Vu Xuan Nguyet Hong

Fossil fuel subsidy in VN –some figures Green growth strategy and Fossil fuels

subsidy reforms Recommendations for a Comprehensive

fossil fuels fiscal reform agenda

Source: UNDP’s project on “Green Growth and Fossil Fuel Fiscal Policy in Vietam: Recommendations for a road map for policy reform” –May 2014

Source: http://www.iea.org /subsidy/index.html

CountryAverage 

subsidisation rate (%)

Subsidy per capita 

($/person)Total subsidy as share of GDP (%)

China 2.2 13 0.2Indonesia 31.4 110 3.1Thailand 4.2 31 0.6Russia 19.6 277 2.1India 16.8 30 1.9Korea 0.2 4 0.0Mexico 5.2 42 0.4Vietnam 4.0 11 0.5

Fossil fuel subsidy in 2014

Source: http://www.iea.org /subsidy/index.html

(billion USD) 2010 2011 2012 2013 2014

Oil 1.1 1.2 0.3 ‐ ‐Electricity 3.2 3.0 2.9 1.1 0.7Gas 0.2 0.2 0.2 0.5 0.3Coal ‐ ‐ ‐ ‐ ‐Total 4.5 4.3 3.5 1.6 1.0

As a share of GDP  2.83 3.4 2.5 0.9 0.5

Decreasing Trend of FFS in Vietnam 2010-14

Increasing in nominal term, but decreasing in real term

GG is a global policy trend in the context of climate change ◦ 5 policy pillars of GG - ◦GG is a direction towards a low-carbon

economy Vietnam introduced Green Growth

Strategy (GGS -2012) to ensure the low-emission development parth in the coming years

GREEN GOWTH

Green businesses and green markets

Green Infrastructure Development

Application of EEIs

Fossil Fuel Fiscal reform

and Green Taxes

Sustainable consumption

and production

Source: “GG in South East Asia ”, UNESCAP, 2008

Vietnam has made several steps towards GG: ◦ There are several energy related strategies (SD

strategy, Strategy on CCR, GGS, …); all of them reaffirmed the policy direction on SD, gradual liberalization of energy market ◦ GGS focuses on 3 key pillars: i) Reduction of GHG

emission intensity; ii) Greening production; and iii) greening lifestyle and sustainable consumption.

GGS: Energy sector and FFS reforms are important components of GG policy framework in Vietnam.

Introduction of market instruments to adjust the energy sources consumption structure

Improving efficiency/productivity in energy use Formulate and implement a roadmap for fossil fuel subsidies removal

Stimulating and supporting renewable energy development...

GGS includes

some measures related to fossil fuel

fiscal reforms Gradual opening energy market; establishment of a

competition environment in energy market;

Stimulate effective and economically energy use

Gradual liberalization of fossil fuel prices

Application of taxes to improve the structure of fossil fuels use and consumption

Policies to compensate and mitigate negative impacts to vulnerable groups as a results of fossil fuel fiscal reforms

Energy sector policy reforms measures and fossil fuel fiscal reforms

SOEs are dominant in both production and distribution of FFuels; Majority of FFSubsidies are indirect, diverse and difficult to measure separately (incl. those indirectly provided to SOEs) – not easy to remove;

Some economic instruments were introduced (i.e. environmental protection taxes) to internalize env-t and social costs in energy price, but yet limited;

Existing energy/electricity price levels and the structure of power sector provides little incentives for investors to invest in green energy

Lack of concensus on fossil fuel subsidy reform acceleration by stakeholders ( SOEs, households, etc.) –limit the reform’s speed and success

A comprehensive fossil fuel fiscal reform, which include three components:

• Comprehensive energy sector reform

• Manage the impact of reform

• Build and maintain support for reform

Comprehensive electricity sector reform: ◦ Improving EVN (SOE) functional efficiency (incl. its

corporate govenance, operation and strategy) ◦ Enhancing electricity market competition ◦ Strengthening electricity market regulation ◦ Introducing cost reflective, transparent and

predictable electricity pricing ◦ Toward carbon pricing ◦ Develop renewable power regulation to attract

green energy developers

Manage the impact of reform ◦ Subsided electricity for small farmers; ◦ Cash transfer for household businesses ◦ Supporting SMEs and other selected enterprises ◦ Managing inflation impact ◦ Facilitating labour market adjustment ◦ Enhancing energy efficiency

Build and maintain support for reform ◦ Communication, information and consultation

Thank you for your attention!