Vietnam and World Bank Sign The First Emission Reductions Purchase Agreement for Renewable Energy Development
December 20, 2013
Hanoi, December 20, 2013 – Vietnam is now ready to launch a carbon finance program that will help green the country’s national electricity grid in a commercially sustainable manner.
Under an agreement signed today between the Government of Vietnam and the World Bank’s Carbon Partnership Facility (CPF) – the first between the two parties – the CPF will purchase carbon credits generated by the World Bank-funded Renewable Energy Development Project (REDP) under the UN’s Clean Development Mechanism. The CPF, with Sweden, Norway and Spain as Buyer Participants, will buy the first three million metric tons of carbon credits generated through small hydropower development under REDP, creating a revenue stream for the projects. The REDP is a $202 million credit from the International Development Association (IDA), the World Bank Group’s concessional lending window.
“This is a good example of how a climate finance program can demonstrate the synergies between climate change mitigation and renewable energy development,” said Victoria Kwakwa, World Bank Country Director for Vietnam. “Carbon credits will help create a revenue stream that enhances the financial attractiveness of private investments in renewable energy, by providing performance-based payments in hard currency. We are extremely glad that IDA is being leveraged for carbon finance.”
To date, the Vietnam Ministry of Industry Trade has received around 20 applications to develop small hydropower projects under the REDP. The REDP is expected to add 250 MW installed capacity of renewable energy to the grid, with a total of 965 GWh of electricity per year and also expand local employment opportunities and increase reliability of the electricity supply especially in rural areas.
About 15-25 subprojects, which have total investment cost in the range $5-20 million each, may be financed by the REDP. The program will green Vietnam’s national electricity grid on a commercially sustainable basis by addressing barriers to renewable energy and providing financial support, including carbon revenue provided by the CPF to improve the financial viability of the projects.
“This program is delivering benefits to people in Vietnam by helping them access carbon revenues to support renewable energy development. Signing this agreement with the CPF is very encouraging for Vietnam, which intends to pursue additional opportunities to use carbon credits to support economic development and climate change mitigation goals,” said Le Duong Quang, Vice Minister, Vietnam Ministry of Industry Trade.
The World Bank’s Carbon Partnership Facility brings together industrial country buyers and developing country sellers of emission reductions, as well as developing and donor country governments, into a partnership with joint decision making and opportunities for sharing experience and knowledge regarding carbon finance. It facilitates the implementation of low-carbon programs across an array of sectors and technologies - energy generation and distribution, energy efficiency, and waste management - in situations where governments need policy measures or investments.
In the current Kyoto period, the Clean Development Mechanism (CDM) has operated largely on a project-by-project basis. The CPF utilizes scaled-up, programmatic approaches, such as the Programme of Activities, to enable carbon finance to support partner country initiatives in their effort to move towards low-carbon economies. It also targets areas that have not been reached effectively by CDM in the past, such as energy efficiency, and will pilot city-wide carbon finance programs.
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