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Study on the Impacts of Electricity TariffIncrease on the National Economy of Vietnam

Nguyen Quoc Khanh

Chapter 10 in Energy Market Integration in East Asia: Theories, Electricity Sector and Subsidies, pp 253-267 from Economic Research Institute for ASEAN and East Asia (ERIA)

Abstract: The electricity price in Vietnam in 2011 was around 6 US ¢/kWh which is lower than the Long Run Marginal Cost (LRMC) of 9.5 US ¢/kWh. This low price discourages energy productivity enhancement and affects energy supply security. Thus, the Government of Vietnam plans to increase the electricity tariff. This study examines the impacts of increasing electricity tariff to the LRMC on prices of consumer goods and services and the likely distribution impacts by household income quintiles using a static Input-Output approach. The study found that such an increase would drive up the prices of all other products. The price impact, however, is not large. The distribution impact by household income quintiles is also not large. Although the impact is not large, it would be socially difficult to implement this increase at once, particularly given that Vietnam is facing high inflation rates. A roadmap for electricity tariff increase is thus discussed. continuing economic competitiveness in the region.

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