Expressing disappointment that India’s sovereign green bonds could attract discount of just one to two basis point in yields compared to traditional bonds, Chief Economic Adviser V. Anantha Nageswaran on Thursday said much of the hype of getting private capital for climate finance remains confined to ‘talks’ only.
The cut-off yield on the green bonds — 5-year and 10-year papers — was 2 to 4 bps lower than traditional G-Secs of comparable maturity in the second tranche of Rs 8,000 crore on February 9, 2023. The government was not happy with the outcome as it wanted a higher ‘greenium’ or cost advantage to the issuer compared to conventional government bonds.
An amount of Rs 20,000 crore will be raised via sovereign green bonds in 2023-24compared with Rs 16,000 crore through these bonds in 2022-23. Lower greenium has put question marks on value of the government efforts to mobilise low cost financing for green projects.
“For all the effort and the cost that goes into identify projects, getting ratings for the bonds, etc.. have translated to one to two basis points. In some sense, it is very clear that private capital isn’t fully ready to embrace both the risks and the opportunities associated with funding energy transition,” Nageswaran said at the Raisina Dialogue hosted by the Observer Research Foundation. The green bonds proceeds are used by India to fund solar power projects, small hydro projects and other public sector projects which help reduce the carbon intensity of the economy.
“Now if that requires further de-risking by the multilateral agencies or by sovereigns, then that is an explicit cost needs to be factored in, given the not-so-great fiscal situation of several other countries after the pandemic and the debt crisis,” he said.
In its report in July 2023, the independent expert group set up by the G20 Indian Presidency has estimated an additional spending requirement of $3 trillion per year by 2030 to address urgent global challenges and sustainable development goals. Of the $3 trillion annual requirement, $2 trillion could come from domestic resource mobilization while the remaining $1 trillion in additional external financing. Of the $1 trillion in external financing, more than half could come from private financing, and the rest from official financing including multilateral development banks.
“Financiers and developed countries need to go back to the Paris Agreement and remember that it is about common but differentiated responsibilities… we need to accept that there are economic trade offs in terms of doing energy transition versus securing energy availability for our country,” Nageswaran said.
When it comes to climate adaptation, attracting private capital becomes that much even more challenging. “We come to realize that getting actual money to flow is difficult except for very proven projects for two reasons..the technology still remained unproven on scale and the dependence for resources on one or few countries is also a challenge,” he said.
In fact, if all countries march lockstep towards net zero, this problem gets compounded, and might make the availability of private resources even more difficult, he added.