily available to the public. Despite growing disclosure of environmental information, the existing system for monitoring environmental quality and polluters has limited coverage and the quality of the data is questionable. Further protocols should be developed to ensure that information such as records on regulated entities, polluter registries and other relevant information produced or managed by the government is available to the public (Box 7.12). Finally, regulations do not attribute any obligation to government agencies in terms of disseminating relevant environmental information when environmental emergencies arise.18
In February 2010, the United Nations Environment Programme (UNEP) adopted the “Guidelines for the Development of National Legislation on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters” (The “Bali Guidelines”). The Guidelines seek to assist countries in filling possible gaps in their respective relevant national legislation, and where relevant and appropriate in subnational legal norms and regulations at the state or district levels, ensuring consistency at all levels to facilitate broad access to information, public participation and access to justice in environmental matters.
In terms of access to environmental information, the following principles were developed:
1. Any natural or legal person should have affordable, effective and timely access to environmental information held by public authorities upon request (subject to guideline 3), without having to prove a legal or other interest.
2. Environmental information in the public domain should include, among other things, information about environmental quality, environmental impacts on health and factors that influence them, in addition to information about legislation and policy, and advice about how to obtain information.
3. States should clearly define in their law the specific grounds on which a request for environmental information can be refused. The grounds for refusal are to be interpreted narrowly, taking into account the public interest served by disclosure.
4. States should ensure that their competent public authorities regularly collect and update relevant environmental information, including information on environmental performance and compliance by operators of activities potentially affecting the environment. To that end, States should establish relevant systems to ensure an adequate flow of information about proposed and existing activities that may significantly affect the environment.
5. States should periodically prepare and disseminate at reasonable intervals up-to-date information on the state of the environment, including information on its quality and on pressures on the environment.
6. In the event of an imminent threat of harm to human health or the environment, States should ensure that all information that would enable the public to take measures to prevent such harm is disseminated immediately.
7. States should provide means for and encourage effective capacity-building, both among public authorities and the public, to facilitate effective access to environmental information.
In terms of public participation, the following principles were developed:
1. States should ensure opportunities for early and effective public participation in decision making related to the environment. To that end, members of the public concerned should be informed of their opportunities to participate at an early stage in the decision-making process.
2. States should, as far as possible, make efforts to seek proactively public participation in a transparent and consultative manner, including efforts to ensure that members of the public concerned are given an adequate opportunity to express their views.
3. States should ensure that all information relevant for decision making related to the environment is made available, in an objective, understandable, timely and effective manner, to the members of the public concerned.
4. States should ensure that due account is taken of the comments of the public in the decision-making process and that the decisions are made public.
5. States should ensure that when a review process is carried out where previously unconsidered environmentally significant issues or circumstances have arisen, the public should be able to participate in any such review process to the extent that circumstances permit.
6. States should consider appropriate ways of ensuring, at an appropriate stage, public input into the preparation of legally binding rules that might have a significant effect on the environment and into the preparation of policies, plans and programmes relating to the environment.
7. States should provide means for capacity-building, including environmental education and awareness-raising, to promote public participation in decision making related to the environment.
Source: Adapted from (UNEP, 2015[36]).
Managing water pollution
Water quality in Viet Nam is deteriorating, a trend that acts as a major constraint on economic growth. Water pollution has the potential to cause annual losses to the economy of up to 4% of GDP if no action is taken (World Bank, 2019[4]). There are five main sources of water pollution. Industrial wastewater is potentially the most highly polluting source due to the amount of chemicals that are difficult to treat (at present only 70% of discharges are treated). Domestic wastewater is the largest contributor in volume (only 12.5% of municipal wastewater is treated). The other three sources are solid waste reaching waterways, untreated wastewater from traditional craft villages, and agriculture and livestock pollution (Cassou et al., 2017[37]).
The existing regulatory framework in Viet Nam makes use of water environment and effluent standards, inspections and penalties as well as effluent charges. While the framework seems sound in principle, limitations have hampered its effectiveness. Limited monitoring capacity has hindered understanding of the full extent of water pollution (ambient quality and pollution sources) and has impeded efforts towards setting adequate standards and enforcement. Human resources for enforcement are inadequate, with on average only eight environmental inspectors per province (World Bank, 2019[4]). The penalty structure does not incentivise changes in behaviour, either because fines are too low or are not collected. Existing wastewater treatment tariffs are too low to achieve cost recovery, and hence do not provide financial incentives for industrial companies to invest in treatment. Finally, agricultural policies that promote cheap fertiliser and pesticides are harming the environment.
In addition to the existing regulatory framework, the government has made significant investments in domestic wastewater treatment plants in major cities; however, underinvestment19 in the sewerage network (particularly in connection to treatment plants) in urban areas has resulted in low domestic wastewater treatment. Programmes have been implemented to promote compliance and investments in water quality monitoring for firms located in industrial zones (Box 7.13).
The World Bank-financed “Vietnam Industrial Pollution Management” project was created to help the country manage industrial pollution issues by improving compliance with industrial wastewater treatment regulations in four of the country’s most industrialised provinces.
The project helped to shift the culture away from an inspection-driven approach, where the Departments of Natural Resources and the Environment (DONRE) was tasked with detecting incompliance, towards a self-monitoring approach in which industrialised zones were tasked with proving compliance. The old inspection-driven approach was problematic since DONRE made regular announced visits to these zones. Inspectors had to manually collect wastewater samples which could be easily tampered with by managing wastewater discharge flows. The self-monitoring approach involved continuous 24-hour monitoring with online data transferred to provincial authorities. Independent analysis and verification of lab results were used to underpin this continuous monitoring approach. The arrangement provided the best conditions for improving compliance and protecting against wastewater contamination of the river basins.
