Govt may junk green bonds if 'greeniums' don’t improve in 2-3 years

Out of the Rs 8 lakh crore, the Centre will borrow from the bond market during April-September of the current financial year, Rs 10,000 crore will be raised through sovereign green bonds.

The Centre is toying with the idea of discontinuing sovereign green bonds (SGBs) if the plan fails to fetch better "greenium" over the next two to three years, a government official has said.

The government may turn to its borrowing programme to fund such projects.

“The cost of designing SGBs is more costly compared to the premiums on the yields, which are too low to justify that expenditure, therefore there is a thinking that green bonds are an expensive instrument to raise funds,” the official told Moneycontrol on condition of anonymity.

The thinking around discontinuing SGBs is strengthened by the fact that the government is getting only 2-3 basis points in greeniums.

Greenium refers to the premium that the issuer receives on green bond issuances. Investors are willing to accept lower yields on green bonds due to the sustainable nature of the projects financed by the proceeds of the bond sales.

Recently, the government decided to stop issuing sovereign gold bonds (SGBs), citing high borrowing costs.

Green bonds are a part of the government’s overall borrowings through dated securities, which is pegged at Rs 14.82 lakh crore for FY26.

Out of the Rs 8 lakh crore scheduled to be raised from the market in the first half of the fiscal, the Centre will raise Rs 10,000 crore through sovereign green bonds.

This is significantly lower than the Rs 20,000 crore it planned to borrow in the second half of FY24 via SGBs and Rs 12,000 in the first half of 2024-25.

Given the lukewarm response to green bonds, the government prefers going the usual route of borrowing for NDC (Nationally Determined Contributions) for which it has to continue mobilising funds.

NDCs are at the core of the Paris climate agreement and refer to the efforts by a country to reduce national emissions and adapt to the impact of climate change.

As part of the agreement, countries have to pursue domestic mitigation measures to achieve the objectives of such contributions.

Sovereign green bonds were announced in the Budget for the financial year 2022-23 to significantly reduce the Indian economy's carbon intensity.

These instruments are expected to help the government tap finances from potential investors for deployment in public sector projects with sustainable goals.

Chief economic Adviser V Anantha Nageswaran in July 2024 had pointed out the issue of low "greenium".

"Despite securing a good rating on its green bond framework, Indian sovereign green bonds have hardly received any ‘greenium’ from private investors. It is more a ‘wall of capital’ than a ‘flood of capital’ that is waiting to fund energy transition in Emerging Markets and Developing Economies (EMDEs). It just isn’t mobile,” the Economic Survey for 2023-24 said.