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Sovereign green bond framework excludes large hydro projects

10 Nov , 2022   By : Monika Singh

Sovereign green bond framework excludes large hydro projects

The government’s maiden green bond issuance will focus on financing public projects across nine areas, including renewable energy, clean transportation, climate change, sustainable water and waste management and pollution control, according to a framework approved by finance minister Nirmala Sitharaman.

The funds raised through the green bonds, however, won’t be used to finance hydropower plants that are larger than 25 MW, nuclear projects and any biomass-based power generation with biomass originating from protected areas. The Centre aims to raise Rs 16,000 crore from the domestic debt market through the green bonds in the second half of FY23.

The framework released on Wednesday has been termed “medium green” by CICERO, the leading global independent reviewer of green bond investment architecture. This is the best shade, after “dark green”, assigned by CICERO for a green bond that aligns with a low-carbon climate resilient future, said a finance ministry official.

Sitharaman said the framework will bolster India’s pledge towards the nationally determined contribution targets adopted under the Paris Agreement, and help draw global and domestic investments into stipulated environmental projects.

A green finance working committee, headed by the chief economic adviser V Anantha Nageswaran, will select public sector projects for financing from the proposals submitted by various government departments. The panel aims to meet at least twice a year to select the projects and ensure that funds are allocated within two years from the issuance of the bonds.

Spending that will qualify for the green financing includes government expenditure in the form of investment, subsidies, grant-in-aids, or tax foregone or select operational spending and R&D expenditures in public-sector projects for reducing the carbon intensity of the economy. Investment in equity, by using the green bond proceeds, is allowed only in case of metro projects.

An annual report on the allocation of proceeds, along with details of the projects, will be brought out. An analysis of the impact of projects in respect of carbon intensity reduction will also be unveiled.

Although expenditures directly related to fossil fuel won’t qualify for green financing, investment or spending aimed at a relatively cleaner Compressed Natural Gas (CNG) is allowed if it’s used in public transportation projects only. “Subsidy/incentive for private transportation using CNG is neither envisaged nor included,” the framework said.

The government spending that occurred maximum 12 months prior to the issuance of bonds will be considered for funding. However, any expenditure that is already financed and/or refinanced by dedicated source or other government agency “will be excluded to ensure suitable oversight and avoid double-counting”.

Introducing the Budget for FY23, Sitharaman announced the launch of such bonds “for mobilizing resources for green infrastructure”. The proceeds would be deployed in public-sector projects that will “help in reducing the carbon intensity of the economy”, she said.

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