The approach was piloted by the project in four provinces. Support for the regulatory framework was provided by strengthening monitoring and enforcement, with financing allocated for wastewater treatment investments. The project has the potential to be replicated in other non-project provinces. Even without World Bank-financed support for scale-up, the new regulations and availability of more affordable financing allow for improved compliance with wastewater effluent standards for industrial zones and separate industries. Project implementation also generated lessons in terms of the need to increase enforcement capacity at MONRE and DONRE as well as operational capacity at wastewater treatment plants.
Source: Adapted from (World Bank, 2019[38]).
Strengthen the regulatory and institutional framework for implementation
Viet Nam should consolidate leadership responsibilities for water quality under a single agency to ensure effective supervision. At the same time, the monitoring of water quality and water polluters together must be strengthened and ultimately used for the re-design of the existing regulatory system. Wastewater treatment standards and pollution fees must be reassessed based on the consideration of carrying capacity of receiving water bodies and cost-benefit analysis to avoid excessive capital and operational infrastructure costs. Other compliance assurance strategies should be introduced or scaled up. For example, the VEPF can be scaled up to provide access to finance to SMEs and municipal government agencies (Box 7.14) for technology adoption. Awareness raising, education programmes and public disclosure schemes can also be used to encourage behavioural change. Finally, pilot water quality plans should be prepared in critical river basins to identify the measures needed to improve the status of water quality.
The Clean Water State Revolving Fund (CWSRF) is a federal fund established in 1987 to provide financial assistance to a wide range of US water infrastructure projects. Loans were provided to eligible recipients to construct municipal wastewater facilities, control non-point sources of pollution, build decentralised wastewater treatment systems, create green infrastructure projects, protect estuaries and fund water quality projects. The Environmental Protection Agency provided grants to all 50 states to establish a state fund, with states contributing an additional 20% to match the federal grants.
The programme functioned like an infrastructure bank by providing low-interest loans. As money was paid back into the state’s revolving loan fund, the state made new loans to other recipients for high-priority water quality activities.
Since 1988, USD 126 million has been used cumulatively for more than 38 441 assistance agreements covering a wide range of water quality infrastructure projects. In 2017, the CWSRF provided over US$ 7.4 million in funding. The weighted average interest rate for CWSRF loans was below the market interest rate and dropped to 1.4% in that year – a historic low.
Source: Adapted from www.epa.gov/sites/production/files/2015-06/documents/cwsrf_101-033115.pdf and (World Bank, 2019[38]).
Promote effective and sustainable wastewater treatment investments
Investments in domestic wastewater treatment capacity and sewerage networks need to be prioritised in urban areas. The past focus on expanding treatment capacity must be accompanied by appropriate collection systems. Additionally, institutional and regulatory arrangements need to encourage the efficient operation of wastewater enterprises. Cost recovery of capital, operations and maintenance of wastewater systems must be improved through changes in existing wastewater tariffs, which currently amount to 10% of water tariffs. Revision of existing wastewater tariffs could simultaneously promote cost recovery and better align this economic instrument with the polluter pays principle. However, reforming the tariff may be technically and politically challenging. Recent OECD experience in Korea explored the reform of economic instruments and identified a number of prerequisites. These included multi-stakeholder buy-in as a result of a nationwide consultative process; clear communication regarding the objective of the charge, transparency of its design and the use of the collected revenues; and awareness raising regarding the cost of water pollution (OECD, 2017[39]).
Managing air pollution
Air quality in Viet Nam has been worsening, posing a risk to human health. The measured annual mean concentrations of PM 2.5 (typically between 35 µg/m³ and 60 µg/m³) are clearly above the national air quality standards of 25 µg/m³ and exceed the level established in the global guidelines of the World Health Organization (10 µg/m³) by a wide margin (IIASA, 2018[40]). The situation is similar in big Vietnamese cities where concentrations reach PM 10 (Chapter 2). Trends in recent years suggest that air quality has worsened year-on-year for big cities such as Ha Noi and Ho Chi Minh (GreenID, 2018[41]). The concentration of total suspended particles has historically been higher in the North than in other regions, mainly due to the concentration of large-scale coal-fired plants and cement factories using obsolete technology (MONRE, 2015).
Overall, the sources of pollution are varied and include: i) fuel combustion by industry and the power sector; ii) transport; iii) construction; iv) domestic energy use; and v) burning of waste. Trends suggest that the situation will get worse, as the use of coal as a primary energy source is projected to expand, and the demand and use of private vehicles continues to rise in cities, among other factors.
National ambient air standards were approved in 2013 and a series of national technical regulations on emissions from different sources were established between 2009 and 2015. However, while regulation is in place, progress in controlling emissions has been slow (JICA, 2015[11]). In 2016, the National Action Plan on Air Quality Management 2017-2020 was approved by the government with the aim of monitoring air pollution and controlling emissions.20 Until recently, the majority of efforts stemming from the plan focused on point source pollution registration, emissions inventories and the installation of continuous emission monitoring systems for the biggest stationary source emitters.
Other regulations and plans related to air pollution have been implemented in recent years. Fuel quality and vehicle emissions standards were approved, although these are not as stringent as in OECD countries,21 and little information is available on compliance and the evolution of these emission sources. Programmes to encourage energy efficiency and cleaner production have been developed, and investments in public transportation are currently being implemented in Ha Noi and Ho Chi Minh. However, these additional efforts had a limited impact on ambient air quality due to ineffective enforcement and limited fund allocation.
