The rapid economic growth in Vietnam has resulted in an increasing demand for electricity. This in turn translates to a higher rate of coal resource extraction and consequent rise in pollution of water and land resources.

This study estimated the environmental costs associated with the electricity demand requirements of the coal electricity sector, as a component of the long-run marginal opportunity cost (LR-MOC) of electricity production.

The LR-MOC has three components: Marginal Production Cost or direct cost (MPC), Marginal User Cost (MUC) and the Marginal Environmental Cost (MEC). The MEC is divided further into two components: Marginal Environmental Cost of coal mining (MEC1) and Marginal Environmental Cost of coal burning (MEC2). The MEC1 consists of on-site environmental cost and off-site environmental cost while the MEC2 is made up of control cost and off-site environmental cost.

The total production cost per tonne of clean coal was 241,050 VND in 1998 and was estimated to be 343,679.70 VND in 2010. The marginal environmental cost of coal mining (MEC1) is 19,029.4 VND/per tonne in 2010 or 5.5% of production cost. Of the MEC1, on-site and off-site cost is about 3.6% and 1.93% of production cost, respectively.

The LR-MOC of coal electricity is 771.9 VND/per kWh at transmission and 975.5 VND/per kWh at distribution. The MEC (MEC1 + MEC2) accounts for 16.6% at transmission and 13.9% at distribution level. In comparison to the current tariff, the cost of the total electricity in 2010 is 1.75 times higher. The most suitable technological options for pollution control in coal-fired thermal power plants are precipitators for Group A and bag filters and limestone injection for Group B2. The least abatement and damage cost is associated with environmental technology alternative 2 (ETA2) valued at 1,862 billion VND.

Given the worsening environmental problems in Halong Bay, which is a coal mining area, and the overall deteriorating environmental situation due to coal-fired power plants in Vietnam, the current subsidy of 25-30% to production cost and electricity tariff should gradually be removed. In fact, the environmental cost should be included in electricity and coal prices.

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Electricity Pricing for North Vietnam