Ms Nguyen Thi Hoang Yen, Deputy Director General, Department of Science, Education, Resources & Environment, Ministry of Planning and Investment;

Development partners, colleagues and friends;

Good morning!

Thank you for joining us today for this special workshop on the role of domestic financial institutions in Viet Nam’s economic transformation.

The Government’s landmark announcement at COP26 that Viet Nam will achieve net-zero carbon emissions by 2050 and phase out coal power by the 2040s was both bold and visionary. It marks a significant milestone in the country’s development trajectory. As a populous, coastal country with large, low-lying delta regions, Viet Nam is among the most vulnerable countries in the world to climate change. By committing to these ambitious targets, Viet Nam has set an important example for other countries to emulate especially developing and middle-income countries. If Viet Nam, an exceptionally competitive, dynamic economy can make this transition to net zero while maintaining the pace of development progress, that provides a model and opens the door for other countries to do the same. 

The Government recognizes that conversion from fossil fuels can deliver tangible economic benefits. We now have evidence that the transition to renewable energy will create more jobs than it destroys, although labour market outcomes will be variable in the short to medium term. Countries that manage the transition well, will prioritize education, skills upgrading and social protection programs to sustain economic growth while promoting equity and boosting investment in less economically favoured regions.

Ladies and Gentlemen,

The war in the Ukraine has served as a timely reminder of the potentially devastating impact of energy insecurity. Over the past two hundred years humans have built energy systems based on the extraction of coal, oil and gas from the earth—often at tremendous cost to the environment—and then transported these materials over great distances. The random distribution of hydrocarbons around the world has created massive geographical imbalances and tensions. Fuel price volatility has been a constant source of macroeconomic instability, for both producing and consuming countries. One of the great benefits of renewable energy, beyond the obvious fact that it is both clean and imperishable, is that it is produced locally and is not subject to the geopolitical winds and uncertainties associated with imported energy sources.

However, even as we recognize these important benefits of the energy transition, we should not underestimate the scale of the challenge facing Viet Nam and other countries embarking on the journey to net-zero carbon emissions. Reducing dependence on fossil fuels will affect Every Sector of the Economy, from power generation to agriculture, construction, manufacturing and transportation.

Much of the discussion over the past year has centered on the financing requirements of achieving a just energy transition. Estimates of the costs vary depending on the assumptions used in making these calculations, and as usual it is advisable to treat long-term projections with a healthy bit of skepticism. Nevertheless, conservative estimates suggest that Viet Nam will need to mobilize something like an additional USD 15 billion to 30 billion per year—that is, investment over and above normal levels of investment—to achieve the net-zero target and sustain rapid economic growth. Although wind and solar have lower operating costs than coal-fired power plants, they are more capital intensive in the initial investment phase. Electricity grids will also need upgrading to move power from surplus to deficit regions and to balance peaks and troughs in demand. Production methods in industry and agriculture need to be modernized, and mass transit systems, e-vehicles and charging stations, and other components of the ecosystem will need to be developed.

Distinguished Guests,

The international dimension of climate finance rose to prominence in the context of the 2015 Paris Agreement and recent COPs have seen the emergence of Just Energy Transition Partnerships and acceptance of the principle of Loss and Damage Funds to provide support to vulnerable countries.

For large, dynamic economies like Viet Nam, international financing will at most provide a supplemental source of capital. Most of the investment requirements will have to be met by domestic sources. This is because foreign financing—except for grants but including foreign direct investment—creates foreign liabilities that must be repaid in dollars. Domestic energy production generates incomes, but usually in the national currency. There is therefore a limit to the amount of foreign capital that developing countries can import through loans and direct investment to finance the energy transition.

Increasing the capacity of the domestic financial system to mobilize long-term capital is the core problem of climate finance. As we will hear today, Viet Nam’s financial system has grown rapidly during the reform era and is more sophisticated and diverse than it was just a few years ago. However, the absence of deep and liquid secondary markets constrains the availability of long-term financing. As recent events in the bond market have shown, corporate disclosure and accountability are key constraints on the development of active secondary markets.

Forward looking, proactive policies are needed to remove these and other obstacles to increasing the supply of long-term domestic financing for the energy transition and other uses. Numerous examples can be found in advanced and developing countries of innovative policies to diversify domestic financing sources and to use the government’s balance sheet to stimulate private investment.

It’s a great pleasure for me to welcome to today’s workshop our research consultants for the Integrated National Financing Framework (INFF) project, and economists from UNCTAD and SOAS, University of London; colleagues who have extensive experience in climate finance in a wide range of development settings. One of their proposals—which I believe has tremendous relevance for Viet Nam—is the creation of a Vietnam Climate Bank to contribute to long-term energy financing by providing guarantees for commercial bank loans, organizing structured finance for slow-gestating projects, and even taking equity stakes in projects that deliver important social benefits. They will share with us details about global precedents, and the potential contribution of development banking to Viet Nam’s energy transition. I look forward to learning more about this initiative and for continued collaboration between the Government, UNDP and UNCTAD on this approach.

I hope that you find today’s discussions useful and that all participants leave the workshop encouraged to take on the complex issues of climate finance and the just energy transition.

Thank you!