Strengthen the capacity to monitor air emissions, polluters, air quality and consequent impacts on health
The existing system to monitor ambient air quality needs to be strengthened to ensure adequate coverage and functioning (Box 7.15). Additionally, information on levels and sources of air pollution should be made publicly accessible, and annual reports disseminated to increase public knowledge about the evolution of air quality.
Existing efforts to develop an emissions inventory represent an important step in the implementation of further air quality management measures. Emissions inventories can be utilised to determine significant air pollution sources and monitor emission trends over time. Ultimately, they are a critical input in the elaboration of effective emissions limits for different pollution sources. Detailed information on polluters will also be instrumental if the country decides to implement an emission cap management system in the future.
Local capacity building will be required to both manage and update inventories, and monitor the data coming from a future continuous emission monitoring system. Specialised training will also be needed for professionals in charge of air pollution control to enable them to monitor and enforce any future regulation. Simultaneously, protocols for database building, information reporting and data sharing needs must be developed to ensure a well-functioning air quality management system (ADB, 2010[42]). Data from the system can also be linked to the EIA and environmental permitting system.
Generating an understanding of health impacts related to poor air quality is also important to reduce health risks. Epidemiological studies and the monitoring of environmental health incidence of air quality can generate further evidence on health risks. This is particularly relevant for large cities, industrial complexes and areas near contaminated sites. Additionally, protocols for high-pollution episodes can be developed to reduce the exposure of the population to poor air quality. Disseminating this information through press, radio, television and the Internet is also an effective measure to raise awareness and the consciousness of the community regarding air quality and health risks.
International experience in setting up and managing air quality monitoring systems in several developing countries has generated the following lessons.
Measurement systems are necessary but not sufficient to reduce air pollution. Air quality measurement strategies must be placed in the context of a broader air quality management programme, with a focus on achieving emission reductions and improvements to public health, rather than functioning as an end in themselves.
A successful, sustainable monitoring strategy requires more than equipment. Critical human and institutional systems are needed to sustain equipment and ensure that data quality remains high, so that any data collected can be analysed and communicated to decision makers to support desired objectives. For example, in Bangkok, air quality monitoring results are disseminated through various media including newspapers, websites, television and radio. An air quality index has been established to easily explain air quality to the public, and air quality warning are issued during air pollution episodes. Additionally, various exposure assessments and epidemiological studies have been conducted to determine the health impacts of air pollution.
The total cost of a monitoring system goes beyond the purchase price of monitoring equipment. Other considerations include ongoing operation and maintenance, spare parts, filters (if applicable), data management and staff training. In Bangkok, the budget for air quality management includes air quality monitoring, and the associated planning strategy sets a timeline or lifespan to monitor stations, and anticipate and forecast needs for maintenance, replacement, relocation and upgrade. Thailand’s pollution control department undertakes annual planning to determine which management option to undertake depending on annual budget availability.
Quality assurance and control plans are one of the most critical components of an air measurement strategy. External systems must be in place to verify the precision, accuracy and validity of measurements. Internal systems must also be in place to estimate and maintain the aforementioned characteristics of measurements. Decision makers must have confidence that the monitoring data underpinning their decisions are of an adequate quality to withstand scrutiny, especially when significant investments and regulations are based, at least in part, on these data. Air quality measurements in Asian cities such as Beijing and Jakarta were the target of criticisms in the early 2000s, as the reported pollution levels did not seem to correspond to real levels.
Source: Adapted from (World Bank, 2017[43]) and (ADB, 2010[42]).
Prepare and implement air quality management plans.
As further information is generated on air quality and pollution sources, air quality management plans should be developed for cities or areas where the risks to health are high. The development phase will need to consider the wide variety of measures available and adapt them to the specific pollutant and pollution source that needs to be addressed. Measures can build on existing efforts such as public transportation investments, energy efficiency programmes and vehicle emissions standards, and combine them with industrial emissions limits. International experience further suggests that effective implementation requires co-ordinating actions across different levels of government and sectors (Box 7.16).
The European Union has implemented several measures to improve air quality. These range from setting national emission ceilings to manage transboundary pollutants, to emissions standards for key sources of pollution and the adoption of air quality management plans. Most measures implemented in Member States address the transport sector through investment in public transport, traffic restrictions, and vehicle and fuel quality standards (EEA, 2018[44]). Energy efficiency measures have also been implemented.
The implementation of air quality management pilots at urban level resulted in a number of lessons (EEA, 2013[45]). First, the implementation of inventory methodologies requires guidance, as the identification and appropriate quantification of point sources can be difficult. Second, adequate coverage of air quality monitoring networks is important. Third, measures need to address traffic and the domestic, commercial and industrial sector, however there is uncertainty about the costs and benefits involved in curtailing pollution. Fourth, there is room to use mass media and new technologies to make information available to the public, and increase citizens’ interest and involvement in air quality issues.
The implementation of air quality plans also highlighted a number of challenges (EEA, 2018[44]). Plans need to be well-targeted to ensure effective implementation and desired results in the areas where concentrations are highest. Plans also tend to exceed the powers of local authorities responsible for their implementation, which can jeopardise results over the short term. Lastly, cost estimates and financing are crucial to guarantee implementation.
In China, efforts to reduce air pollution in the Beijing-Hebei-Tianjin region included the implementation of energy efficiency technologies in the domestic and industrial sector, the promotion of public transport in cities, a shift from coal to natural gas, the introduction of automatic monitoring of key pollution sources and the building of technical capacity to monitor and enforce regulation (ADB, 2018[46]). They also included training to help relocate workers affected by the transition to greener industries.
