Wealthy nations have offered Vietnam a $15.5bn package to help pay for its move from coal to renewable energy, the latest in a total of $44bn in deals aimed at shifting developing economies away from fossil fuels.
The funding package, which mirrors agreements reached with Indonesia and South Africa, includes $7.75bn in public funding over the next three to five years alongside a further estimated $7.75bn in private finance.
The G7 countries the US, UK, Germany, France, Italy, Canada and Japan plus Denmark and Norway and the EU bloc have backed the package.
In return, Vietnam has agreed to cap overall power sector emissions at 170 megatons of carbon dioxide annually by 2030, and to generate just under half of its electricity from renewable sources by then compared with a current target of 36 per cent.
It has also pledged to establish a peak coal capacity of 30.2 gigawatts by 2030, down from a current target of 37 gigawatts, in a move that would limit the country’s coal project pipeline.
By comparison, Indonesia, one of the world’s biggest emitters, pledged to cap power sector emissions at 290 megatons of CO₂ annually by 2030, and to generate about a third of its power from renewable sources by 2030.
In the initiative kick-started at the UN COP26 summit last year, emerging nations are given incentives to stop using the dirtiest fossil fuels. An $8.5bn deal with South Africa was sealed recently, and the proposed $20bn package for Indonesia was launched at the G20 meeting in Bali last month.
UN Secretary-General António Guterres said the agreement between developed economies and Vietnam, South Africa and Indonesia were a “crucial tool” to “unlock the emissions cuts our world needs in the 2020s”.
John Kerry, former US secretary of state, said the commitments from Vietnam to “expedite the transition from coal to renewables” signalled the country’s “seriousness about achieving a green transformation for its people”.
“We look forward to partnering with Vietnam to put inclusive economic growth to work to ramp up the fight against the climate crisis,” said Kerry, who helped hatch the package in Vietnam, where he served during the war.
Private sector contributions are expected from lenders and investors that form part of the Glasgow Financial Alliance for Net Zero, a coalition of more than 500 financial institutions, including Citibank, Deutsche Bank, HSBC and Standard Chartered. The institutions will benefit from the contribution to their own net zero targets, as well as from extending finance.
Initial funding will come from the Asian Development Bank and the International Finance Corporation.
US officials said Washington would work with Vietnam and other parties over the coming months to implement the agreement, including identifying investments, financing opportunities and providing technical assistance.
A state department official said the government would continue working with Vietnamese officials to make sure that “meaningful investments” were made in the country’s transmission grid and that new renewable projects were connected to it.
But the so-called Just Energy Transition Partnership initiative has not been implemented so far without some difficulties for the countries involved.
The South African government of Cyril Ramaphosa last month said the structure of its $8.5bn finance package relied too heavily on loans that would add to the country’s debt burden.
Officials said just 4 per cent of the total package was offered in the form of grants, with the remainder a mix of sovereign and multilateral loans, and credit guarantees.
Climate Capital
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here