Vietnam’s commitments on emission reductions and overview of Vietnam’s CDM market
Vietnam has shown a high level of commitment on green development and environment protection for the past 20 years. It became a signatory party to the United Nations Framework Convention on Climate Change (UNFCCC) in 1994, and ratified the Kyoto Protocol in 2002. The International Cooperation Department of the Ministry of Natural Resources and Environment was assigned as the focal point for implementing the Kyoto Protocol, which was then taken over by the Department of Meteorology, Hydrology and Climate Change of the same Department in 2008.
Clean Development Mechanism (CDM) is a flexible financing mechanism under the Kyoto Protocol that allows countries with binding reduction targets to develop projects in developing countries. CDM allows emission reduction projects that contribute to the sustainable development objectives of the host country to sell the Certified Emission Reductions (CERs) resulting from CDM projects. Certain projects for the reduction of emissions in Vietnam are suitable for purchasing certified emission reductions (CERs) under the CDM. The buyers sign an agreement with local project owners in order to obtain rights to CERs from the project. Purchasers are usually ultimate consumers and speculators. Most CERs are eventually used by power companies and other purchasers from the EU area that meet the requirements as well as governments of developing countries etc.
In 2012, the Prime Minister issued the National Socio-Economic Development Strategy for 2011-2020 period and emphasized on sustainable development pathway and climate change resilience. Since then, a number of legal guiding documents have been issued to set out the overall targets and strategies for all relevant sectors and responsibilities of each in-charge ministries. The Government has also issued a number of policies to encourage Vietnamese entities to participate in the CDM, including investment incentives for CDM projects. Until May 2019, Vietnam has had 255 CDM projects registered by the Executive Board of UNFCCC, 59 projects of which are from energy sector and 10 projects are from waste sector.
Vietnam’s market potential
For the past few years, Vietnam has made the transition from a predominantly agricultural to a mixed economy with substantial development of commercial and industrial activities. Rapid growth in population and improvements in living standards together with the Government’s effort to improve access to electricity throughout the country have led to growing increase in the demand for electricity. This now poses a major challenge for Vietnam to maintain sustained growth of the power sector and to achieve energy security. Meanwhile, Vietnam’s electricity demand continues growing at double-digit number. Thus, by applying CDM, renewable energy projects present great opportunities to deal with this challenge.
By engaging in CDM, all parties have something to gain. The project owners increase the return on investment on the project by selling the obtained CERs to a buyer. The buyer obtains a cost-efficient way of meeting reduction commitments under the Kyoto Protocol. The supplier of technology and know-how for the project expand their market presence. The project developers improve know-how and contribute to the project by providing consultancy services. In addition, Vietnam gains from the improved environmental conditions, better access to new technology besides the economic benefits. It is a win-win situation.
In Vietnam, the most potential sectors for developing CDM projects are renewable energy, especially wind and solar. These types of renewable power projects have increasingly received interest by foreign investors thanks to the Government’s strong investment incentives and favorable investment conditions/ procedures.
CER portfolio management
Compliance buyers have to administer their portfolio intensively in order to reflect their intended and actually provided loans. Higher prices are paid usually in connection with project types involving high registration and verification risks. Furthermore, higher costs could be incurred within projects which are well advanced in respect of construction, but it will be dependent on this and not on increased registration risks. In case of projects which have already been started, the earlier CDM consideration as part of an additionality analysis has to be proven. Distribution of risk is an important risk management instrument. For example, many buyers may have a big percentage of their portfolio in Chinese CERs, so it is recommendable to have a look at other markets, such as SE Asia etc. Distribution of risk extends right up to technology type.
Most important CDM registered project types in Vietnam
1. Hydropower: most common CDM projects in Vietnam. Validation risks are named as medium and verification risks are low. Although in these projects are a long construction period and often numerous delays.
2. Wastewater used for generate energy: Risk of validation is low to medium, construction time is low (often less than one year) and the risks of validation is medium size.
3. Other renewable energy types: wind is a high potential. So far, 2 CDM projects have been registered. Bio energy projects also have a high potential. Risks of validation and verification are low to medium, even there is a long construction period.
4. MSW-treatment- are only few projects so far, but there is a high potential for composting. Risks of validation are low to medium, medium risks of verification and medium period of construction.
Case studies
30 MW wind farm project in Binh Thuan
This first wind farm project in Vietnam is run by the Vietnam Renewable Energy JSC and EDF Trading Limited. The first turbine group has been already installed on the construction site. In April 2009, Phase 1 of the project has been registered with the CDM Executive Board. A production of electricity of 91.571 million MWh/year is expected, whereas over 59,000 metric tonnes of CO2 emissions/year are to be reduced.
50MW Cam Lam solar project in Khanh Hoa
On 04th December 2018, EVN and Cam Lam Solar Company Ltd. signed the Power Purchase Agreement. The project has a total investment of VND930.022 billion and is expected to generate 78.831 million MWh/ year. About 62,788 metric tonnes of CO2 emissions/year are to be reduced.
Cu Chi 1000t/d MSW processing plant
This project was developed by Tam Sinh Nghia (TSN) and includes composting of 1000 t/d of municipal solid waste (MSW). The expected emissions reduction of CH4 avoidance is estimated at roughly 1 million metric tonnes of CO2 emission/year (more than seven years of credited period).
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Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com or any other lawyer listed in our office list if you have any questions on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
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