Govt announces framework for sovereign green bonds

New Delhi: The government on Wednesday came out with a framework for sovereign green bonds and proceeds from the issue of the bonds will be used for funding public sector projects that seek to reduce carbon emissions.

The government aims to mobilise Rs 16,000 crore through the issuance of green bonds in the current fiscal ending March 2023.

Finance Minister Nirmala Sithraman on Wednesday said the framework will strengthen India's commitment towards the Nationally Determined Contribution (NDC) targets adopted under the Paris Agreement as well as help attract global and domestic investments into eligible green projects.

According to the framework announced by the finance ministry, the eligible expenditures will be limited to government expenditures that occurred maximum 12 months prior to issuance of the green bonds. It will be endeavoured that all the proceeds get allocated to projects within 24 months following the issuance.

The proceeds from the green bonds issuance cannot be used for extraction, production and distribution of fossil fuels or where the core energy source is fossil-fuel based, and nuclear power projects, an official statement said.

All eligible green expenditures will include public expenditure undertaken by the government in the form of investment, subsidies, grant-in-aids, 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 in reducing the carbon intensity of the economy and enable country to meet its Sustainable Development Goals (SDGs) are also included in the framework.

The rupee-denominated green bonds will have a long tenure to suit the requirement of green infrastructure projects.

In her 2022-23 Budget speech in February this year, Sitharaman had announced that sovereign green bonds will be issued for mobilising resources for green projects. Prior to that, Prime Minister Narendra Modi in November 2021 had announced India's commitments under 'Panchamrit' to reduce carbon emissions.

The framework applies to all sovereign green bonds issued by the government. Investors in the bonds issued under the framework do not bear any project-related risks.

The proceeds from the green bonds issuance will be deposited in the Consolidated Fund of India (CFI) in line with the regular treasury policy, and then funds from the CFI will be made available for the eligible green projects.

The framework sets forth the obligations of the Government of India as a green bond issuer, the statement said.

Green bonds are financial instruments that generate proceeds for investment in environmentally sustainable and climate-suitable projects. By virtue of their indication towards environmental sustainability, green bonds command a relatively lower cost of capital vis- -vis regular bonds and necessitates credibility and commitments associated with the process of raising bonds, as per the statement.

According to the framework, a 'green project' would include those encouraging energy efficiency in resource utilisation, carbon emissions reduction and promoting climate resilience.

A wide range of government expenditures intended to support the achievement of India's emissions intensity target, with the largest amounts expected to go to programmes and investments within renewable energy, climate change adaptation, clean transportation, biodiversity and nature conservation, as well as within pollution prevention and control are covered under the framework.