09/09/2019 - Environment

KEY POINTS

·        One of the ways to incentivise sustainable development is through low-cost financing for sustainable projects. Developed world has already recognised the need of dedicated funds for greener projects at low cost.

·        India is implementing the National Action Plan on Climate Change (NAPCC) to reduce emissions intensity—GHG emissions per unit of GDP—by 33-35% below 2005 levels by 2030. At least 40% of its energy in 2030 would be generated from non-fossil fuel sources.

·        Hence, we need a far-sighted programme and creative solutions to address the environmental challenge. Green bonds have emerged as a way to fund green projects that can reduce the cost of capital and improve returns.

·        Leveraging debt capital markets towards sustainable transport infrastructure development and services has a huge potential to help achieve climate goals—71% of climate-themed bonds issued relate to low-carbon transport.

·        As per the Climate Bonds Standard and Certification Scheme of Climate Bonds Initiative, certain areas are most likely to get acceptance in the green bond market.

·        These include transport infrastructure; alternative (low-carbon) energy refuelling distribution infrastructure; vehicle technologies to significantly increase emissions efficiency (including fuel efficiency, fuel type and other vehicle improvements); and new vehicle technologies and hybridisation, autonomous/semi-autonomous vehicles.

·        The Indian Railway Finance Corporation (IRFC) set up a Green Bond Framework for fund raising. The proceeds were proposed to be used for financing the Dedicated Freight Corridor and electrification of railways. The IRFC had raised $500 million in 2017 from the 10-year green bond through India INX, GIFT City.

·        The Economic Survey 2018-19 notes that India needs to almost double its annual spending on infrastructure at $200 billion, which will require harnessing private investment.

·        The government can do well by setting up a Green Investment Trust, an agency for green financing, to fund green infrastructure projects. The trust can tap green funds abroad and channel the same towards green projects in India.

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Financing is one of the biggest barriers for clean energy projects. India needs around Rs 17.5 trillion, in financing to achieve its target of 160 gigawatts of solar, wind and other types of renewable energies by 2022, the analysis states.

So what comes to the rescue is Green binds, which are same as corporate bonds, but their proceeds are preallocated to green activities.

Rationale for Green bonds:

1. The introduction of Green Bonds will resolve the issue of funding, which is the main reason for delay in these 'green' projects, in the evolving renewable energy sector.

2. Transport is responsible for 23% of all energy-related carbon dioxide emissions globally and 14% of total GHG emissions. Road transport is responsible for 73% of carbon dioxide emissions from all transport. 

3. To dwindle carbon transport emission, Indian Railway Finance Corporation (IRFC) set up a Green Bond Framework which proceeds were proposed to be used for financing the Dedicated Freight Corridor and electrification of railways. 

4. About 70% funds out of total India's green bond market, are set aside for renewable energy projects, low carbon transport sector and low carbon buildings to transform India into a strictly green economy.

(example: 100 smart cities project)

Road ahead:

The Economic Survey 2018-19 notes that India needs to almost double its annual spending on infrastructure at $200 billion.

The government can do well by setting up a Green Investment Trust, an agency for green financing, to fund green infrastructure projects. 

The trust can tap green funds abroad and channel the same towards green projects in India