In Mexico, the air quality programme Proaire provides another example of measures adopted to reduce emissions in cities with poor air quality. The programme consisted of more than 89 measures, including financial incentives to replace old taxies and buses, the development of a new public transport network and the combination of a vehicle verification system with a “no driving day” policy.
Source: Adapted from (EEA, 2013[45]) (European Commission, 2018[29]) (ECA, 2018[47]) (ADB, 2018[46]) (OECD, 2013[13]).
Managing the consequences of natural hazards
Viet Nam experiences frequent water-related extreme events such as floods, typhoons, tropical storms and droughts. The annual cost they impose on the economy amounts to almost 1% of national GDP (Figure 7.3). These risks are expected to increase in the future in line with existing development trends, as population growth and settlements are concentrated in disaster prone areas and infrastructure is developed and operated without considering potential flood risks. Additionally, climate change will result in an increased frequency of extreme weather events. If no action is undertaken, the socio-economic losses of water-related natural hazards are expected to more than double, reaching 3% of GDP by 2050 (World Bank, 2019[4]).
Note: Annual average damage was calculated based on damage reported between 2014 and 2018. GDP figures are taken from the World Bank and represent an average for 2014-17 in current USD (http://data.worldbank.org/indicator/NY.GDP.MKTP.CD).
Source: EM-DAT Database (accessed in December 2019), (World Bank, 2019[6]).
A Disaster Management Authority exists and is responsible for co-ordinating with other agencies to plan and reduce risks, however its capacity to co-ordinate is limited. Flood risk mapping has been carried for some river basins; however, progress has been uneven across the country. Some progress has been made in the implementation of risk reduction measures such as dikes, and reservoir operating rules, as well as resettlement of the population in flood prone areas. Despite these efforts, the country’s current financing capacity meets only 21% of the estimated need for emergency reconstruction and recovery (World Bank, 2019[4]).
Moving towards an integrated risk management approach can improve effectiveness in a context of capacity limitations
Integrated disaster risk management approaches revolve around five basic pillars: i) an adequate governance system, ii) identification of risks, iii) risk reduction, iv) emergency and reconstruction response capacity, and v) financial protection from risks. Viet Nam can learn from international best practice (OECD, 2014[48]) in each of these areas to improve its effectiveness in managing natural hazards:
1. At the governance level, it is important to form an inter-ministerial committee to mainstream disaster risk management policies into sector plans and investments. Co-ordination with sub-national governments is also essential to ensure adequate implementation.
2. Information on existing risks is limited. Additional analysis to understand flood risks will be needed to better inform disaster risk management plans and actions (Box 7.17). The analysis must also include climate change projections. This information should be made accessible to the public. Additionally, identifying critical infrastructure can help increase the effectiveness of risk reduction investments.
3. Once risks are identified, risk reduction investment plans can be prepared to reduce risks to an acceptable level, taking into consideration existing financial availability.
4. Emergency response and reconstruction after a disaster can be improved through the elaboration of plans and protocols, capacity building and the establishment of mechanisms to co-ordinate responses among civil protection agencies and the population.
5. Finally, financial instruments can be used to cope with disasters or transfer the risks to insurance markets. These instruments enable the disbursement of funds when a disaster occurs. Some countries have established disaster relief funds, such as FONDEN in Mexico, while others such as the Philippines have made use of contingent credits (Box 7.17).
The EU Floods directive to identify disaster risk
The European Union adopted the Floods Directive in 2007 in response to the high incidence of flooding. An important element was the elaboration of standardised flood risk assessments across EU countries. The Directive also mandated the preparation and dissemination of flood hazard and risk maps to increase public awareness of the issue. The information generated could inform flood risk management plans, which need to identify measures to prevent, protect against and prepare for floods. Major future challenges include incorporating climate change into flood risk assessments, the use of flood insurance systems and mainstreaming flood risks into land use planning.
Financial protection strategies in Mexico and the Philippines
A number of countries provide examples of best practice in articulating adequate financial protection strategies.
Mexico established a natural disasters fund (FONDEN) in the late 1990s. FONDEN was initially used to support the rapid rehabilitation of federal and state infrastructure affected by adverse natural events. Funds were later used to support disaster prevention, risk assessment, risk reduction and risk transfer mechanisms. FONDEN’s resources have also been used to leverage market-based instruments such as insurance and catastrophe bonds to provide insurance coverage for government assets and low-income housing.
The Philippines has used market financing instruments to enable national and subnational governments to access funds in the event of a disaster. A contingent line of credit was purchased and accessed shortly after the Haiyan tropical cyclone hit the country. More than USD 600 million was mobilised to finance emergency reconstruction in affected provinces.
Source: Adapted from (World Bank, 2019[4]), (ECA, 2018[49]) and (World Bank, 2012[50]).
Planning and financing the low-carbon energy transition in Viet Nam
Planning the low-carbon transition: Enhance energy security and leverage new opportunities
Under PDP VII, Viet Nam envisages increasing its renewable capacity to 2.4 GW in 2020 and 21.3 GW in 2030. The Renewable Energy Development Strategy (REDS) complements the PDP and articulates incentive mechanisms for the deployment of renewables.22 With a solar potential of 85 GW and wind potential of 21 GW, Viet Nam is well positioned to transition to a low-carbon economy and leverage the opportunities it brings (UNDP, 2018[51]).
Based on a literature review and interviews with government officials and experts, the OECD has identified a range of priorities to create an enabling environment for the clean energy transition. The following sections, however, focus on two medium-term challenges that Viet Nam must address to realise its clean energy potential: (i) unsynchronised development of electricity generation and transmission infrastructure; and (ii) the high cost of capital for renewable energy and energy efficiency projects.
