Sovereign Green Bonds

Syllabus: General Studies Paper 3

The government gave nod to the final sovereign green bonds framework in line with the Budget announcement. 

The issuance of green bonds, which are intended to raise funds for public sector projects to help in reducing carbon intensity of the economy.

Green Bonds

• Green bonds are issued by companies, countries and multilateral organisations to exclusively fund projects that have positive environmental or climate benefits and provide investors with fixed income payments.
• The projects can include renewable energy, clean transportation and green buildings, among others.

Projects under Green Bonds

• The proceeds from the green bonds, which are a part of the scheduled borrowing plan of the governmentwould be used to fund

• Renewable energy, 

• Energy efficiency, 
• Clean transportation, 
• Water and waste management, 
• Pollution prevention and control and 
• Green buildings among others. 

Projects excluded from the framework.

• Nuclear power generation, 
• Landfill projects, 
• Alcohol/weapons/tobacco/gaming/palm oil industries 
• Hydropower plants larger than 25 MW 
• All eligible ‘green expenditures’ will include public expenditure by the government in the form of investment, subsidies, grant-in-aids, or tax foregone or select operational expenditures, R&D expenditures in public sector projects that help in reducing the carbon intensity of the economy. 
• Equity is allowed only in the sole case of metro projects under the ‘Clean Transportation’ category.

Sovereign Green Bonds Framework

• Aim: To mobilize Rs 16,000 crore through the issuance of green bonds in the current fiscal ending March 2023.
• Under the framework, the Finance Ministry will, every year, inform the RBI about spending on green projects for which the funds raised through these bonds will be used.
• The Ministry of Finance has constituted a Green Finance Working Committee (GFWC) including members from relevant line ministries and chaired by the Chief Economic Advisor.
• Eligible Sectors: The proceeds from the green bonds would be used to fund renewable energy, energy efficiency, clean transportation, water and waste management, pollution prevention and control and green buildings among others. 
• Excluded sectors: Nuclear power generation, landfill projects, alcohol/weapons/tobacco/gaming/palm oil industries and hydropower plants larger than 25 MW have been excluded from the framework.
• The proceeds from the issuance of the green bond 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.