IASbaba’s Daily Current Affairs – 1st August, 2016
TOPIC: General Studies 3:
Green Bonds and issues related to it
Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment (especially in Environment and Renewable energy sector).
Environment and Ecology, Bio diversity – Conservation, environmental degradation, environmental impact assessment, Environment versus Development
Issues relating to renewable energy technology and developing new technology.
Green Bonds can give a fillip to India’s renewable energy goals
What is Green Bond?
A bond is a debt instrument with which an entity raises money from investors. The bond issuer gets capital while the investors receive fixed income in the form of interest. When the bond matures, the money is repaid.
A green bond is very similar. The only difference is that the issuer of a green bond publicly states that capital is being raised to fund ‘green’ projects, which typically include those relating to renewable energy, emission reductions and so on.
Therefore, a green bond is a fixed income instrument for the purpose of raising debt capital through markets. It certifies that the proceeds will be used exclusively for specific “green” purposes.
What are its benefits?
Green bonds enhances an issuer’s reputation, as it helps in showcasing their commitment towards sustainable development.
It also provides issuers access to specific set of global investors who invest only in green ventures.
With an increasing focus of foreign investors towards green investments, it could also help in reducing the cost of capital.
What are the avenues where these funds can be invested?
SEBI’s indicative list includes renewable and sustainable energy such as wind and solar, clean transportation, sustainable water management, climate change adaptation, energy efficiency, sustainable waste management and land use and biodiversity conservation.
Why are green bonds important for India?
India has embarked on an ambitious target of building 175 gigawatt of renewable energy capacity by 2022, from just over 30 gigawatt now.
100GW — is expected to come from solar energy
60GW — from wind energy sources
10GW — from bio-energy
Unfortunately, renewable energy is more capital-intensive than coal, and financing this push will require $160 billion of capital, $120 billion as debt, and $40billion as equity.
In simple words, this requires a massive $200 billion in funding. This isn’t easy.
Currently, most renewable projects are financed by bank commercial loans at 11-12 per cent interest per annum.
However, the Indian banking sector is currently going through a balance sheet adjustment; banks are unlikely to be able to expand their balance sheets to be able to finance the additional requirements of the renewable sector.
As reports suggest, higher interest rates and unattractive terms under which debt is available in India raise the cost of renewable energy by 24-32 per cent compared to the U.S. and Europe.
“India has big goals in terms of renewable energy installations, but a big hurdle has been financing and the cost of financing”
Green bonds may be able to fill this gap.
Still, why are green bonds an attractive option?
Green bonds typically carry a lower interest rate than the loans offered by the commercial banks. Hence, when compared to other forms of debt, green bonds offer better returns for an independent power producers.
As these bonds are meant for specific investors looking to invest in renewable energy projects, pricing could be attractive.
Green bonds can provide a long-term source of debt capital for renewable infrastructure projects.
Why should an investor get excited with lower interest?
Because, it inherently carries lower risk than other bonds.
In case of a green bond, “proceeds are raised for specific green projects, but repayment is tied to the issuer, not the success of the projects.”
This means the risk of the project not performing stays with the issuer rather than investor.
What are the risks and challenges?
Certifying a green bond:
The Green Bond Principles are voluntary guidelines issued by the International Capital Market Association which states the procedure for certifying a green bond.
These encompass the use of proceeds, the evaluation procedure, the management of proceeds, and financial reporting.
Globally, there have been serious debates about whether the projects targeted by green bond issuers are green enough. There have been controversies too.
For instance, Reuters a few months back reported how activists were claiming that the proceeds of the French utility GDF Suez’s $3.4 billion green bond issue were being used to fund a dam project that hurts the Amazon rainforest in Brazil.
Therefore, these guidelines issued by the International Capital Market Association are lacking in specifics, leading to a lack of consensus on what classifies as a green bond.
There could also be a currency risk:
From an Indian perspective, a challenge of making investors subscribe could be the tenor and rating of green bonds.
The downside is that green bonds in India have a shorter tenor period of about 10 years in India whereas a typical loan would be for minimum 13 years. This is less when compared to many international issuances.
Many target buyers of Indian green bonds may not invest in any bonds that are rated lower than the AAA-.
The way ahead: Developing a green bond market
Green bonds have been around for a decade but regulation and investment in them is still minuscule compared to the total market for debt mainly on account of lack of green bond standards, low credit rating of potential issuers, and higher cost of issuance.