Unsynchronised development of generation and transmission infrastructure: A chicken and egg situation
A major impediment to the generation and transmission of renewable energy in Viet Nam is unsynchronised development. At present, project development outpaces grid construction. This is due to the licensing and development of higher generation capacity than originally planned under the PDP. For instance, PDP VII established a target of 850 MW of installed solar capacity by 2020. In June 2019, however, 82 solar projects were commissioned amounting to 4.46 GW, far exceeding planned capacity. Project developers rushed to launch commercial operations before 30 June in order to benefit from an expiring Feed-in-Tariffs (FiT) of USD 0.0935, and Electricity Viet Nam (EVN), the national utility, worked urgently to provide the necessary approvals and connect the projects to the grid (Rystad Energy, 2019[52]).
Viet Nam’s recent success in installing significantly more solar capacity than planned should provide it with the confidence and impetus to raise ambitions. However, the manner of deployment indicates misalignment in the planning process. It also highlights the need to either amend incentive policies to prescribe capacity limits by region and technology or to design price adjustment mechanisms that reflect technology cost reductions and help improve cost-effectiveness.
Grid construction takes longer than building a solar or wind power plant. To avoid stranding new projects, development of transmission infrastructure should be co-ordinated with the construction of new capacity. While Vietnamese authorities are sanctioning much larger capacity than originally planned under the PDP, planned investment in the grid is estimated to decline 10-15% year-on-year.
In the absence of adequate transmission facilities, the licencing and commissioning of excess capacity precipitates congestion and curtailment by the offtaker. This lends to the riskiness of renewable projects and drives up the cost of capital in Viet Nam.
To EVN, investing in transmission facilities in the absence of concrete projects is a risky proposition. EVN requires advanced visibility of the project pipeline and a guarantee(s) that the grid capacity it constructs will be utilised. Such guarantees are hard to find. Investors on the contrary argue that developing projects in the absence of adequate transmission infrastructure hurts the economics of their investment.
Rethinking planning: A dynamic PDP to avoid path dependency and leverage new opportunities
Addressing this challenge requires a dynamic PDP that evolves in step with changing market conditions. A PDP that facilitates co-ordinated development of the grid and generation capacity will be central to reducing project risks, scaling-up renewables and transitioning to a low-carbon power system. The Vietnamese government is presently developing the PDP VIII scheduled for release in 2020. According to experts drafting the new plan, the forthcoming PDP intends to divide the country into zones and assign zonal capacity quotas. The technology breakdown for each zone will be determined using a least-cost optimisation model. In principle, this approach could facilitate the construction of transmission infrastructure in step with new generation capacity. However, a number of key issues merit additional thinking: (i) How will the various provinces within each zone co-ordinate? (ii) How will provincial quotas be allocated? (iii) What safeguards should be put in place to avoid over licensing (as recently seen in Viet Nam)? (iv) What are the distributional effects of the policy?
Rethinking the current structure and function of the PDP could foster an energy system that supplies the demand of the Vietnamese economy while preserving public health and opening new frontiers of economic opportunity. The declining cost of renewables, the emergence of new associated sectors (e.g. energy storage, electric mobility, green buildings) and new economic avenues such as the prosumer model all testify to a fast-changing energy landscape. As the cornerstone of power market development, the PDP being must be forward looking, adaptive and responsive to evolving market needs and opportunities. The anticipatory transmission planning approach of the Philippines provides a good example here (World Bank, 2011[53]).
To this effect, the dynamic adaptive policy pathways (DAPP) approach could offer useful guidance. DAPP uses scenario analysis to develop a suite of possible policy responses to uncertainties in the future (Haasnoot et al., 2013[54]). By clearly identifying trigger events and outlining the anticipated policy change, policy makers can develop a predictable policy glide path capable of responding to market evolution. The approach has found application in Bangladesh, the Netherlands and New Zealand for water management and planning, and can be used regardless of the sector. DAPP can help policy makers signal stability and predictability to investors, thus catalysing investment (OECD, 2018[55]).
Promoting energy efficiency: Outlining the principal challenges
Efficient energy consumption is critical to curb rapidly growing demand and balance the need for massive capacity expansion. Viet Nam met its targets under the Viet Nam Energy Efficiency Plan (VNEEP) 2006-2015, with Phase I resulting in energy savings of 3.4% (target 3-5%) compared to forecast energy demand under the PDP, and savings of 5.65% (target 5-8%) achieved in Phase II. A variety of challenges were encountered during implementation, most notably inadequate funds, lack of appropriate financing mechanisms and limited awareness (Danish Energy Agency, 2019[7]). Though appreciable, energy savings under the VNEEP have been modest given the accelerating energy demand.
The government has extended the VNEEP to cover the period 2019-30 with a target of reducing consumption by 8-10% (vis-à-via forecast energy demand under the PDP for the same period). Targets under the VNEEP for 2019-30 are conservative as the plan has been developed with medium-cost technology in mind. Higher ambitions would warrant costlier technology, which represents a financial challenge for Viet Nam. In its current version, implementing the plan will require USD 189.2 million of which USD 68.8 million is likely to be financed through bilateral and multilateral assistance programmes.
Viet Nam’s low electricity prices are a major disincentive to wider energy efficiency uptake.23 At the beginning of 2019, the government permitted an 8.36% increase in electricity prices – a substantial rise in the Vietnamese socio-economic context but still insufficient to incentivise energy conservation measures by the average consumer. This strengthens the case for cost-reflective energy pricing to promote energy efficiency in Viet Nam.
