State Financial Transfers in Environmental Protection: The Case of Vietnam

Abstract

This paper examines the practice and the effectiveness of the instrument of state financial transfers to the business sector in the implementation of investment in the field of environmental protection through Environment Protection Funds. Focusing on the case of Vietnam Environment Protection Fund, we found that the instrument of state financial transfers including grants, soft loans, accelerated depreciation allowances, tax incentives, and subsidies have propensity for lack of effectiveness due to creating insufficient incentives and increasing burden on the State budget. The application of market-based instruments is more effective but in Vietnam the rate of this figure is only 1% for market-based instruments while most of its budget (99%) spends on soft loans projects. Therefore, the recommendations are proposed to reduce the instruments of state financial transfers and foster use of market-based instruments in environmental protection activities for the sustainable development.