The economic growth in Vietnam has not been without cost as the natural environment - forests, biodiversity and coastal zones-came under additional pressure. To address the situation with the aim of proactive prevention, the Prime Minister issued the Directive No. 25/CT-TTg, dated 31/8/2016, on some urgent missions and solutions to protect environment. In Article 3, item (c) of the Directive, the Prime Minister requested MPI “to study and regulate a specific level of environmental expenditures in total amount of investments for investment projects”. Our review of international experiences shows that the proportion of Pollution Abatement Capital Expenditures to total firms’ capital expenditures in U.S. is about 3,5 - 5,1%. The industries requiring higher levels of environmental capital expenditures include: (1) Petroleum and coal products, (2) Primary metal industries; (3) Paper and allied products, and (4) Chemicals and allied products. In Vietnam, the level of investment in environmental protection is relatively low. Some surveys of enterprises in Vietnam show that less than 2% of all surveyed enterprises indicated the purpose of their investment to meet environmental requirements. With the lessons from international experiences, requirements on the rate (3-5%) of investment for the environment in the total investment of investment projects can be identified as one of the criteria for appraisal and approval of EIA reports of investment projects in Vietnam.
Trang 1INVESTMENT IN ENVIRONMENTAL PROTECTION:
INTERNATIONAL EXPERIENCES AND CURRENT
SITUATION IN VIETNAM
Assoc Prof Dr Le Thu Hoa
lethuhoaneu@gmail.com
Dr Nguyen Cong Thanh
ncthanh113@yahoo.com Faculty of Urban & Environmental Economics and Management,
National Economics University, Hanoi, Vietnam
Abstract
The economic growth in Vietnam has not been without cost as the natural environment - forests, biodiversity and coastal zones-came under additional pressure
To address the situation with the aim of proactive prevention, the Prime Minister issued the Directive No 25/CT-TTg, dated 31/8/2016, on some urgent missions and solutions to protect environment In Article 3, item (c) of the Directive, the Prime Minister requested MPI “to study and regulate a specific level of environmental expenditures in total amount of investments for investment projects” Our review of international experiences shows that the proportion of Pollution Abatement Capital Expenditures to total firms’ capital expenditures in U.S is about 3,5 - 5,1% The industries requiring higher levels of environmental capital expenditures include: (1) Petroleum and coal products, (2) Primary metal industries; (3) Paper and allied products, and (4) Chemicals and allied products In Vietnam, the level of investment in environmental protection is relatively low Some surveys of enterprises in Vietnam show that less than 2% of all surveyed enterprises indicated the purpose of their investment to meet environmental requirements With the lessons from international experiences, requirements on the rate (3-5%) of investment for the environment in the total investment of investment projects can be identified as one of the criteria for appraisal and approval of EIA reports of investment projects in Vietnam
Keywords: environmental protection, environment impact assessment (EIA),
investment projects
1 Introduction
In recent years, Viet Nam has exerted its own resources and with the support of international communities to promote socio-economic development and to improve the living standard of Vietnamese people In recent economic forecasts, the World Bank predicts economic growth of Vietnam will exceed 6 percent until 2019, among the world‘s fastest In accordance with the economic growth, Vietnam‘s GDP per capita has reached an
Trang 2estimated US$2,215 at the end of 2016 In 2016, Viet Nam commenced the implementation of the 5-year socio-economic development plan 2016 - 2020 with the aims at achieving a target of US$3,000 per capita These achievements, however, have not been without cost
as the natural environment - forests, biodiversity and coastal zones-came under additional pressure Water and air quality and other parameters of urban environmental conditions have stagnated or deteriorated The Government of Viet Nam (GOV) has promulgated legislations and embarked on programs and projects to mitigate the environmental impact
of urban and industrial expansion