While higher electricity prices can help curb wasteful consumption, increases in retail tariffs need to be weighed against their consequences for the economically weaker sections of Vietnamese society. It is thus important to also consider non-price incentives to promote energy efficiency. These include interventions such as awareness campaigns to change consumer behaviour and the promotion of financial mechanisms, including green mortgages at preferential rates that improve access to higher cost technology and facilitate the scaling-up of energy efficiency solutions.
Viet Nam has also set a target of constructing 80 green buildings by 2025 and 150 green buildings by 2030. However, a principal roadblock once again is the unavailability of dedicated funds to finance these projects, with only a limited subsidy of USD 30 million available for a pilot project. Furthermore, due to low electricity prices the payback period of energy efficiency investments is very long. To accomplish its targets, the government needs to explore alternative sources of finance and innovative business models that improve the financial viability of energy efficiency projects without unintended societal consequences.
Scaling-up renewables: Outlining the principal challenges
Rapidly declining costs have made renewables increasingly competitive with traditional fossil fuels. The global weighted-average levelised cost of energy (LCOE) of utility-scale solar, for instance, declined 77% between 2010 and 2018 (International Renewable Energy Agency, 2018[56]). Viet Nam, however, has yet to fully capitalise on this trend. Coal continues to be indirectly subsidised by the government while renewables face high capital costs.
Globally, competitive procurement has been instrumental in driving down the cost of renewables (International Renewable Energy Agency, 2017[57]). Current Vietnamese policies mandate a transition for wind and solar from a FiT structure to a competitive market post-2021. To this effect, the Ministry of Industry and Trade (MOIT) has been tasked with identifying and designing a suitable mechanism. However, MOIT has yet to issue guidance to the Electricity and Renewable Energy Authority (EREA), the body in charge of long-term planning.
Clean energy projects in Viet Nam suffer from a high risk perception. Investors, both foreign and domestic, well recognise the market opportunity but often demand guarantees as a precondition to investment. Tightening government budget and increased public debt have however, decreased the availability of government guarantees for clean energy projects. In the absence of commensurate guarantees, investors demand higher returns thereby increasing the cost of capital.
Within the government there is acknowledgement of the importance of renewables for energy security. However, while encouraging the government is reluctant to “unleash” renewables due to concerns over energy security. Renewable projects in Viet Nam presently rely on imported equipment, and there is concern that much of the equipment being used is of low quality and may require replacement much earlier than expected, thus compromising the viability of projects.
Using higher quality equipment will further increase project costs, which could decelerate the deployment of renewables in Viet Nam. Given the benefits of higher penetration of renewables, however, policy interventions to lower the cost of capital must be a priority for the government. As equipment for renewables in Viet Nam benefits from a waiver of import duty, lower finance costs would provide developers with the leeway to use higher quality equipment while keeping project costs under control.
In the short to medium term the share of renewables in Viet Nam will be a function of how the electricity system is operated. Variable renewables presently account for 9.5% of total electricity generated. Going forward, the variability of renewables in the electricity system will gradually become more pronounced as Viet Nam enters Phase II of integration (International Energy Agency, 2017[58]). Successfully integrating more renewable energy will require countering this variability through other dispatchable sources such as hydro. Given Viet Nam’s hydro capacity alone, it is very well placed to accommodate a much higher share of clean energy, reaching up to 25%24 through calibrated operational practices (International Energy Agency, 2017[58]). Efforts to rethink system operation could accelerate the clean energy transition in Viet Nam if coupled with an enabling policy environment that lowers the cost of capital.
In the long term, as the share of variable renewables exceeds 20-25%, the role of storage will become more prominent (International Energy Agency, 2017[58]). Presently storage technology is expensive and adds USD 0.04-0.05 per kWh in Viet Nam. Policy interventions to gradually lower the cost of storage technology can spur investment and present new economic opportunities.
Viet Nam’s hydro infrastructure could further be leveraged for floating solar plants. Floating solar plants on existing hydro dams would benefit from readily available existing transmission infrastructure and bypass the need to allocate additional land. In October 2019, Viet Nam’s first floating solar project on the Da Mi hydropower plant underwent its first financial close process. In an encouraging sign, the government has announced intentions to use the first two pilots of the new auction model to tender floating solar projects (Bellini, 2020[59]).
Financing the low-carbon energy transition in Viet Nam: Diversifying the financial landscape and mobilising private capital
Main sources of clean energy finance in Viet Nam: The need to diversify sources of capital
Limited financial resources are available for clean energy projects in Viet Nam. The landscape is dominated by loans from domestic commercial banks and developer equity, with institutional investors, retail investors and the wider capital market playing a rather limited role.
Green credit extended by domestic banks represents the largest source of finance for renewable energy projects in Viet Nam. Green lending was initiated by the State Bank of Viet Nam (SBV) as a pilot project with support from GiZ; it channelled USD 240 million in donor capital through on-lending by 23 commercial banks. Demonstration of the effects of the pilot fuelled a viable green credit market that today stands at USD 11 billion.
While renewable energy is not a designated priority sector per se for commercial loans, it is implicitly covered under the five priority sectors of the government.25 Bank lending to the sector has risen in recent years, however, commercial banks continue to be reluctant to finance renewables. This is largely due to limited experience and internal capacity to appraise projects as well as sectoral limits prescribed by the central bank. Local banks in Viet Nam prefer lesser risk and finance small-scale plants at a high cost. The constraints of the domestic banking sector are priced into the cost of debt; domestic loans have a relatively short tenor and carry an interest rate typically of 10%. This is much higher than the cost of foreign debt. International commercial banks can offer debt at 6-8% whereas export/import banks can lend at even lower costs (Dapice, 2018[60]). Access to foreign debt capital is, however, impeded by the high-risk perception surrounding Vietnamese projects, such as curtailment risks resulting from planning mismatch (as discussed above) and the terms of the prescribed power purchase agreement (PPA). Syndicate lending is largely absent from the Vietnamese market as are refinancing facilities and project finance structures – a crucial mechanism to develop investment-grade projects and scale-up private investment.
