LEGO factory lays bricks for Vietnam clean energy transition

• Vietnam agrees $15.5 billion deal with G7 to cut coal
• Government commits to boost renewable energy, green jobs
• A 'just' energy transition must involve communities

KUALA LUMPUR/BARCELONA - When toy giant LEGO decided to open a new $1-billion factory, it picked Vietnam so as to be close to its major markets in Asia.

The facility, whose construction was launched last month, will also be the company's first carbon-neutral factory.

It will have rooftop solar panels and a solar farm built on a neighbouring plot of land, together producing as much green energy as the site needs each year, the Danish company said.

When production starts in 2024, it will use energy-efficient equipment and the factory will have a globally recognised green building certification, LEGO said, contributing to a push to cut planet-heating emissions from its global operations.

G7 nations, together with Norway, Denmark and the European Union, are hoping a "just energy transition partnership" (JETP) announced for Vietnam this week will help the Southeast Asian nation attract more such low-carbon foreign investment.

Vietnam's JETP is the third such deal crafted to help emerging economies reduce greenhouse gas emissions from their power sectors - after similar pacts with South Africa and Indonesia.

With Vietnam aspiring to become a regional manufacturing hub, John Murton, Britain's COP26 climate summit envoy who works on the JETPs, said the aim was to avoid economic growth driving unchecked emissions increases in the country's power sector.

In the next three to five years, the JETP will provide at least $15.5 billion - half from donor governments and half from commercial banks - to speed up Vietnam's transition away from coal towards clean energy like solar and wind, and create jobs.

Murton said this week that the deal represented a "really substantive set of changes" in energy policy that would help Vietnam move on a "much-improved climate trajectory" towards its goal of net-zero emissions by 2050, and encourage investment.

"There has been this growing understanding and agreement within the Vietnamese system that working towards a low-carbon economic pathway and a direct route towards net zero (by) 2050 was going to be in Vietnam's economic interest," said Murton.

Among the world's top 20 coal users, Vietnam's new energy deal will see its emissions peak by 2030 rather than an earlier target of 2035, by limiting coal power capacity and sourcing almost half of its electricity from renewables within this decade.

"This is a step in the right direction in the phasing out of coal in Vietnam and the rest of the Asian continent," said Sisilia Dewi, Asia director at climate campaign group 350.org.

But she and other climate activists raised concerns that communities may be left out of the push for green industrial development, while the Vietnamese government has been criticised for its punitive stance towards environmental advocates.

"Energy is a vital need of the people and therefore, there must be genuine participation of the people in how these large pots of climate finance are used," Dewi said.

A joint political declaration on the JETP said access to electricity must remain affordable and reliable for all, "in particular for affected, vulnerable and low-income groups".

According to World Bank data, Vietnam achieved the provision of electric power to 100% of its population in 2020.

But there are fears that the additional investments required to build out new clean energy infrastructure and upgrade the nation's power grid could drive up tariffs.

"Direct subsidies to the poor (are) essential to create equity in access to electricity," said one climate expert based in Vietnam, who asked to remain anonymous for security reasons.

Bumpy path

Nithi Nesadurai, a director at advocacy group Climate Action Network Southeast Asia (CANSEA), said the JETP talks had been far from smooth, with disagreements over the amount of funding and the large share of loans versus grants in the package, as well as concerns over a crackdown on prominent green activists.

Earlier this year, well-known Vietnamese environmental advocate Nguy Thi Khanh was handed a two-year jail sentence - one of a number of her peers sentenced on tax-related charges.

In the course of developing the JETP, British officials met with civil society groups in Vietnam and encouraged the government to recognise their importance to a fair energy shift.

"Perhaps the biggest risk is that the transition is not seen as being 'just' by certain parts of society," said Sandeep Biswas, a Singapore-based partner at global management consultancy Kearney, adding that a "continuous transparent dialogue" will be key to the JETP's success.

The JETP declaration notes that "for the transition to be just and equitable, regular consultation is required" - including with the media, nongovernmental groups and other actors - "so as to ensure a broad social consensus".

Vietnam's foreign affairs ministry did not respond to a request for comment.

'Quality' jobs

Nesadurai of CANSEA said discussions on implementing the clean energy shift were needed at federal, provincial and local levels to work out how green energy policies can be "a win-win for all", including affected communities.

As with the other two JETPs, the initial unveiling of Vietnam's deal was short on detail. But it said a "resource mobilisation plan" will be put together by November 2023, which will include vocational training and employment options.

The fast-falling cost of renewable energy offers "an opportunity" to pursue sustainable development and tackle challenges like poverty, inequality and unemployment, made worse by the COVID-19 pandemic and climate change, it noted.

It also listed economic sectors that could be impacted by the energy transition, including fossil-fuel electricity generation, coal mining, heavy industry and transport.

The green transition needs to be accompanied by training in new skills, job creation and other support for workers "so that they can benefit from the industrial innovation and the creation of quality green jobs", the document added.

The LEGO factory, for example, plans to employ 4,000 people over the next 15 years and will train local employees to operate high-tech equipment, the company said.

The JETP declaration highlights business opportunities in developing and implementing wind and solar energy, power transmission, energy efficiency and storage, and electric vehicles, as well as agricultural products in rural areas.

Thang Do, a fellow at the Crawford School of Public Policy at the Australian National University, said Vietnam has massive solar power potential, while offshore wind power is another promising option to propel the switch from coal to renewables.

Vietnam now needs to develop an investment plan that identifies projects and how they will be funded from the overall pot, said Sandeep Pai, a researcher at the Center for Strategic and International Studies.

"What the money will be used for is missing," he said.

He warned it could take "years" before real projects start to happen on the ground.

"It is also not clear if (the) dollars will eventually flow to workers and communities in transition," he added.

(Reporting by Michael Taylor and Megan Rowling; Editing by Kieran Guilbert)