Growth of low emission-intensive energy production and energy impacts in Vietnam under the new regulation

Abstract

Mitigating and adapting to the effects of climate change is an ongoing concern for developing countries like Vietnam. Hence, Vietnam ratified the Paris agreement without delay in October 2016. As a part of its climate policy strategy, the government is proposing to increase the taxes either on coal by 50% or petroleum products by 33.33%. This study employs the GTAP-E-Power model with additional improvements to include non-CO2 emissions to examine the impacts of such a policy on the Vietnamese economy. Results show that the trade-offs of the increased tax on petroleum products (Scenario 1) are much higher than the increased tax on coal (Scenario 2). For example, real GDP in Vietnam declines by 2.23% and 1.05% in Scenario 1 and Scenario 2, respectively. In addition, the country’s emissions level reduces by 10.23% in Scenario 2 compared to a reduction of 7.62% in Scenario 1. A higher tax on coal would foster the extension of renewable energy sectors faster than the impacts resulted from increasing tax on petroleum products. The increased demands by the private sector for electricity generated from renewable sources signals a potential for a sustainable development of the renewable electricity generation sectors in Vietnam.