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Government Announced Sovereign Green Bonds

Context

  • The Central Government published the Sovereign Green Bonds Framework.
  • The proceeds from the issuance of sovereign green bonds will be used to fund public-sector projects that reduce the economy’s carbon intensity.

Relevance

GS Paper – 3: Mobilization of Resources Conservation

Mains Question

What exactly are Green Bonds? In what ways can they serve as a springboard for environmentally friendly investment in the country? Discuss the benefits and drawbacks. (250 words)


Background

  • In the Union Budget 2022-23, Finance Minister Nirmala Sitharaman announced that sovereign green bonds would be issued to raise funds for “green projects.”
  • Prior to that, Prime Minister Narendra Modi announced India’s commitments to reduce carbon emissions under ‘Panchamrit’ at COP26 in November 2021.
    • Panchamrit is a collection of five commitments made by the Prime Minister at the Conference of Parties (COP26) in Glasgow, UK.

These five commitments are as follows:

  • To increase the country’s non-fossil fuel energy capacity to 500 GW by 2030.
  • Renewable energy sources would meet 50% of the country’s energy needs by 2030.
  • Between now and 2030, the country will reduce total projected carbon emissions by one billion tonnes.
  • By 2030, the economy’s carbon intensity would be reduced to less than 45%.
  • By the year 2070, India would be carbon neutral and have net zero emissions.

What exactly are Green Bonds?

  • Green bonds are issued by corporations, governments, and multilateral organisations to fund projects that have a positive environmental or climate impact while also providing investors with fixed income payments.
  • Renewable energy, clean transportation, and green buildings are examples of possible projects.

Green Bonds in Practice:

  • The World Bank is a major issuer of green bonds, issuing $14.4 billion in green bonds between 2008 and 2020.
  • These funds have been used to support 111 projects around the world, with the majority of them focusing on renewable energy and efficiency (33%), clean transportation (27%), and agriculture and land use (15%).
  • According to the London-based Climate Bonds Initiative, by the end of 2020, 24 national governments had issued Sovereign Green, Social, and Sustainability bonds totaling $111 billion.

India’s Sovereign Green Bonds Framework:

  • The proceeds of these green bonds, which were first announced in the Union Budget 2022-23, will be used to mobilise resources for green infrastructure.
  • Aim – o To raise Rs 16,000 crore through the issuance of green bonds in the current fiscal year, which ends in March 2023.
  • Under the framework, the Finance Ministry will inform the RBI every year about spending on green projects for which funds raised through these bonds will be used.

Eligible Projects:

  • All eligible green expenditures will include government investment, subsidies, grants-in-aid, or tax foregone (or a combination of all or some of these) or select operational expenditures.
  • R&D expenditures in public sector projects that help reduce the economy’s carbon intensity and enable the country to meet its Sustainable Development Goals (SDGs) are also included in the framework.
  • Eligible expenditures will be limited to government expenditures that occurred no more than 12 months prior to the issuance of green bonds.
  • Excluded sectors include nuclear power generation, landfill projects, the alcohol/weapons/tobacco/gaming/palm oil industries, and hydropower plants larger than 25 MW.

What will the proceeds be used for?

  • The framework outlines the Government of India’s obligations as a green bond issuer.
  • The proceeds from the issuance of green bonds will be deposited in the Consolidated Fund of India (CFI) in accordance with regular treasury policy, and funds from the CFI will then be made available for eligible green projects.

Implementing Agency:

  • The Ministry of Finance has formed a Green Finance Working Committee (GFWC) comprised of members from relevant line ministries and chaired by the Chief Economic Advisor.
  • The GFWC will meet at least twice a year to assist the Ministry of Finance with project selection and evaluation, as well as other Framework-related work.
  • Initial project evaluation will be the responsibility of the relevant Ministry/Department in consultation with experts.
  • The GFWC will review the allocation of proceeds in a time-bound manner to ensure that the allocation of proceeds is completed within 24 months of the date of issuance.

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December 2022
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