ANALYSIS - Vietnam Bullish On Carbon Plans, Faces Obstacles
Date: 01-Dec-08
Country: SINGAPORE
Author: David Fogarty, Climate Change Correspondent, Asia
SINGAPORE - Vietnam has approved dozens of projects aiming to earn UN-backed carbon offsets but several face hurdles in securing approval from the UN regulator for clean energy investments.
Energy-hungry Vietnam has great potential as a source of tradeable carbon credits under the Kyoto Protocol climate pact's Clean Development Mechanism, project developers say.
They face challenges ranging from financing woes, as a global financial crisis dries up credit, to tussles with the Southeast Asian nation's bureaucracy, language barriers and limited technical expertise, but projects have strong government support.
"The momentum for CDM is building in Vietnam," said Colin Steley, project manager for First Climate, a global carbon investment and CDM project development firm.
By early 2009, projects in Vietnam approved by the UN regulator, the CDM Executive Board, are expected to grow to more than 20 from just two now, he said, even though few in Vietnam have detailed knowledge of the challenge from climate change.
"It lacks a widespread knowledge of the intricacies of the CDM, let alone the science behind mitigation of climate change," Steley, who is based in Hanoi, told Reuters in Singapore.
Vietnam has approved 75 CDM projects so far, potentially saving more than 60 million tonnes of carbon dioxide equivalent over a project's lifetime, which can run a flat 10 years or stretch to 21, extended in increments from an initial seven years.
Its two registered projects have already generated credits, and many more seek formal registration by the executive board, but most are still being vetted by UN-sanctioned auditors.
For a graphic on CDM registered projects by country, please go to:
https://customers.reuters.com/d/graphics/VT_CDMPRJ1108.gif
The CDM lets rich nations invest in clean energy projects in the developing world in return for carbon credits, called CERs, which now trade around 14 euros per tonne of CO2-equivalent.
But developers must prove their projects are "additional".
This means projects are only eligible for carbon credits if the resulting emission reductions weren't going to happen anyway and that the project was only viable if it was subsidised by the release of credits.
Yet factors such as the lack of knowledge, and even the pitfalls of translation from Vietnamese to English, cast doubt on whether all the country's projects will pass the UN's strict additionality test, a senior environmental markets banker said.
"I don't think all the people who are developing projects have the right data and the right approach about making a convincing argument about additionality," he said.
"And if you keep the point about 'lost in translation' in mind, then the problem becomes exacerbated," he said.
One Vietnamese project nearly failed to be approved because a misinterpretation of data during translation was only caught in a last-minute check, he added.
"HUGE ENERGY GAP"
With a population of more than 80 million, Vietnam has lagged many other Asian countries in the number of its registered CDM projects. Neighbouring China has 314, while Thailand has 10, Cambodia 2, the Philippines 20 and Indonesia 17.
Developers say the best investment bets include hydro power generators, biomass projects -- such as burning rice husks to generate power -- and biogas plans, such as capturing methane from landfills or animal waste.
But rapid growth was outstripping electricity supply, the banker said. "Vietnam clearly has a huge energy gap and I think that's where the biggest challenge is."
Vietnam wants to develop hydropower further, but also has large coal reserves that would be carefully developed, he added.
Vietnam aims to raise generation capacity to 78,000 MW by 2020 from 18,000 MW now, and almost all the increase would be coal-fed, much of it via imports, a European generator source told Reuters this year.
Two large power generating companies were developing 10 coal plant projects between them in Vietnam, company sources said.
But hydro power remains a lead focus for clean energy developers.
For example, the hydro power projects being managed by First Climate include two 13.5 MW plants expected to yield 725,000 CERs over 10 years and another that involves plants of 3 MW and 45 MW.
"The major focus is small hydro, where we've seen lots of opportunities, lots of projects coming up," said Manfred Stockmayer, new markets managing director for CAMCO, a CDM projects manager that has more than 10 projects in Vietnam.
But financing has become a problem for some developers.
"You have a number of projects that are falling over because of lack of financing, which looked easier about 6 to 9 months ago," he added.
High inflation, which the government estimates at 22 percent for 2008, has also boosted interest rates and construction costs.
Stockmayer also pointed to delays in connecting green power projects to the grid because lack of data hampered calculating the emissions the projects would save.
"In contrast to other countries in the region such as Thailand and Indonesia, data on power generation are not public in Vietnam," he said.
He urged Vietnamese officials who approve CDM projects to adopt a common set of data or a grid emission factor that all project developers in the country could use.
Vietnam's designated national approval authority (DNA) is not the cause of delays, since it makes approvals in less than two months, one engineer at a UN-backed CDM auditor said.
"The DNA is very aggressive in CDM," said the project engineer, who asked not to be named. "The issue is complying with the CDM protocol and some of the project owners are still very conservative in giving crucial information."
(Additional reporting by Ho Binh Minh in Hanoi and Jacqueline Cowhig in London)
(Editing by Clarence Fernandez)