Column: Why G7 aims to crack Vietnam's coal fix with $15.5 billion deal

Workers walk near an excavator loading coal onto a truck at a coal port in Hanoi
Workers walk near an excavator loading coal onto a truck at a coal port in Hanoi February 23, 2012. REUTERS/Kham/File Photo

LITTLETON, Colo., Dec 14 (Reuters) - The Group of Seven (G7) industrialized nations have pledged $15.5 billion to help Vietnam transition away from coal, as part of a Just Transition Energy Partnership (JTEP) effort aimed at luring influential economies onto greener energy road maps.

There are several reasons why the G7 targeted Vietnam for special treatment, including that it was the ninth largest coal consumer and relied on coal to produce roughly half of its electricity in 2021, according to the BP Statistical Review of World Energy.

Such a high reliance on coal for energy production in turn makes Vietnam a major polluter, ranking 22nd globally, according to BP, in terms of total carbon dioxide (CO2) emissions in 2021.


The G7 targeted Vietnam for intervention not because of the country's current scale of coal use and pollution, but because of its growth potential in the years ahead if the country's energy system retains its current coal-heavy composition.

Vietnam relies on coal for more than 50% of electricity generation

The glide path of emissions from its power sector over the past five years reveals the extent of Vietnam's potential polluting clout in the decades ahead.

Between 2017 and 2021, Vietnam's power sector emissions from burning fossil fuels jumped by 65.3% to more than 121 million tonnes of CO2 or equivalent gases, data from Ember shows.

That's the fastest growth in all of Southeast Asia, and places Vietnam as the second largest power sector polluter in the region behind Indonesia (another target of JTEP efforts).

Vietnam is the 2nd largest but fastest growing power sector emitter in Southeast Asia

What's more, Vietnam's power emissions have grown nearly three times faster than Indonesia's since 2017, putting Vietnam on track to overtake Indonesia before the end of the decade if the average power sector emissions pace of the past five years remains unchanged in both countries.


Vietnam's rapidly expanding status as an export powerhouse is another reason why it is a good candidate for G7 economies to engage with over energy system overhauls.

In 2020, the country was the 41st largest economy in the world but the 16th largest exporter, according to the Observatory of Economic Complexity (OEC).

Thanks to relatively cheap labor costs and good supply chain connections, Vietnam has emerged as a major manufacturer and exporter of electronics, textiles, machine parts and furniture.

The country is also a beneficiary of the fallout from the U.S.-China trade war, which sparked several manufacturers to rebase some of their manufacturing facilities to countries outside of China.

Export earnings topped a record $330 billion in 2021, up from $70 billion in 2010, International Monetary Fund data shows.


Vietnam's export earnings growth will likely accelerate in the years ahead as the capital investments made in factory expansions following the U.S.-China trade war come to fruition.

However, it is unclear what form of energy will supply that additional manufacturing capacity.

According to data from Ember, 64.3% of Vietnam's electricity was generated from fossil fuels in 2021 (52% coal, 12% gas), while 35.7% came from clean energy sources (30% hydropower, 5% solar).

Vietnam electricity generation mix

The funding plan proposed by the G7 nations provides Vietnam's authorities with the means to make significant new investments in energy production that could push the balance of power heavily in favor of clean energy.

What's more, the proposed funding comes at a time when the efficiency and cost profiles of renewable supplies have been proven to be superior to many fossil fuel alternatives, provided sufficient planning is made to ensure stable baseload supplies during periods of reduced output from wind and solar sources.

Nearly a third of Vietnam's total electricity generation already comes from hydropower, which can be dispatched on command to make up for the intermittency of other renewable sources.

That means the country is well placed to take full advantage of a timely energy system upgrade that has the potential to sustain Vietnam's economic momentum while simultaneously lowering its reliance on high-polluting coal.

In addition, due to its proximity to other fast-growing economies with similar ambitions to develop manufacturing hubs - including the Philippines, Thailand and Cambodia - any successful retooling of Vietnam's energy system can be used as a template elsewhere.

The opinions expressed here are those of the author, a columnist for Reuters.

Reporting by Gavin Maguire

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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Gavin Maguire is the Global Energy Transition Columnist. He was previously Asia Commodities and Energy editor.