The Group of Seven (G7) members have extended an offer of more than $300 million in grants to Vietnam to support the country's plans to curtail coal usage. However, the breakdown of the financial package, recently disclosed in documents reviewed by Reuters, indicates that the lion's share comprises loans—a point of contention, as Vietnam has been hesitant to embrace costly loans.
These documents, finalized in late October, provide a transparent insight into the $15.5 billion pledge made by G7 countries and their partners in December. The primary objective of this pledge is to assist Vietnam, a significant Southeast Asian manufacturing center and coal consumer, in achieving net-zero emissions by 2050.
Vietnam has advocated for a substantial portion of grants and affordable funding to facilitate its ambitious phase-out of coal-fired power plants, with the intention of replacing them with renewable energy sources like wind farms. Nevertheless, donors have primarily offered loans at market rates, citing persistent delays in the country's power projects.
Donors have encountered challenges in climate negotiations with other developing nations as well. For instance, a $8.5 billion plan for South Africa, adopted in 2021, is yet to yield concrete results. Meanwhile, Indonesia has postponed its investment plan linked to donors' $20 billion commitments.
Vietnam, in its commitment to collaboration, has put forth a draft list comprising reform commitments and more than 400 projects eligible for G7 funding. Among these projects, 272 are centered on energy infrastructure, including wind and solar farms, power grid enhancements, and battery storage systems.
However, prior to the commencement of the UN Climate Change Conference on November 30 in Dubai, this list necessitates the approval of international partners. These partners have requested more robust regulatory reforms and an increased role for civil society in decisions aimed at combating climate change.
The current G7 offer, recently shared with select experts, features $321.5 million in grants, primarily contributed by the European Union (EU) and EU member states, who are the primary financial supporters with total pledges of $2.6 billion. Additionally, $2.7 billion is allocated to concessional loans at low interest rates, with the EU, Germany, France, and the Asian Development Bank (ADB) playing significant roles.
While the overall public funding has seen a slight increase to $8 billion from the initial $7.75 billion pledged in December, a substantial portion comes in the form of commercial loans at market rates. Vietnam has expressed reservations, particularly amid the current global context of elevated interest rates.
The remaining $7.5 billion is anticipated to be sourced from private investors through costly loans, contingent on regulatory reforms and the quality of specific projects.
This funding debate unfolds following the upgrade of diplomatic relations between the United States and Vietnam in September, with the United States pledging $1 billion, primarily in loans at market rates.
Notably, experts have raised concerns that the grant portion may not be sufficient to persuade Vietnam to accelerate its coal phase-out. To realize its power generation plans, Vietnam estimates a need for approximately $135 billion until 2030, with even more funds required by mid-century. The G7 funds are allocated for an initial three-to-five-year period and are designed to attract more substantial private investments.
Vietnam's energy plans, revealed in May and raising eyebrows among donors, involve an increase in coal-generated energy until 2030, followed by a decline over the subsequent two decades. However, the share of coal in the total power output is projected to decrease to 20% in 2030 from 31% in 2020.