In 2012, the Government of Vietnam issued the "National Strategy for Green Growth for 2011-2020 with a vision to 2050" (Hereafter referred to as Vietnam‘s Green Growth Strategy or VGGS) The VGGS defines the green growth as an important part of sustainable development that ensures rapid, effective, sustainable economic development and significantly contributes to the implementation of Vietnam‘s national strategy on climate change It establishes the objectives for low carbon green growth and identifies three strategic tasks: (1) Reducing greenhouse gas emission; (2) Greening production; (3) Greening lifestyles and consumption
Following the official adoption of VGGS in 2012, the Government of Vietnam issued the Vietnam National Action Plan on Green Growth (VGGAP) in March 2014 through Prime Minister Decision No 403/QĐ-TTg The VGGAP (2014-2020) outlines 66 distinct intervention areas (programs, projects) and related responsibilities among Ministries, Departments and Agencies (both leading and collaborating) for designing and implementing these initiatives According to the GGAP, these activities are categorized into four key areas: (1) awareness raising; (2) institutional improvement; (3) economic restructuring in sectors, localities and enterprises; (4) innovative technologies
In the past years, the activities of environment protection have achieved some noticeable results However, environmental pollution from industrial production has been still an increasing problem, creating serious environmental incidents affecting people‘s activities; producing negative impacts on the implementation of the national Green Growth Strategy and sustainable development Reasons for this situation are that legal regulations are not suitable with the realities; lack of regulations and criteria for appraising investment projects, producing technologies and waste treatment activities of enterprises, especially,
no specific criteria for the proportion of environmental expenditures in total amount of investment for various types of investment projects
To address the situation with the aim of proactive prevention, the Prime Minister issued the Directive No 25/CT-TTg, dated 31/8/2016, on some urgent missions and solutions to protect environment In Article 3, item (c) of the Directive, the Prime Minister requested MPI
―to study and regulate a specific level of environmental expenditures in total amount of investments for investment projects‖ This study will provide useful information to contribute
to the implementation of Directive No 25/CT-TTg The study results may also be helpful to design relevant policies for green growth in the future in Vietnam
Trang 32 Research methodology
2.1 Overall approach
To achieve the objectives, this research will use both qualitative and quantitative methodology to examine environmental expenditures of industrial investment projects in previous studies, international experiences and case studies With the aim of collecting more information about environmental costs, we plan to select Vietnam‘s case studies for more detailed examination Selected cases will aim to reflect key industrial production in relation to environmental management performance The fieldwork methodology will use semi-structured interviews and focus groups to contrast the informants‘ viewpoints The collected data will be continuously analyzed during the fieldwork to guide the data collection in subsequent rounds Secondary data will be used to supplement the information gained from the in-depth interviews in order to draw an overall picture relevant to current status in Vietnam Policy recommendation on levels of investment in environment pollution treatment will be proposed for investment projects in industrial production; and draft of legislative documents will be submitted to MPI to propose for Government decision
2.2 Key research steps
Collecting and examining international experiences on environmental treatment costs in industrial production: relevant international documents, data on investment
amount for environmental protection in USA, Japan, Europe, China… will be collected and examined to support environmental requirements for investment projects
Collecting and examining current state of environmental treatment costs in industrial production in Vietnam The current status about investment for environmental
pollution treatment in Vietnam will be synthesized based on: (1) approved reports of environmental impact assessment (EIA); (2) consultation about results of environmental inspection during the project operation; (3) reports on environmental management accounting and cleaner production initiatives in industrial production; (4) field visits to some industrial companies
3 Results
3.1 Concepts of investment for environmental protection
