Another important aspect highlighted in Chapter 2 is that the objective of climate change mitigation is strongly interrelated with a variety of other co-existing policy objectives. Economic analyses on climate change mitigation tend to put the climate change problem at the center of the analysis, often disregarding the existence of other policy areas or objectives. However, the case study of China in Chapter 2 as well as the policy analysis on Vietnam in Chapter 3 showed that economic development considerations for example rank higher on the political agenda than climate change in these countries.
The findings on the interplay of different policy objectives in Vietnam are discussed in more detail below (see section 5.1.2).
The success of a policy with regard to achieving the desired emission reductions also depends on the reaction of consumers of carbon-intensive goods in reducing their consumption. Even with a carbon price in place the response of consumers to the price signal may differ from expectations. As part of its typology, Chapter 2 identified and discussed factors that may influence the response of households and firms to climate policy measures. Informational constraints, bounded rationality and routine-driven behavioral patterns may impede the exploitation of economically worthwhile abatement options.
Individual preferences and risk perception as well as social or cultural influences affect individual responses and attitudes towards certain technologies that would serve to avoid GHG emissions.
Moreover, the strength of a policy and its consequences on GHG emissions also depends on other prevailing conditions. Analyzing the climate change problem economic models frequently assume that climate change is the only externality and that markets otherwise work perfectly. In reality, however, actors are confronted with a range of different market imperfections and suboptimal (‘second-best’) conditions (Lipsey and Lancaster 1956). Pre-existing taxes or subsidies may already distort behavioral responses. Imperfect information paired with high information and transaction costs may impede the exploitation of economically viable mitigation options. Imperfectly functioning financial markets and innovation markets lead to sub-optimal investments into low-carbon technologies. Market power and coordination failure can reinforce the tendency to resist changes and create a lock-in into the prevailing
‘dirty’ technologies.
Results from models, such as IAMs as well as other economic models, can provide important insights for policy makers contributing important information and guidance on policy options. However, as discussed in Chapter 2, to keep intricacy manageable, these models need to abstract from some real-world complexities and therefore can capture neither all levels of decision making nor all costs and benefits involved. This does not necessarily render these models impractical. In contrast, putting model assumption subject to a reality check can improve our understanding of the problem as well as our understanding of the meaning of the model results and their limitations. The typology presented in Chapter 2 provides guidance to policy makers to raise awareness of underlying assumptions, identify potential challenges and adapt policy designs accordingly. Moreover, it encourages economists to better communicate their results and the underlying assumptions and potential limitations.
Guided by this typology, Chapter 3 focused on the challenges in climate policy formulation and implementation faced by governments and institutions. Chapter 4 analyzed the response of households
and firms to pricing policies. The analyses in both Chapters were conducted in the light of the underlying context of other market imperfections and externalities.
5.1.2. The politics of climate change - Climate policy formulation and implementation Inspired by the findings on the challenges regarding the level of governments and institutions in Chapter 2, Chapter 3 took on the perspective of Vietnam in order to gain a more in-depth understanding of the determinants of climate policy formulation and implementation in a developing country. The case study in Chapter 3 aimed to answer the following questions:
In the absence of a binding global agreement, what motivated Vietnam to launch unilateral climate policies as a Non-Annex I country?
How can the policy change from a pure adaptation focus towards mitigation commitment in Vietnam be explained?
Which role do non-climate policy objectives play for the formulation of climate change mitigation strategies and policies?
An important aspect raised in Chapter 2 is the co-existence of climate change mitigation on the one side and other objectives on the other. In fact, the case study in Chapter 3 confirmed that other policy objectives have strongly shaped Vietnam’s climate and energy policy and that many of these other objectives rank much higher in priority for policy makers than climate change. Recalling the insights from collective action theory that each country faces strong incentives to free-ride on other country’s mitigation efforts, Chapter 3 argued that the observation of voluntary climate change mitigation policies seems puzzling at first sight. While Chapter 2 analyzed the different potential obstacles presuming that policy makers generally pursue the implementation of climate change mitigation policies, Chapter 3 took a step back and asked which factors led to climate policy actually being put on the national agenda of a developing country like Vietnam.
Until recently, Vietnam had focused on climate change adaptation policies, emphasizing its status as a Non-Annex I country and the duty of industrialized countries to conduct and finance GHG mitigation measures. From this perspective, the launch of the Vietnam Green Growth Strategy and the National Strategy for Climate Change comprising both climate change adaptation and mitigation targets can be considered a recent change in the political agenda and discourse in Vietnam.
Based on an extensive literature review and 23 interviews with partly high ranking Vietnamese policy makers, bi- and multilateral donors and a range of other stakeholders, our policy analysis found that the political motivation for the Vietnamese Green Growth Strategy and other climate relevant polices has been largely shaped by a complex interplay of mostly non-climate objectives. The fact that Vietnam is highly vulnerable to climate impacts has raised political attention to the climate change problem already in the past. However, vulnerability concerns had mostly resulted in climate change adaptation policies and the call for industrialized countries to finance mitigation measures. Only recently, Vietnam announced that it would also be willing to take responsibility itself investing own financial resources into mitigation policies. The interviews revealed that this shift was driven by a complex interplay of different
5.1 Better understanding the real-world context of climate policy 173
factors and objectives, however, vastly dominated by economic concerns. The recent slow-down in economic growth paired with a growing budget deficit made the need for addressing the prevailing structural inefficiencies in the economy more urgent. This was paired with fading national fossil resources confronted with surging energy demand raised energy security concerns and the motivation to invest in low-carbon technologies to reduce future import dependence. Additionally, Vietnam had to deal with a gradual phase out of ‘conventional’ development assistance for poverty reduction as it has achieved lower middle income status in 2009 while still being strongly dependent on foreign assistance.