Renewable energy projects are also eligible for concessional loans from the Viet Nam Development Bank (VDB), one of two government policy banks. The lending rates of the VDB, however, are only marginally lower than those offered by commercial banks, though its loans have a longer tenor. For a project to be financed by the VDB it must qualify as a “development project” as defined by the government and be bankable. Clean energy has become a priority sector for the bank, and the VDB presently finances hydro and solar power projects with plans to foray into energy efficiency.
Scaling-up renewables requires a competitive finance market with a diverse set of actors. The different stages of a project carry different levels of risk, each more suited to a particular category of investor. For risks to be correctly priced they must be allocated to the actor best suited to shoulder them. This requires availability of capital with the commensurate asset-liability horizon. The government must develop conscious thinking on how to best attract foreign and domestic private finance. A Clean Energy Finance and Investment Strategy would be a useful tool to identify new sources of capital and articulate mechanisms to mobilise them.
Attracting foreign and domestic institutional investors, for instance, could provide a major boost to Vietnamese green growth. Institutional investors such as pension funds, insurance companies and sovereign wealth funds preside over a large pool of patient capital. In OECD countries alone, institutional investors have up to USD 54 trillion of assets under management (AUM). While not all of the AUM will be available for clean energy investments, there remains untapped potential and a strong business case (OECD, 2017[61]).
Operational clean energy assets with a stable revenue stream make an attractive investment opportunity for institutional investors. Renewable and energy efficiency projects with a PPA and a creditworthy offtaker provide long-term, stable and inflation-linked cash flows that align well with the long-dated liabilities and conservative risk appetite of institutional investors.
The long-dated liabilities of institutional investors offer a distinct advantage for the clean energy finance ecosystem. Institutional investors are well positioned to hold clean energy projects once they begin operation. By taking projects off the balance sheet of banks and developers, institutional investors free-up credit for new investments and act as recyclers of capital (Röttgers, Tandon and Kaminker, 2018[62]).
Financial and institutional innovation to accelerate the clean energy transition: Enhancing the role of the private sector
Accelerating the deployment of renewables and promoting energy efficiency in Viet Nam requires the diversification of financial sources. Given the constraints of Viet Nam’s public debt ceiling and a shrinking fiscal space, it is critical for the government to mobilise domestic and foreign private capital to meet the investment needs of the economy. To that end, a variety of instruments and techniques can be employed by the government to de-risk projects, leverage private capital (e.g. through cornerstone stakes or blending) or facilitate investments without assuming contingent liability on public funds (Box 7.18).
The following tables present a typology of risk mitigants and transaction enablers deployed by public actors in G20 countries to catalyse institutional investment in sustainable infrastructure including renewable energy.
Policy interventions to lower the cost of energy efficiency solutions must be a priority of the Vietnamese Government. Innovative financial engineering, such as blending, that uses limited public capital to crowd-in private investors can be a useful approach to scale-up deployment of energy efficiency solutions.
In addition to financial engineering, the government could consider institutional innovation to catalyse private investment and foster new markets. For instance, a Green Investment Bank (GIB) or a green window in an existing development finance institution, could equip Viet Nam to leverage the opportunities offered by the low-carbon transition and explore new avenues for socio-economic development (OECD, 2017[63]). Presently, however, there is no conscious strategy within the government to target private investors. The OECD Clean Energy Finance and Investment Mobilisation (CEFIM) could help address this gap (Box 7.19).
OECD Clean Energy Finance and Investment Mobilisation Programme
The OECD Clean Energy Finance and Investment Mobilisation (CEFIM) Programme aims to support Viet Nam in strengthening its clean energy policies and unlocking higher finance and investment in renewables and energy efficiency solutions. The programme is a multi-year, multi-stakeholder initiative that leverages the OECD’s rich analytical experience to (i) develop a clean energy finance and investment policy review; (ii) provide in-country policy technical assistance to unlock private capital including institutional investment; and (iii) convene regional peer learning events to highlight investment opportunities and emerging good practices.
Source: www.oecd.org/cgfi/resources/OECD-clean-energy-finance-and-investment-mobilisation-programme.pdf.
Recommendations to ensure sustainability through better environmental management and proactive transition to a low carbon economy
Table 7.5 summarises high-level and detailed recommendations for actions in these five policy areas. It also includes a set of indicators to track implementation.
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Notes
← 1. Cost are estimated in terms of losses of labour productivity and additional health expenditures.
← 2. The Ministry of Natural Resources and Environment includes several attached agencies that perform functions related to regulation design, monitoring, implementation and enforcement of environmental policies. The Vietnam Environment Administration (VEA) is the main agency responsible for assisting MONRE in the aforementioned functions. Within VEA, the main tasks are distributed as follows: i) the Department of Policy and Legislation (DPL) develops regulations; ii) the Department of Pollution Control monitors and enforces regulations; iii) the Department of Appraisal and Environmental Impact Assessment manages the EIA system; and iv) the Centre for Environmental Monitoring (CEM) is responsible for monitoring environmental quality. The Vietnam Environmental Protection Fund (VEPF) is another attached agency that provides finance for investments in environmental protection.
← 3. Overall, sectoral ministries do not have sufficient technical and human resources to manage their assigned roles in environmental management, and also have a potential conflict of interest as their main role is to promote sectoral development.