The natural environment provides conditions for economic development, and economic development can be considered as the basis for the transformation of the natural environment It is a close relationship that any nation should be concerned about in its development planning process With that view, economic development along with environmental protection is the approach chosen by many countries in the world In Vietnam, the Law on Environmental Protection (LEP) clearly states:
"Environmental protection are activities of preserving, preventing and restricting negative impacts on the environment; responding to environmental incidents; overcoming pollution, degradation; improving and restoring the environment; exploit and use natural
Trang 4resources in the ways of keeping the environment healthy" (Clause 3, Article 3 of the Law
on Environment Protection, 2014)
In the world, environmental protection issues are being paid attention by many organizations and enterprises towards a world of sustainable development As businesses increasingly play an important role in green production, investment in environmental protection has become a topic of widespread interest and has been incorporated into important programs of national environmental policies and international cooperation organizations
Investment in environmental protection is a type of investment for development, because the protection and maintenance of the environment is a condition for sustainable economic development In economic management, investment is the process of using the resources at present to carry out activities to obtain results, accomplish certain goals in the future Environmental protection investment in enterprises is often reflected through investment activities related to compliance with environmental regulations by state management agencies and voluntary pollution prevention or market forces
In the current trend, enterprises which are the largest source of pollution are playing
an increasingly important role in investing in environmental protection Protecting the environment is not only an obligation for the business, but is gradually benefits for the business in affirming the brand, increasing its value, gaining trust in the market towards the sustainable development for both enterprises and the community In addition, in order to succeed in integration, enterprises must comply with new international environmental regulations in production, business and consumption
3.2 International experience on levels of investments in environmental protection
Currently, two trends are becoming common in many countries around the world, namely: (i) investment in environmental protection is increased in national income and (ii) The private sector will play a major role in environmental protection For example, the average gross national investment for environmental protection in European countries accounts for about 2.1% of their total GDP In particular, private sector investment accounted for 59% In the following sections, information about the level of investment for environmental protection will be presented in more detailed in case studies in the US, Canada and China
Environmental expenditures in United States
The Pollution Abatement Costs and Expenditures (PACE) survey1 is the most comprehensive national source of pollution abatement costs and expenditures related to environmental protection for the manufacturing sector of the United States The PACE survey collects facility-level data on pollution abatement capital expenditures and operating costs associated with compliance to local, state, and federal regulations and voluntary or market-driven pollution abatement activities The PACE survey was conducted annually
1
For more information, refer to https://www.epa.gov/environmental-economics/pollution-abatement-costs-and-expenditures-2005-survey#Download (accessed on 9 Mar 2018
Trang 5between 1973 and 1994 (with the exception of 1987), but was discontinued after 1994 by the U.S Census Bureau for budgetary reasons Recognizing the need for this type of data, the EPA provided the necessary funding to conduct a PACE survey in 2000 to collect pollution abatement costs and expenditures for 1999 The survey has not been administered since 2000
in order for the EPA to evaluate the PACE survey and guidelines The 2005 PACE survey is the result of a multi-year redevelopment/evaluation effort by the EPA to ensure the accuracy
of the survey responses Because of the limited amount of resources, there are no efforts underway at present to administer another PACE survey and collect more recent information than the data collected and reported for the year 2005
