Unlocking Vietnam's energy future lies in the realm of green finance
Vietnam Pursues Green Financial Ecosystem Reforms for Renewable Energy Growth
Vietnam is taking significant steps to address challenges in its green financial ecosystem, aiming to attract more private capital and accelerate the transition to renewable energy. The country's efforts focus on improving credit and risk mechanisms, establishing clear green finance and carbon pricing frameworks, adopting tax incentives, and strengthening public-private partnerships (PPPs).
Improving Credit and Risk Allocation
Currently, electricity tariffs and power purchase agreements (PPAs) do not adequately reflect investment risks and provide sufficient guarantees. Reforming these frameworks to provide clear, bankable, and market-reflective contracts is crucial to mobilize private capital. Leveraging development finance institutions like the Asian Development Bank (ADB) to create blended financing models that reduce risks and provide long-term, affordable US dollar financing can catalyze private sector investment.
Establishing Clear Green Finance and Carbon Pricing Frameworks
Vietnam lacks a comprehensive regulatory framework for green finance and carbon markets. Accelerating the implementation of national green taxonomies aligned with international standards will guide capital flows to legitimate green projects. Expanding carbon pricing mechanisms and launching a domestic carbon market can generate financial incentives and attract investment by monetizing emissions reductions.
Taxation and Incentives
Though specific reforms on taxation for green investment are not detailed explicitly, globally, tax incentives (e.g., reduced tax rates, credits) for renewable energy investments and green bonds issuance are effective in attracting capital. Vietnam would benefit from such measures integrated into its green finance policies to enhance project bankability.
Strengthening Public-Private Partnerships (PPP)
Successful PPPs rely on innovative financing structures that share risks and leverage development banks’ credibility. The government should facilitate collaboration among public entities, private investors, and international development institutions to de-risk investments and provide definite offtake guarantees. Implementing a coordinated national roadmap with clear ESG disclosure requirements and support programmes for SMEs can broaden participation and improve investment climate in the green economy.
In summary, Vietnam must reform its credit mechanisms—especially PPAs and electricity tariffs—to better allocate risks and enhance investor confidence; develop a clear, supportive regulatory framework for green finance including carbon pricing and a green taxonomy; adopt tax incentives to encourage private investment; and strengthen PPP frameworks using structured financing models spearheaded by development institutions. These coordinated actions will unlock private capital flows critical to scaling renewable energy projects and achieving net-zero emissions targets by 2050.
The 2020 PPP Law allows for revenue guarantees, foreign currency support, and interest rate subsidies, but implementing guidelines are fragmented and approvals are slow. Vietnam offers a corporate income tax rate of 10% for 15 years for renewable energy projects, but it is not sufficient for high-capital projects. Vietnam's electricity sector requires more than $130 billion in new investment between 2024 and 2030.
When it comes to enhancing the renewable energy industry in Vietnam, implementing tax incentives, such as reduced tax rates or credits, could encourage more private investing in renewable energy projects. As the government works on strengthening public-private partnerships (PPPs), it could also consider integrating these tax incentives into green finance policies to improve project bankability.
To attract more capital and finance renewable energy projects, it's essential for Vietnam to establish clear green finance and carbon pricing frameworks. This includes accelerating the implementation of national green taxonomies and expanding carbon pricing mechanisms, which could generate financial incentives by monetizing emissions reductions.