← 4. The regulatory framework is very fragmented. No consolidated legal text is available, making it difficult for the public to consult current regulations.
← 5. This is the case of the Law on Water Resources (2012), the Law on Hydraulic Works (approved 2017), the Law on Electricity (2004) or the Law on Biodiversity (2008).
← 6. Article 45 on elaboration and management of an industrial emissions database for project owners who have industrial emissions subject to inspection.
← 7. Ambient air quality standards are provided in the national technical regulation QCVN 05:2013/BTNMT. As an example, annual average concentrations of particulate matter PM10 and PM2.5 are set at 50 and 25 micrograms/m3 respectively. The national technical regulation QCVN 08-MT:2015/BTNMT stipulates surface water quality standards and QCVN 09-MT:2015/BTNMT sets the national technical regulation on groundwater. The water quality standards are differentiated depending on the main use of the water body (i.e. human consumption, industrial use, etc.)
← 8. Air-related emission standards have been developed mainly for power plants (QCVN 22:2009/BTNMT), the cement industry (QCVN 23/2009/BTNMT) and the steel industry (QVCN 51:2013/BTNMT). Water-related mission standards have been developed for waste water from a number of sources over the years: steel manufacturing industry (2013), paper and pulp industry (2016), fishery processing (2016), textile and dying industry (2015), industrial waste water (2012), animal husbandry (2016), health care (2011), and petroleum and gas (2011).
← 9. Cleaner production reduces resource use and/or pollution at the source by using cleaner products and production methods, whereas end-of-pipe technologies curb pollution emissions by implementing add-on measures. Thus, cleaner production technologies are frequently seen as being superior to end-of-pipe technologies for both environmental and economic reasons.
← 10. The Law of Environmental Protection of 2014 contains articles regulating the use of EIAs. Decree No. 18/2015/ND-CP dated 14 February 2015 “Prescribing Environmental Protection Master Plan, Strategic Environmental Assessment, Environmental Impact Assessment and Environmental Protection Plan” further develops additional regulations for EIA. This decree was further amended by Decree No. 40/2019.
← 11. The existing criteria for screening are contained in Decree No. 18/2015/ND-CP, Appendix II.
← 12. Currently, permits are required for air, water and waste.
← 13. Cumulative impacts are defined as impacts that result from incremental changes caused by other past, present or reasonably foreseeable actions in relation with the project.
← 14. Currently, public participation is perceived as more of a procedural burden than a mechanism for the public to participate. Public meetings and/or hearings are required by law to consult with the community on the direct impact of the project. However, regulations do not foresee and opportunity for the public to review or comment on the draft or final EIA.
← 15. Decree No. 155/2016/ND-CP on “Penalties for Administrative Violations against Regulations on Environment Protection”. The decree puts in place fines up to VND 1 million (USD 44 400) for individuals violating environmental laws, and up to VND 2 million (USD 88 800) for organisations, the highest administrative fines ever to be put into effect. Decree 33/2017/ND-CP dated 03 April, 2017 on “Penalties for Administrative Violations against Regulations on Water and Mineral Resources” was approved for water penalties.
← 16. https://tuoitrenews.vn/news/society/20181219/concern-swirls-around-vietnams-intention-to-impose-environmental-charge-on-vehicle-emissions/48165.html.
← 17. Decree No. 154/2016/ND-CP dated 16 November 2016 on “Environmental Protection Fee on Waste Water” regulates fees for waste water discharges into water bodies. The fee rate for domestic waste water amounts to 10% of the selling price of clean water per m3, VAT excluded (Article 6). For industrial waste water, the fee rate is composed of a fixed fee of VND 1 500 000/ year and a variable fee that is calculated on the basis of the total volume of effluent, and on the basis of the concentration and type of pollutants discharged. The variable fee rate (VND/kg) applies to the following pollutants: COD, TSS, mercury, lead, arsenic and cadmium. Industries discharging on average less than 20 m3/full day are exempted from the variable fee and only have to pay the fixed fee.
← 18. https://environmentaldemocracyindex.org/country/vnm.
← 19. A (World Bank, 2019[4]) study estimates that investment is 50% below the level required to cover needs.
← 20. The National Action Plan expected to achieve a 20% reduction in NOx, SOx and particulate matter emissions by 2020 with respect to 2015. The plan focused initially on industrial emissions from cement, fertiliser, iron and steel production factories and thermal power plants.
← 21. Vehicles are subject to Euro IV as of 2018 (although no standard has been developed for motorbikes). Fuel sulfur content is subject to 50 ppm as of 2018.
← 22. Feed-in-Tariffs (FiT) are the principal tool to incentivise development of renewables in Viet Nam. Wind and solar power plants presently benefit from high FiTs established in 2017 – and scheduled to expire in 2021. As of 2019, the FiT for wind has been increased with higher tariffs for offshore plants. For solar power, a differentiated FiT regime has been put in place. The new solar tariffs range from USD 6.59 cents to USD 9.85 cents and vary depending on region and technology. This differentiated approach is intended to incentivise an even development of solar plants across the country and not just the South.
← 23. The average electricity price in Viet Nam is USD 0.08/kWh compared to, for instance, USD 0.13/kWh in Thailand, USD 0.20/kWh in the Philippines, USD 0.15/kWh in Cambodia and USD 0.18/kWh in Singapore.
← 24. The threshold is indicative and varies according to the unique characteristics of each country’s electricity system.
← 25. The government has designated five priority sectors: (i) small and medium enterprises (SME); (ii) rural areas; (iii) export; (iv) industry and (v) high-tech.
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