The PACE surveys before and after 1994 applied different industrial codes, hence
the two datasets are presented in separate tables Tables 1 and 2 show that the proportion
of Pollution Abatement Capital Expenditures to total firms’ capital expenditures in U.S
is about 3,5 – 5,1% The industries requiring higher levels of environmental capital
expenditures include: (1) Petroleum and coal products, (2) Primary metal industries; (3) Paper and allied products, and (4) Chemicals and allied products
Table 6 Proportion (%) of Pollution Abatement Capital Expenditures to Annual Survey of Manufactures (ASM) new capital expenditures in U.S in 2005 and 1999
Average 2005 1999
Electrical equipment, appliance, & component mfg 1,3 1,7 0,9
Trang 6 Review of other previous studies
In Canada, the Survey of Environmental Protection Expenditures is conducted every two years The survey collects operating and capital expenditures made by primary and manufacturing industries in response to, or in anticipation of, environmental regulations and conventions It also reports the use of environmental management processes and technologies including those used to reduce greenhouse gas emissions by Canadian businesses The collected data in 2006 show that the oil and gas extraction industry spent more on environmental protection than any other industry, accounting for almost one-third of the total The second highest spender was the petroleum and coal products industry, accounting for approximately 10% of total environmental protection expenditures Investments by Canadian oil and gas producers, most of which operate in Alberta, in areas such as pollution abatement and control, waste management, pollution prevention, and reclamation and decommissioning totaled over $1.7 billion in 2006 Put in
perspective, for every $100 invested by the oil and gas extraction industry, $4 (4%) was invested in environmental protection Nationally, the petroleum and coal products
industry was the second largest investor in environmental protection ($596 million) as that
industry continued to upgrade refineries to meet new Sulphur regulations Environmental protection capital expenditures represented about $20 (20%) out of every $100 invested
by the petroleum and coal products industry. 2
Charles et al (2012) provided information about proportion of environmental capital spending to total capital expenditures of 45 firms in United States The 45 firms disclosed their environmental capital expenditures in at least one year over the sample period of 1993 - 2005, and there are 433 firm-year disclosures of this spending over the investigation period The sample firms represent 16 different industries (based on two-digit primary SIC codes) with the largest representation, coming from the 28xx (chemical and allied products) classification The sample firm size (based on 2004 revenues) ranges from
$3.5 billion to $291.2 billion with a mean (median) of $22.8 billion ($9.8 billion) In general, the firms were profitable (mean 2004 ROA of 6.4 percent), and well-leveraged (mean 44.9 percent debt-to-capital ratio in 2004) The 2004 capital intensity of the companies (net property, plant and equipment (PPE) divided by total assets) ranged from 7.0 percent to 68.0 percent with a mean (median) of 28.2 percent (24.7 percent) Charles et
al (2012)‘s observations show that firms‘ environmental capital spending ranged from 0.07 percent of total capital expenditures on the low end to 55.34 percent at the high end
The mean firm-year environmental capital spending was 6.59 percent of companies’ total firm-year capital spending amounts
2 Source: http://www.statcan.gc.ca/pub/16f0006x/2006000/6500759-eng.htm (accessed on 9 Mar 2018)
Trang 7Table 7 Proportion (%) of Pollution Abatement Capital Expenditures to Annual Survey of Manufactures (ASM) new capital expenditures in
U.S in 1973 - 1993
Avg 1993 1992 1991 1990 1989 1988 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 1974 1973
Petroleum and coal products 19,3 42,4 41,3 24,8 22,0 12,5 18,5 16,5 8,4 8,3 10,6 10,8 11,5 14,7 16,3 18,3 16,6 15,6 23,0 25,1 29,1 Primary metal industries 11,6 10,2 10,5 11,5 8,6 7,2 6,6 7,1 5,4 6,5 5,9 12,2 11,5 13,5 0,2 16,9 19,7 20,0 20,0 17,2 21,4 Paper and allied products 10,5 10,0 12,9 13,7 9,9 8,0 5,8 4,5 5,3 1,2 4,6 6,1 6,1 6,5 9,6 9,1 13,5 16,2 22,3 21,5 22,2 Chemicals and allied products 10,2 13,3 14,1 12,9 12,2 8,9 10,1 7,9 9,0 5,5 5,6 6,9 7,9 8,9 9,7 10,5 12,5 13,2 12,3 10,6 12,4 Leather and leather products 7,3 14,0 7,2 15,1 7,3 3,0 4,0 4,0 1,1 1,9 1,5 12,3 19,5 9,0 4,2 5,3 Stone, clay and glass products 6,1 5,4 6,3 6,5 4,7 3,4 2,8 3,6 2,2 3,5 5,5 4,6 7,3 5,0 5,6 4,9 8,1 7,0 11,0 13,1 10,8 Lumber and wood products 4,4 4,7 5,8 9,0 5,6 3,1 2,6 2,0 2,1 2,9 2,1 2,5 4,4 4,0 4,5 4,4 4,8 4,1 5,9 6,0 6,6 Food and kindred products 3,8 2,6 3,6 5,1 2,8 3,1 2,8 2,7 2,2 2,4 2,6 2,5 2,9 3,6 3,6 3,6 4,7 5,4 5,3 6,6 8,2 Furniture and fixtures 3,8 4,6 3,1 3,3 2,6 1,5 3,0 2,7 1,9 1,6 1,5 2,7 2,9 2,2 4,3 2,2 3,2 9,4 9,6 8,1 5,7
