Financing future green growth & mitigation efforts

12.12.2017 | Category: News

The Government of Vietnam is increasing its engagement in environmental fiscal reform as a tool to generate revenue for environmental protection and climate change related purposes while promoting the achievement of national targets on the National Strategy and Action Plan on Green Growth, the National Action Plan on Climate Change, related policies and strategies. Green fiscal policy reform towards green growth in Vietnam has been focusing on (i) new financial policies and market-based instruments and (ii) introduction of carbon pricing.

RATIONALE

Vietnam introduced theEnvironmental Protection Tax Law in 2012and became a pioneer in environmental tax reform in South East Asia. Taxes are levied on refined fuels and coal as well as on environmentally harmful substances in the form of consumer unit taxes.

Vietnam Environmental Protection Taxes since 2012

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While the current taxes on coal and environmentally harmful substances appear too low to induce behavior changes, the entire environmental tax regime - and especially fuel tax - contributes a significant and a stable proportion of government revenues. These revenues steadily rose during 2012-2014 andaccounted for approximately 1.5% of government budgeton average (GSO, 2012-2014).

Since 2015, green financial policies reform has been explored through the adjustment of fuel tax from lower to higher end of the tax range (i.e. from 1,000VND to 3,000VND). Fuel tax is expected to increase the total revenue collected from environmental protection by 131% as compared with the year 2014, from about 12,000 billion VND to 27,000 billion VND (General Department of Taxation, 2016).

Collected Revenue from Environmental Protection Tax 2012-2015

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It also offers substantial benefits, including enhanced energy efficiency, energy supply and national energy security.

In addition to the environmental protection tax, the Law on Environmental Protection since 2005 introduced environmental protection fees for wastewater, solid waste and extractive industries including coal gas, natural gas, crude oil and metallic and non-metallic minerals, and natural resource mined. However, the revenues collected from these fees have not been often sufficient to offset the cost of collection and treatment of wastewater, solid waste and has been hampered by low compliance on the part of extractive companies (GIZ, 2013).

The fees for environment protection have been reviewed under a number of comprehensive studies since 2015. Generally, studies found out that policy amendment for natural resources and mining sector need to conduct on the frequent basis, to identify the subject of application and the extent of fee level of each mineral type, in accordance with development progress and orientation (UNDP, 2015).

Furthermore, a new energy labelling fee is under its way in 2017 as a typically necessary demonstration of the country on energy efficiency. According to the Vietnam Register, the country is currently having around 1.6 million cars and 38 million motorbikes registered and continue expanding at the rate of 10% annually. The energy fee is forced into entry as a measure to control the energy consumption of those vehicles. The amended legal framework for environmental tax and fee system, technical guidelines and energy consumption labelling therefore are planned to develop and promulgate by 2018.

Use of Clean Development Mechanism

As one of the most active players in the establishment and deployment of innovative climate finance, Vietnam had been the first runner in Clean Development Mechanism (CDM) development. The national CDM regulation 130/2007/QD-TTG on CDM was issued in August 2007. To date, about 16 million CERs have been issued from 255 registered CDM projects, mostly energy and waste treatment projects. However, since the CER price collapsed in 2012, there are only 60 CDM projects still active. Given that background, the new carbon market and the introduction of carbon pricing can be seen as a solid foundation for green economy.

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Source: UNEP DTU (2016), taken from Michaelowa (2017)

Since the Article 6 of the Paris Agreement provides political and investment certainty for global mitigation actions through cooperative approach and the new Sustainable Development Mechanism (SDM), an assignment of how to ensure that Vietnamese CDM pipeline can be rescued and quickly identify potential transition pathways for the CDM into the new SDM has been conducted under the UNDP, MOF and MPI.

Together with this key step of continuation of Vietnamese CDM portfolio, the revision of the Decision No.130/2007/QD-TTG on CDM is taken into account to capture the ongoing trends in both global and national carbon markets and the new mitigation ambitions under Paris Agreement. The draft revision of the Decision No. 130/2007/QD-TTG has been already prepared in 2016 and awaits adoption.

Carbon Pricing

Current reforms to stimulate private sector investments into clean technologies would be also significantly amplified with the gradual introduction of carbon pricing in Vietnam.

Energy prices in Vietnam are low by international comparison and hence provide little incentive for both private investments into energy efficiency. In the context of rising energy demand in the country, adjustment of energy prices in general and introduction of carbon pricing mechanism would provide useful additional incentive for investors to move towards less-carbon intensive behaviors.

To this end,CIGG Project and Ministry of Finance jointly initiated a study in 2017 to examine available options for potential future establishment of carbon tax or carbon fee system in Vietnam.

CONTACTS:

Nguyen Thi Dieu Trinh
Senior Official
Dept. of Science, Education, Natural Resources and Environment Ministry of Planning and Investment
Add: R. 508, Block A, 6B Hoang Dieu, Hanoi
Tel: 84-8043310
Fax: 84-24-37475194
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

 

REFERENCES

PROJECT "STRENGTHENING CAPACITY AND INSTITUTIONAL REFORM
FOR GREEN GROWTH AND SUSTAINABLE DEVELOPMENT IN VIETNAM" (CIGG)