Path for Vietnam to Address Climate Risks while Sustaining Robust Economic Growth - World Bank Group Report

Hanoi, July 7, 2022 – The World Bank Group’s Country Climate and Development Report for Vietnam underscores the urgency of adaptation to climate change, combined with policies and public and private investments to reduce the carbon intensity of growth.

Vietnam’s 100 million people are among the most vulnerable in the world to climate impacts, facing hazards along the country’s 3,260-km long coastline and extensive low-lying regions. Threats to urban and industrial areas, especially in and around the economic powerhouse of Ho Chi Minh City, put large sections of the economy at risk. The Mekong Delta, home to 18 million people, is already being affected by climate change; some provinces could see over 70 percent of their land inundated within 80 years. The report states that Vietnam lost about $10 billion in 2020, or 3.2 percent of its gross domestic product, to climate impacts. Models suggest that the costs to the economy generated by climate change could total as much as $523 billion by 2050. The report argues that investments to address climate impacts are a priority.

As Vietnam’s fast-growing economy progresses toward high-income status, it also needs to reduce its carbon intensity. Vietnam’s contribution to global greenhouse gas (GHG) emissions is relatively small, at 0.8 percent. On per capita terms, Vietnam’s emissions are less than half of the Organisation for Economic Co-operation and Development’s per capita emissions. However, Vietnam’s rapid economic growth has led to a quadrupling of per capita GHG emissions this century, from 0.79 metric tonnes of carbon dioxide equivalent in 2000 to 3.81 metric tonnes in 2018, and emissions are accelerating at one of fastest rates in the world. Pollution associated with these emissions impairs health and productivity; resource depletion and climate impacts have already hurt trade and investment.

“Vietnam is having to devote significant resources to protecting its largest city, Ho Chi Minh City, the low-lying coastline, and the Mekong Delta from climate change,” said World Bank Vice President for East Asia and Pacific Manuela V. Ferro. “Vietnam is also an increasing contributor to GHG emissions. Implementing Vietnam’s ambitious international commitments will require action in key emitting sectors, energy, transport, agriculture, and manufacturing, and the use of carbon pricing to drive investment.”

Vietnam has pledged to halt deforestation by 2030, cut methane emissions by 30 percent, and end all investment in new coal power generation, scale up deployment of renewable energy, and phase out coal power by the 2040s. These commitments go beyond its 2020 Nationally Determined Contribution (NDC), which pledged it to an unconditional emissions reduction target of 9 percent by 2030 from a base year of 2014 and a conditional reduction target of 27 percent.

To help Vietnam achieve its development goals while implementing its climate commitments, the report proposes actions on two fronts: adapting to climate impacts and pursuing a growth strategy that steers the economy away from carbon-intensive production. These two paths will help the country achieve its climate objectives while expanding its GDP per capita by more than 5 percent a year – the average rate needed to become a high-income country by 2045.

Without inclusive adaptation responses, climate change impacts could drive an additional 400,000 to 1 million people into extreme poverty by 2030. At the same time, to protect the most vulnerable households from higher energy prices and job disruptions during the shift to a low-carbon economy, Vietnam will need to strengthen programs to encourage private sector adoption of cleaner technologies and facilitate labor mobility.

Based on the report’s modeling and analytical work, the World Bank Group recommends five priority policy packages.

• A regional program for the vulnerable Mekong Delta, which contributes 50 percent of the country’s rice production and a third of its agricultural GDP. The region faces threats from coastal and river erosion, sea-level rise, and saltwater intrusion. The program would curtail sand mining and groundwater extraction, retrofit physical assets, and strengthen regional coordination, while supporting the livelihoods of farmers seeking to adapt to the challenges of climate change
• An integrated plan to shield coastal urban areas and transport links from extreme weather. This would include upgrades to road and power assets, and improved weather-risk management and early warning systems.
• A program to reduce air pollution clogging the Hanoi area, where poor air quality has exceeded World Health Organization guidelines at least five times for extended periods between 2018 and 2021, and where particulate concentrates are predicted to increase.
• Accelerating the transition to renewable energy with regulatory reforms that encourage greater private sector participation, investments in the power grid, and implementation of energy efficiency plans.
• Scaled up social protections to offset economic impacts climate action may have on the most vulnerable people. Funding social programs with revenues from a carbon tax will help buffer poor people from price increases in transport and energy.

The report estimates the discounted costs of additional investments in climate adaptation and mitigation to be 6.8 percent of GDP a year or a cumulative $368 billion through 2040 at current value. Public investment will need to be supplemented by policy reforms to crowd in private investment. Priority investments in adaptation could cost around $254 billion to 2040, and the cost of slowing the growth in emissions will require at least $81 billion. Carbon taxes or regulations creating emissions trading systems will be key to reaching Vietnam’s ambitious climate and development goals.

“The twin goals of becoming a high income and net-zero country in the next 30 years will require the mobilization of large amounts of private capital. For this to happen, it is vital that Vietnam designs and implements the right policies and reforms,” said Alfonso Garcia Mora, IFC’s Regional Vice President, Europe, Latin America and the Caribbean. “Greening the financial sector, spurring green growth projects across sectors and ensuring transparent and predictable processes for energy projects are a clear priority.”

World Bank Group Country Climate and Development Reports

The World Bank Group’s Country Climate and Development Reports (CCDRs) are new core diagnostic reports that integrate climate change and development considerations. They will help countries prioritize the most impactful actions that can reduce greenhouse gas (GHG) emissions and boost adaptation, while delivering on broader development goals. CCDRs build on data and rigorous research and identify main pathways to reduce GHG emissions and climate vulnerabilities, including the costs and challenges as well as benefits and opportunities from doing so. The reports suggest concrete, priority actions to support the low-carbon, resilient transition. As public documents, CCDRs aim to inform governments, citizens, the private sector and development partners and enable engagements with the development and climate agenda. CCDRs will feed into other core Bank Group diagnostics, country engagements and operations, and help attract funding and direct financing for high-impact climate action.

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