Fabricated metal products 3,0 2,4 3,3 4,3 3,6 3,3 3,5 3,0 2,7 3,3 2,5 2,3 1,7 1,9 2,0 1,9 3,2 3,3 3,7 4,6 3,7 Transportation equipment 2,9 2,6 2,9 2,8 3,7 2,9 2,9 4,8 4,4 2,6 1,9 1,5 2,6 3,4 2,8 2,4 1,8 2,5 2,7 3,3 4,0 Textile mill products 2,4 1,8 1,9 2,7 2,0 1,3 0,8 1,6 1,3 1,0 1,2 1,4 2,8 4,0 2,9 4,4 3,1 4,9 4,3 2,7 2,6 Instruments and related products 2,0 2,9 2,7 2,3 2,1 1,9 0,8 0,8 1,0 1,0 1,2 1,4 2,0 1,6 1,6 1,5 2,7 4,1 3,7 1,9 1,9 Electronic and other electric equipment 1,8 2,0 1,7 0,3 1,9 2,2 1,9 1,4 1,3 1,1 1,3 1,4 1,5 1,3 2,0 2,0 2,3 2,6 2,8 2,3 2,6 Miscellaneous manufacturing industries 1,7 2,1 1,8 1,6 2,2 1,2 1,6 0,9 1,4 1,1 0,7 1,9 1,5 1,6 0,8 1,9 3,9 3,5 Rubber and miscellaneous plastics products 1,7 1,5 2,3 1,9 2,2 1,7 1,1 1,2 0,1 1,2 1,3 1,1 1,3 1,0 1,1 1,2 3,2 2,8 2,8 2,6 1,9 Industrial machinery and equipment 1,4 1,5 2,2 1,8 1,3 2,1 1,1 0,7 0,8 0,5 0,8 0,9 0,8 0,9 1,2 1,4 2,2 2,0 1,8 2,0 2,4 Printing and publishing 0,8 0,9 0,9 0,7 1,2 0,6 1,4 0,6 0,8 0,5 0,4 0,5 0,4 0,5 1,0 0,6 0,5 0,3 1,2 2,4 0,7
Trang 83.3 Investments in environmental protection in Vietnam
3.3.1 The legal and regulatory context
The 2014 Law on Environmental Protection (LEP) provides a legal framework for managing environmental issues in Viet Nam The LEP was firstly promulgated in 1993 and was revised twice in 2004 and 2014 The LEP requires firms in some specific industries to conduct environmental impact assessment (EIA), and they only have the right to start or continue their business only when their EIA reports are approved Other firms are required
to prepare a simpler commitment to environmental protection statement In 2016, regulations of administrative penalties on environmental violations have been revised (Decree 155/2016/ND-CP) The monetary penalties have maximum levels of 1 billion for violating individuals and 2 billions for violating firms
Environmental Impact Assessments (EIAs) are suggested as tools for promoting firms‘ investments in environmental protection EIAs are scientific processes that evaluate the potential environmental impact of development projects before making decisions about undertaking the projects Governments use EIAs to identify and manage the effects of economic development on the natural environment In Viet Nam, EIA reports provide a legal basis for environmental management agencies to approve project investments The LEP
1993 was the first Vietnamese legislation to regulate EIAs The current EIA framework in Viet Nam is regulated by the 2014 LEP; Decree No 18/2015/ND-CP of Government dated
14 February 2015 on environmental protection planning, strategic environmental assessment, environmental impact assessment and environmental protection plan; and Circular No 27/2015/TT-BTNMT 29 May 2015, issued by MONRE on strategic environmental assessment, environmental impact assessment and environmental protection plan The 2014 LEP has revised and updated EIA regulation, and has 11 articles ((Articles 18-28) dealing with EIAs, compared to 6 articles (Articles 18-23) in the previous LEP For example, there is
a new article (Article 21) about consultation with organizations and communities affected by proposed projects The EIA policy system has also improved, and MONRE has issued guidelines on EIA for specific project types, such as the development of industrial zones, urban development, breweries and beverages, thermal power plants, textile factories – dyeing, cement plants, hydropower, pulp and paper plant, for example (Tuan, 2017)
Despite increasing efforts, available evidences suggest that environmental regulations in Vietnam have been of little success with respect to business compliance First, many goals specified by the Vietnam government could not be reached and had to be adjusted to more humble levels (Anh, 2016) Second, low levels of compliance have been found in important industries such as food, paper, and leather (Thanh, 2009; Dung, 2011; Thanh and Truong, 2013) Although EIAs have the potential to prevent environmental pollution, EIA practices in Viet Nam still reveal many inadequacies and weaknesses in both the quality of EIA reports and implementation processes (Clausen et al., 2011; Tuan