The restructuring of aid portfolios of important donors towards mainstreaming environmental and climate change issues together with the experiences in other Asian countries like South Korea, who had launched a Green Growth Strategy, have raised awareness for the option of ‘green growth’ policies in Vietnam. Our findings indicate that for Vietnam the Green Growth Strategy and climate change mitigation policies have not been driven by the objective to reduce GHG emissions. Instead it has been perceived as a way to modernize the economy and at the same time to secure access to low-carbon technologies, funding, technical assistance and capacity building from donors. The fact that large potential for low or even negative-cost emission mitigation potentials have been identified in Vietnam and these had remained untapped in the past, imply that there have been considerable barriers to their exploitation and that it cannot be taken for granted that these barriers would be addressed without the announced policies.
In this respect, the policy analysis in Chapter 3 corroborated many of the findings in Chapter 2 with respect to impediments to climate policy at the level of the governments and institutions. Interviewees reported that Vietnamese policy makers often lack appropriate information on saving potentials and technologies. Moreover, policy formulation and implementation suffer from a lack of institutional capacities to draft legal documents and administer their implementation. Especially with regard to monitoring and evaluation, the Vietnamese government often needs to rely on the technical and financial support from development assistance agencies. Interviewees have repeatedly stressed the need for more capacity development and technical assistance also in the future. Also political economy aspects have shaped the Vietnamese policy making. Strong political ties to state-owned enterprises exacerbate the pressure from powerful interest groups on policy making, having hampered the execution of power sector reforms and electricity pricing adjustments. Similarly, Vietnamese policy makers have been reluctant to enforce the phase-out of (mostly indirect) energy subsidies as they have faced public opposition to increasing energy prices, which was perceived as a threat to the rule of the Communist Party. With regard to investment barriers, interviewees in Vietnam reported a lack of financing possibilities to meet up-front investments that would be economically viable in the long-term, which relates to the problem of imperfect financial markets as discussed in Chapter 2. The non-competitive market structure in Vietnam, dominated by large state-owned enterprises receiving indirect subsidies to keep energy prices below production costs, further illustrates the role of other market imperfections and pre-existing distortionary subsidies as discussed in Chapter 2.
As Chapter 3 highlighted, Vietnam may not be an example of an extraordinarily ambitious climate policy.
In contrast, GHG emission reductions may rather be described as a co-benefit of other policy objectives instead of being a policy objective per se. However, in view of the projected surge in GHG emissions for
Vietnam for the business-as-usual scenario and the sizable potential for efficiency improvements and emission mitigation in the industry and power sector, our results from the interviews for Chapter 3 imply that there may indeed be significant co-benefits to reap by combining economic restructuring and climate change mitigation efforts. From a climate perspective the question whether emission reductions are actually achieved is more important than what the underlying motivation for these were in the first place. In its INDCs submitted for the COP 21 in Paris, Vietnam pledges to unconditionally reduce GHG emissions by 8% compared to business-as-usual (BAU) by 2030 financed by domestic resources, while the emission intensity per unit of GDP is pledged to be reduced by 20% compared to the 2010 levels.
Conditional on the case that international support through bilateral and multilateral donors is received, Vietnam pledges to increase its reduction target for GHG emissions to 25% compared to BAU by 2030 and the emission intensity target per unit of GDP to a 30% reduction compared to 2010 (The Socialist Government of Vietnam 2015). The GHG reduction targets are still formulated as compared to a steeply increasing BAU projection1, indicating that emissions growth will continue in Vietnam. However, the change in the mindset of Vietnam’s policy makers as implied by our interviewees seems to be enduring, which can be considered a small step in the direction low-carbon development efforts that should not be taken for granted. It remains to be seen whether Vietnam will fulfil its targets and whether it is even willing to go beyond the low-hanging fruits and intensify ambitions more. So far, the implementation of concrete measures has mostly been lacking. While Vietnam is building the first offshore wind farm in Asia, the annual coal consumption in 2014 had increased by 21% compared to 2013 and the share of electricity generation capacities from coal are expected to increase from 36% in 2015 to 56% in 2030 (EIA 2015). However, in a statement of January 2016 on the government homepage, the Vietnamese Prime Minister Dung announced that the Vietnamese power sector “should protect the environment effectively, review development plans of all coal-fired power plants, build no more plants and gradually replace coal by gas while following strictly international commitments on cutting emission and promoting the development of renewable energy” (Socialist Republic of Vietnam 2016). Between 2010 and 2015, Vietnam added over 8,000 MW of capacity in coal fired power plant, adding another 39 Mio tons of CO2 annually. However, during the same period, almost 14,000 MW of coal power capacities were canceled in Vietnam, thereby potentially mitigating annual emissions of 61 Mio tons of CO2 (Endcoal.org 2016; Endcoal.org 2015). This may be interpreted as a silver lining for the hope that Vietnam’s climate policy will go beyond rhetoric.
5.1.3. From policies to emission reductions – The response of consumers to pricing policies
One important point made in Chapter 2 was that the success of policies in reducing emissions depends on the behavioral change of households and firms responding to these policies. In this light, Chapter 4 took a closer look at the response of consumers to pricing policies with a focus on the road transport sector in Europe. The transport sector is the only major sector which has exhibited increasing GHG emissions since 1990 making it the second largest GHG emitter in the EU after the power sector (EEA
1 The Vietnamese INDC projects BAU GHG emissions to increase from 246.8 million tCO2e in 2010 to 474.1 million tCO2e in 2020 and 787.4 million tCO2e in 2030 (The Socialist Government of Vietnam 2015).