Sovereign Green Bonds: With the buzz around Budget 2022 now setting down, it is time to evaluate some key measures that were announced by Finance Minister in her budget speech. One key announcement in Budget 2022 Speech of Union Finance Minister Nirmala Sitharaman was about Sovereign Gold Bonds. Announcing the measure, she noted that Sovereign Green Bonds will be major part of Central Government’s Borrowing Programme 2022-23 and will be used to “for mobilising resources for green infrastructure.” Mention of issuance of Green Bonds in FY23 showcases India’s seriousness in pursuing climate action.
Let’s try and decode what are Sovereign Green Bonds and how they will Promote Environmental Goals through Government Borrowings!
Green Financing
In November 2021, Prime Minister Narendra Modi in his address at the Climate Change Conference in Glasgow, Scotland made a historic announcement about India achieving ‘Net Zero Carbon Emissions’ by 2070. While the announcement took many world leaders by surprise, it was a major commitment by the Indian Government towards Climate Change. Since then, India has announced several key steps towards this goal and Green Financing is one of the major milestones of this journey. Green Financing refers to specific financial arrangement that are made towards setting up environmentally sustainable projects addressing different aspects of climate change. The issuance of Green Bonds by the Central Government would also be part of Green Financing.
What are Green Bonds?
By its definition, Green Bonds are financial instruments that are issued by any sovereign entity, inter-governmental groups or alliances, and corporates, with an aim to use the funds proceeds towards environmentally sustainable projects. If we were to break down Bonds as financial debt instrument, it amounts two aspects i.e., collection of funds and usage. In case of Green Bonds, for the first aspect the Bonds are issued by the Sovereign Government to collect funds for a specific purpose of financing eco-friendly and environmentally sustainable projects only.
There are different types and kinds of environmentally sustainable projects towards which the funds gathered via Green Bonds can be used. Some examples for which funds collected via Green Bonds can be used are:
- Renewable Energy Projects: Setting up of Solar Power Plants, Wind Mills, Biogas plants and others
- Clean Transportation Projects: Electric Cars and their charging network, Funding research in Green Fuels
- Energy Efficiently Projects: Setting up Green Buildings with zero waste, Eco-friendly Recycling of Waste Materials, Projects aimed at conservation of Energy
Like any other Bonds being issued by the Government, even in case of Green Bonds, it would be required to provide details about the projects that it plans to finance using the funds collected and showcase its demonstratable impact on climate change and environmental aspects.
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What will Green Bonds Fund?
While the details about the projects for which the Central Government will use the funds collected via Green Bonds will be shared later on; there are several important initiatives mentioned in FM’s Budget speech which Green Bonds might finance in the coming days.
- Battery Swapping Policy: FM Nirmala Sitharaman said that a new Battery Swapping Policy will be notified by the Central Government to aid the Electrical Mobility sector. In addition to this, the Central Government is also formulating interoperability standards for EV batteries which will make Electric Vehicles more viable for potential buyers.
- PLI Scheme for Solar Panels: Another measure announced in Budget 2022 was about PLI scheme for manufacturing of high-efficiency Solar Modules Panels in India. This will help enhance use of renewable energy for various projects.
- Carbon Trading Bill: While not mentioned officially on the agenda, the Union Government is also planning to introduce Carbon Trading Bill in Parliament, which will provide regulatory framework for Carbon Trading.
Green Bonds: Global Scenario
With Climate change and Environmental Concerns being outlined as one of the biggest global and external threats to their citizens, government across the globe have issued Green Bonds in the last 5 year. In fact, by the end of 2022, as many as 24 Governments have issued Sovereign Green, Social and Sustainability bonds, which amounts to a total of USD 111 billion, as per a report published by London-based Climate Bonds Initiative.
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