et al., 2012) Meaningful public participation and information disclosure are important to ensure effective EIAs (Clausen et al., 2011) A key problem is the lack of meaningful public consultation For example, Commune Peoples Committees are only required to call
a formal meeting with community representatives during the EIA process (Item 6, Article
Trang 912, Decree No 18/2015/ND-CP of the Vietnamese Government) There is no requirement for open public involvement and no requirement or guidance provided about effective consultation methods During project appraisal, there is also no mechanism for authorities
to receive public feedback
3.3.2 Status of investment in environmental protection of Vietnamese enterprises
Based on a survey of EIA reports, summary information on investment for environmental protection is presented in Table 3 For large investment projects (Nghi Son Refinery, Formosa Steel Ha Tinh), the investment for environmental protection is estimated at 11% - 14% of total investment Environmental investment is relatively high,
as these are projects in the field that have tentative big impacts on the environment, such as petrochemicals and primary metal industriess In addition, these projects are invested by large international corporations, so the level of environmental investment committed in the EIA report is equivalent to the environmental protection investment of enterprises in the same field of activity in the US (for more information, refer to Tables 1 and 2)
However, the level of investment in domestic projects, reviewed in Table 3, is relatively low The group of coal mining projects has an average level of environmental protection investment of 3%, very low compared to 19.3% of the environmental protection investment of the coal and oil industry in Table 2 Also related to using coal, the average environmental protection investment of coal-based power plants is 6.6% <19.3% Mineral resource extraction projects such as rare earths and titanium mining have less than 1% of environmental protection investment, while environmental investment of the US mining industry accounts for 6.1% of total investment (please refer to Table 2)
Table 8: Summary of capital cost of environmental protection committed in EIA
reports of investment projects
Total investment (mill VND)
Environmental investment (mill VND)
Rate of environmental investment (%)
1 Nghi Son Oil Refinery Petroleum 136.800.000 15.059.400 11,0
2 Steel Complex and Son
Duong Port Formosa Ha
Tinh phase 1-1
Metallurgical 179.642.568 23.114.184 12,9
4 Nam Mau coal mine -
Uong Bi Coal Company
5 Enhancing capacity of
Thong Nhat Coal
Company
6 Expansion of coal mines
of Thong Nhat Coal
Company
7 Cam Pha Thermal Power
Plant
Electricity 7.956.977 644.959 8,1
Trang 10No Project Industry
Total investment (mill VND)
Environmental investment (mill VND)
Rate of environmental investment (%)
8 Vinh Tan Thermal Power
Plant 4
Electricity 35.949.700 1.900.055 5,3
9 Thai Binh Thermal Power
Plant
Electricity 17.247.042 1.117.612 6,5
10 Ha Long rare earth
processing and material
processing plant
11 Sandstone titanium mine,
Vinh Tu and Vinh Thai
communes, Vinh Linh
district, Quang Tri
province
12 Raising the capacity of the
VBL Danang Brewery
13 Factories for prefabricated
concrete, prefabricated
concrete components and
unbaked building
materials
Construction materials
14 Textile, garment, dyeing
and textile accessories
factory Tam Thang
Source: EIA Reports of the projects
Previous enterprise surveys also showed that investment in environmental protection of enterprises was quite low In general, investment and operating costs for environmental protection represent a very small share of total investment and production costs of enterprises Approximately 40% of survey respondents have invested in environmental protection activities and have regular expenses for environmental protection In addition, only 24% of enterprises have built environment management system, such as ISO14001 Among enterprises that invest in environment protection, more than 60% of enterprises only invest one time for environmental protection activities since
its establishment In addition, about 74% of enterprises have the ratio of investment costs for environmental protection activities is less than 10% of the initial investment cost of enterprises 3 In particular, the average cost of regular activities for environmental protection of enterprises only accounts for more than 1% of the total cost of production The results of recent surveys will provide more information on investment for environmental protection of Vietnamese enterprises
3
According to the project ―Đánh giá thực trạng tình hình đầu tư cho đ i mới CNTTMT của DN Việt Nam”,
Bộ Kế hoạch và Đầu tư - 2016