Fossil fuels have always enjoyed huge subsidies throughout their history (namely, subsidised diesel, kerosene and gas) and have contributed to environmental degradation and global warming, it is now apt that clean energy initiatives get equitable treatment.
The government essentially needs to increase the funds available for investment in green projects, by providing for specific tax incentives and development of long-term finance markets in general.
Some of the key actionable steps would be
changing Insurance Regulatory and Development Authority norms for size of investment for insurance companies,
creating mandates for provident funds to invest in infrastructure and environmentally sustainable projects,
increasing the priority sector lending limit for bank loans under solar energy from a meagre Rs.15 crore,
standardising the definition of green to be able to target government efforts in the direction, and
mobilising retail savings by way of tax exemption on the lines of Section 80CCF.
For the green bond market to have long-term credibility, investors and governments would need evidence that the projects funded have in fact delivered the intended environmental benefits.
The Indian government can lead the global push towards green by taking three steps to reduce our races’ carbon footprint: standardise “green” bonds as a way to finance environmentally sustainable projects, provide incentives to investing in projects funded by a carbon tax on polluting sources of energy and, finally, increase funds channelled towards investing in environmentally sustainable projects.
Connecting the dots:
What are green bonds? Examine how Green Bonds can give a fillip to India’s renewable energy goals.
General Studies 2
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
General studies 3
Security challenges; Science and Technology – developments and their applications and effects in everyday life
Too cagey about sharing geospatial data
The draft of the Geospatial Information Regulation Bill 2016 was released recently
It makes mandatory to take permission from a government authority before acquiring, disseminating and publishing or distributing any geospatial information of India.
Geospatial information is data referenced to a place—a set of geographic coordinates—which can often be gathered, manipulated, and displayed in real time.
It includes geospatial imagery or data acquired through space or aerial platforms such as satellite, aircrafts, airships, balloons, unmanned aerial vehicles, digital or graphic data depicting natural or man-made physical features, phenomenon or boundaries of the earth.
Why: The objectives were aimed to protect the sovereignty, integrity and security of India. However, its provisions are extremely wide in their scope and ambit.
Practice till now:
The Survey of India (SoI) and the National Atlas and Thematic Mapping Organisation (Natmo) under the department of science and technology are the two government mapping agencies.
In the 20th century, the SoI topographical maps were the only source of geospatial information for those conducting research in both geography, geomorphology and other spatial and earth sciences.
Even now, they are very important to all the academic fraternity concerned with the earth, bio and social sciences and are included in the curricula of the plustwo level, colleges and universities.
The Natmo mainly produces thematic maps used by ordinary, non-specialised people and usually have a lesser degree of accuracy
A general oversight
It infringes upon Constitutional rights, harms innovation, undermines the national initiatives of Digital India and Startup India, is completely impractical and unworkable
There are already laws in place that prevent the use of geospatial information which undermine national security.
For instance, the Official Secrets Act, 1923 (“OSA”) already contains provisions which prevent a person from creating maps that undermine national security and would penalise their doing so.
The National Mapping Policy, 2005, already puts in place restrictions on wrongful depictions of India’s international boundaries
The development aspect seems to be missing and more focus in on penalisation and obstructing genuine growth.
The draft bill mandates that any person submitting an application for geospatial information to be vetted must pay a fee. This will impose an immense burden on all users of digital devices in and outside of India.
The draft conflicts with the Information Technology Act, 2000, because both deal with not just physical but also digital data.
The government’s ability to make informed decisions and also partner with public and other organisations during times of crisis has not been thought of.
Non Resident Indians lose
Contribution of Indian students in US is huge, especially those who work get PhDs and work as scientists.
They won’t be able to get access to high quality data as the bill restricts the use of geospatial data in any form
The Bill says, “no person shall disseminate or allow visualisation of any geospatial information of India either through internet platforms or online services, or publish or distribute any geospatial information of India in any electronic or physical form”
Even Indians living abroad shall face the restrictions
“Use of Geospatial Information of India outside India… no person shall, in any manner, make use of, disseminate, publish or distribute any geospatial information of India, outside India, without prior permission from the Security Vetting.”
