Japan and South Korea are pushing ahead with a controversial coal plant in Vietnam and will provide $1.8 billion in loans for the project, despite having announced ambitious pledges to become carbon-neutral on their home turf.

The state-aligned Japan Bank for International Cooperation (JBIC) said it will lend around $636 million to the Vung Ang 2 project in central Vietnam, which has come under international criticism and even divided opinion within Japan's government.

Private financial institutions and the Export-Import Bank of Korea will also provide loans, with the total amounting to $1.77 billion, JBIC said on Tuesday.

The 1,200-megawatt Vung Ang 2 plant was first proposed over a decade ago and has received investment from heavyweight firms like Mitsubishi Corporation.

Japan said in July it would tighten rules for investment in foreign coal-fired power stations on environmental grounds, but stopped short of promising to end government funding for projects or axe existing ones.

The country also recently unveiled plans to boost renewable energy and phase out petrol cars in a bid to reach its new goal for carbon neutrality by 2050. South Korea has also made a similar pledge this year.

The coal plant has come under international criticism and even divided opinion within Japan's government
The coal plant has come under international criticism and even divided opinion within Japan's government AFP / GEORGE FREY

Vung Ang 2 came under fire in May when 127 environmental groups from around 40 countries signed a petition calling on all the Japanese parties involved -- reported to include big private banks -- to pull out of the project.

"It's a real disappointment," Eri Watanabe from 350.org, which signed the May petition, told AFP on Wednesday about JBIC's announcement.

"It shows the Japanese government is not very serious about complying with the Paris agreement and mitigating CO2 emissions," she said.

The Global Energy Monitor watchdog said in 2019 that Japan accounted for over $4.8 billion in financing for coal power plants abroad -- particularly in Indonesia, Vietnam and Bangladesh.

Japan's Environment Minister Shinjiro Koizumi has also raised concern over the country's financial support for the project.

"To me, this is wrong... as we are facing a lot of criticism from the international community," he said in January. "I want to change Japanese policies to those that can further contribute to decarbonisation."

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