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Vietnam is increasingly seeing its development affected by climate change and now faces critical questions about how to respond. The proposes that Vietnam shift its development paradigm by incorporating two critical pathways ¨C resilient pathway and decarbonizing pathway ¨C that will help the country balance its development goals with increasing climate risks.

After more than two decades of steady growth, Vietnam has set an ambitious goal of reaching high-income status by 2045. It has been recognized in the 2021-2030 Socioeconomic Development Strategy that the country¡¯s economic transformation will greatly depend on better management of natural capital ¨C the extensive stocks of agricultural, forest, and mineral resources that have helped drive development.

Yet Vietnam, with over 3,200 km of coastline and many low-lying cities and river delta regions, is one of the most vulnerable countries in the world to climate change. Climate change impacts  ¨C mainly higher and more variable temperatures and sea level rise  ¨C are already disrupting economic activity and undermining growth. Initial calculations suggest that Vietnam lost $10 billion in 2020, or 3.2 percent of GDP, to climate change impacts.

Without proper adaptation and mitigation measures, it is estimated climate change will cost Vietnam about 12 percent to 14.5 percent of GDP a year by 2050 and could plunge up to one million people into extreme poverty by 2030. As Vietnam considers its climate strategy going forward, the CCDR identifies actions and options for both the public and private sector to build climate resilience, achieve the country¡¯s pledge of net-zero greenhouse gas emissions by 2050, and advance socioeconomic development, all while ensuring a ¡°just transition¡± to support households disrupted by the shift to a climate-resilient, low-carbon economy.

Pursuing a climate-resilient and net zero emissions development pathway is estimated to require additional investments of about 6.8 percent of GDP, or a cumulative US$368 billion through 2040. With the right mix of policies and strategies, Vietnam can leverage its decarbonization efforts to advance development objectives so that achieving net zero emissions does not reduce GDP growth. Government commitments can and should be bolstered by the engagement of the domestic private sector and through external finance, public and private.

KEY RECOMMENDATIONS:

The resilience pathway

Protecting the country¡¯s assets, infrastructure, and people

• Adaptation measures should focus on the country¡¯s most vulnerable sectors and locations, particularly agriculture, transport, trade and industry, coastal areas, and the Mekong Delta.
• Complementary policy reforms in the fiscal and financial sectors will be needed to stimulate the necessary investments from both the public and private sectors.
• Total financing needs are estimated at around $254 billion from 2022 to 2040, including $219 billion for upgrading private assets and public infrastructure, plus $35 billion for social programs.

The decarbonizing pathway

Bringing Vietnam to net-zero carbon emissions by 2050

• Substantial investments are required in energy, transport, agriculture, and industry.
• Sectoral investments should be supported by carbon pricing instruments, which should change behavior and help finance the transition. For example, an increase in the carbon tax to $29 per ton of carbon dioxide equivalent by 2030 and $90 by 2040 would generate $80 billion in additional revenue.
• Supporting measures will enable the pursuit of the net-zero objective without slowing GDP growth.
• Total financing needs for decarbonization are estimated at $114 billion over 2022-2040: to support the energy transition (about $64 billion); for industry, transport, and agriculture ($17 billion); and for supportive social programs ($33 billion).

Financing the transition

Mobilizing domestic finance, seeking external support

• Closing the funding gap will require a reallocation of domestic private savings toward climate-related projects, an increase in public savings, and external financial support.
• Public funding could account for about one-third of funding and could be financed through the carbon tax or by borrowing in domestic markets.
• Private financing in the range of 3.4 percent of GDP per year can be mobilized through green credit by banks, green equities and green bonds and applying de-risking tools.

PRIORITIES:

Five priority policy packages require the most immediate attention by government and represent the most urgent public and private investments needed to achieve adaptation and mitigation goals.

• A coordinated regional program for the Mekong Delta.
• An integrated coastal resilience investment program for main urban centers and connecting infrastructure.
• A targeted air pollution reduction program in the Hanoi airshed to reach the WHO interim target by 2030 and enhance labor productivity gains.
• Acceleration of the clean energy transition.
• A new social contract to protect the most vulnerable people.