One of the biggest success stories of the COP26 climate summit last year in Glasgow was an $8.5 billion aid package to help South Africa cut its heavy reliance on coal for electricity.
The US and European aid deal will help South Africa shut down some of its 15 coal power stations, build out renewable energy supplies, improve its electric grid, and support job training and other services for roughly 80,000 people working in the coal sector. It was also meant to be a way to fast-track the energy transition in developing nations with cash from industrialized nations. The program, the so-called Just Energy Transition Partnership (JETP), sidesteps the glacial pace of climate talks by encouraging countries to strike deals with each other.
Vietnam was supposed to be next. Diplomats from G7 nations had proposed the country, which gets about half its power from coal, as a candidate for a JETP during COP27 in Egypt. An announcement was expected sometime last week, but never materialized. Instead, the US government is now expected to announce a JETP deal for Indonesia, almost twice the size of the South African deal, on Nov. 15 during a G20 meeting in Bali.
The Vietnam deal, according to officials and civil society groups tracking it, remains mired in domestic and international disagreements about human rights, sovereign debt, the pace of the country’s transition to clean energy, and other issues. It illustrates the financial and political pitfalls that can threaten a fast-track solution to climate change even when a lot of money is on the table to do so.
Vietnam wants grants, not debt, to shut down coal
The first problem with the Vietnam deal was the lack of money. In early 2022, UK and EU diplomats negotiating the deal with Vietnam proposed a $5 billion package, far smaller than South Africa’s deal, despite the similarly complex and costly challenges facing the Southeast Asian nation.
“Vietnam was really offended by that offer,” said Julia Behrens, climate director in the Hanoi office of Friedrich Ebert Stiftung, a German development nonprofit.
The other hurdle is the form that money will take. When details of the financial structure of the South Africa deal were leaked in October, it became clear that only about 3% of the $8.5 billion would be in the form of grants. The rest of the money will be loans, of which about half will come at below-market interest rates and the rest at regular commercial rates. The deal, in other words, requires the government and the state-owned utility Eskom to take on billions of dollars in debt.
Vietnam, in contrast, is reluctant to accept a package requiring it to accept a significant amount of public debt, no matter how much of it came at concessional rates, according to a person with direct knowledge of the negotiations who was not authorized to speak publicly. But there’s little reason to think any other arrangement will be possible, said Jake Schmidt, director of the international program at the Natural Resources Defense Council, a US think tank: “I can’t imagine the US and other developed countries have found a lot more money for grants that they didn’t find before for South Africa.”
Vietnam is silencing climate activists
Vietnam’s government has created another point of contention. While the environment ministry is keen to accelerate the buildout of renewables, Behrens said, influential officials in the ministry of industry and trade are in no hurry to phase out fossil fuels or sign a deal asking them to do so. “The Vietnamese government is eternally divided on how the energy transition should go ahead,” she said. The donor countries, meanwhile, are unwilling to accept a deal that doesn’t oblige Vietnam to cancel some coal projects that are currently in the planning stages and set more stringent carbon reduction targets in line with the global warming goals of the Paris Agreement, Schmidt said.
Meanwhile, the local civil society groups that would typically push Vietnamese policymakers to compromise have largely been silenced by a crackdown on climate activism. In February, Nguy Thi Khanh, a prominent anti-coal activist and winner of the prestigious Goldman Prize for environmental advocacy in 2018, was arrested on tax evasion charges that her overseas supporters describe as trumped up. She remains jailed, along with several other high-profile Vietnamese climate activists.
The arrests have had a chilling effect on Vietnamese civil society groups, and curtailed their ability to participate in the planning process, several observers said. That not only means a missed chance to design better, more equitable policies with any JETP money, but risks hollowing out the “just” element of the acronym and allowing the process to lose credibility with the coal workers and other local communities it is meant to benefit.
“You need all of society to buy in to this kind of deal if it’s going to be successful,” Schmidt said. “You can’t have confidence in Vietnam’s ability to deliver if all the leading experts are in jail.”
JETP deals are still a promising outcome of COP summits
Indonesia’s new deal, meanwhile, will face challenges of its own. That country’s coal plants are newer than South Africa’s, meaning decommissioning them ahead of schedule will be more costly. Since the country already holds nearly $500 billion in public debt, some analysts worry the deal could enrich Western renewable energy and grid companies while saddling Indonesia with still more debt.
In spite of their imperfections, JETP deals still seem to be one of the most effective avenues through which climate diplomats from developed and developing countries can collaborate. They aren’t technically a product of the COP process, per se, but allow diplomats to bypass some UN bureaucracy and work in a small group on a specific target for meeting the Paris Agreement goals. Other JETPs are in the works for India and Senegal, and there’s still a good chance, observers say, that the Vietnam deal could come through by the end of the year.
Camilla Fenning, international climate finance expert at the think tank E3G, says designing these deals so that public money unlocks much larger amounts of private investment is essential. Without it, any combination of public grants or loans will be far less than the funding needed to effect a rapid, equitable energy transition. “The JETPs have been able to get key stakeholders around the table, and nothing has been able to do that so effectively,” she said. “But if you lose the credibility of the process, then the money is definitely not going to follow through.”