Virtual creation of Licence Raj
It creates a licensing raj under which even harmless acts such as taking photographs from an aeroplane would be criminalised, as well as the possibility that the use of maps by the media would become punishable.
Under this law, Google Maps will be illegal without a licence.
It means that all mobile or e-commerce applications working on Google Maps will also become illegal.
The licence will also only be applicable to the concerned person.
So if a taxi aggregator like Ola or Uber will have to get a separate licence over and above what Google Map has.
Doom for industry
The current draft has erupted a string of controversies and discussions around its impact on big companies such as Google and Apple, businesses such as Ola and Uber, and for consumers using certain apps.
The bill negatively impacts the growth of e-commerce and m-commerce in India which require to gather location information to deliver their services.
It would push up the costs of acquiring such basic information and also make media liable for heavy fines and imprisonment in case of even an oversight.
The draft also does not mention any relaxations or exemptions for media or other groups from mandatory licensing, or the provision of free-to-use templates by the government, like court judgments, which the media can easily access without fearing grave repercussions.
Access to Geospatial information is valuable
Let’s take example of health
The implementation of this Bill implies that any scientist based outside India, implementing health intervention in Bihar and UP, will not be able to publish a map in journal. WHY?
It would give the international readers a context of the study location!
The Geospatial information can be extremely useful in disease surveillance, detecting existing and forming patterns, and predicting outbreaks of certain types.
This will enable in making informed and precise decisions.
Track by hospitals
The public and private hospitals can run a surveillance system on their patients.
It can identify where they come from and also the population that might be at risk in that location
Mobil health can be encouraged as it can use the location information to track health indicators such as breast cancer screening or cervical cancer screening, number of antenatal care visits made by women, and patient outcomes.
Use of geospatial information
Several international governments have taken the Open Government Data initiative under which several governments have made all datasets in the public domain available on a single portal.
They are available across several sectors like health, education, transportation and energy etc.
The formats used can be helpful in analysing the geospatial and non-geospatial information.
The aim is: consumers, policy makers, researchers can use the data to formulate their study and plans and make use of the information for day-to-day working
The geospatial and non-geospatial datasets on the Open Data portal are parted.
US:large data like precipitation data, health facilities locations, parks, earthquakes, elections are used for making data-driven decisions.
Kenya: it has large number of open portals which displays their health distribution facilities and related infrastructure. It can be downloaded for making geospatial analysis too
Singapore: its open data portals display the dengue clusters and related maps to identify the risk population and areas of risk during monsoons
It also shows locations of blood banks, parks and clinics with community health assistants.
Humanitarian Open Data Exchange portal
Launched in 2014
Aim: to increase the availability of data to be used for analysis
Facts: has over 4,000 datasets from different countries. More than 300 are in geospatial format
The geospatial data range from administrative boundaries of different tiers for countries, roads, railways, population settlements, rivers, health facilities, and food aid and related maps, among others.
A geospatial format is a standard of encoding geographical information into a computer file.
Helpful in crisis
Humanitarian Open Street Network (HOTOSM) work to create free and up-to-date maps for relief organisations in times of disaster or crisis.
For example, during Nepal earthquake in 2015 or Ecuador earthquake in 2016 or Sri Lanka floods, HOTOSM works with a huge network of volunteers that devotes time to create digital maps to help relief organisations and governments direct resources.
A novel partnership: a public-public partnership — under which governments and public agencies work together to respond to crises.
A survey in Bangladesh revealed that there were several barriers to limit the use of geospatial information, even for public health decision-making
The barriers are
Lack of inter-institutional collaboration among different government entities,
Lack of availability of skilled personnel
Lack of awareness on the use of geographic information systems
India- has to be a developer and not an obstructer
It is a resource constrained nation
The enormous population lacks access to basic government services
If the use of geospatial information is limited in making policy decisions, India would suffer due to its ill-informed and irrational policies.
India will have to strike a balance between the protection of its national interest and ensuring that the data gets used for the propagation of e-commerce and m-commerce
Bhuvan, the software application developed by ISRO that provides access to users to 2D and 3D representations of the surface of Earth has to be made popular with students, scholars and teachers.
In today’s geopolitics based on security and territorial concerns, these are issues to be resolved only at the international, transnational level, not via any Bill.
Connecting the dots
The proposed draft of the geospatial bill is regressive in nature when India wants to implement ‘Digital India’. Critically analyse