Green investments are traditional investments in the form of stocks, exchange-traded funds and mutual funds, in which the underlying businesses are involved in operations aimed at improving the environment. This can range from companies that are developing alternative energy technology to companies that have the best environmental practices.
Globally ‘cleantech’ or ‘green’ investment is expected to exceed $226 billion by 2016 and present a global market of about $1.5 trillion between now and 2030, dwarfing the information technology and high tech booms. Measures to protect the environment can thus yield significant economic benefits as well as ecological gains.
The Green Investment Congress India held in Mumbai in March 2011 revealed that India is the fifth largest consumer of energy and its sixth largest producer. However India’s grid losses at 25% are among the highest in the world. 16% of its villages remain without electricity, 12% of its people do not have access to clean drinking water and only 5% of its approximately 4 lakh tons of e-waste is disposed of. Within the next seven years the power sector alone would need an investment of over $ 600 billion to enhace power generation and modernise transmission and distribution.
Keeping its commitment to promote renerwable energy, Government of India has announced a loan of Rs. 1,500 crores over the next two years to banks and financial companies to finance solar energy projects at a modest 5% interest. Centrothem Photovoltacs, one of the world’s leading providers of technology for the photovoltaics sector has recently launced its Indian subsidiary as it feels that the solar energy market, currently at 800 MW will increase by 50% – 100% by 2012. Kai Voght, the director of the company also feels that after the Japan crisis there is a rethinking over the world and many countries plan to have 20% – 25% of their energy from renewable energy.
It is now an established fact that environmental goods and services, if backed by Government and private financing have the potential of creating sizeable jobs in the following areas:
- assisting low carbon, green innovations
- developing green infrastructure
- stimulation of supply chains in green markets
Green Investment Bank Summit held in November 2010 urged governments around the world to create a Green Investment Bank (GIB) to encourage the necessary level of investment in green infrastructure.
It was generally agreed that such an institution will be able to tackle risks inherent in financing green infrastructure that the market cannot currently accommodate. Whilst reducing risk in order to mobilize additional capital in the market, the institution will also seek to make a return of investment and to reinvest the proceeds into further green infrastructure financing.
The World Development Movement has suggested that ‘green standards’ need to be at the core of all investments promoted by the Green Investment Bank which will clearly drive investment to the leading edge of low carbon energy. Others have suggested linking the Bank’s remittance to the Climate Change Act.
Green Investment Banks could provide direct investment in projects, alongside other investors or on its own in the form of equity or loans. Many argue that equity investment rather than loans are a better form of investment as this will provide a significant confidence boost as other investors could see that the Government had a direct stake in the success of projects part-owned by the Bank, and thus could be better relied upon to ensure the policy environment was stable. The Bank could also offer de-risking products such as insurance to help tackle some areas of investment risk and get private investors to finance.
Green bonds are a high potential source of capital for Green Investment Banks. The World Bank has sold around $1.5 billion green bonds in the past couple of years showing that clearly there is an appetite among investors.
As global consensus builds in favour of low carbon and energy efficient economies, India too is taking the much needed steps in this direction.The Indian government is planning to set up a Green Investment Bank to support renewable energy-based power plants.
In February, 2011, the Central Government announced a $1 per ton tax on coal mined domestically or imported into the country, which will amount to an estimated 5,000 crore (about $1.1 billion) the fiscal year 2011 -2012. This fund is to be used for providing financial incentives to project developers who wish to set up power plants based on renewable energy. Currently the financial support for the renewable energy power plants is provided by the Indian Renewable Energy Development Agency (IREDA) which has access to tax-free bonds worth $55 million and loans from banks through direct collaborations.
The State of Gujarat has recently imposed a cess of 2% per unit of power generated, which will provide the State exchequer with Rs. 244 crore. The green fund will help set up solar, wind, bio, geo-thermal tidal and hydel energy, all of which are non conventional sources of energy. Gujarat is the second state, after Orissa, to levy a green cess on electricity generated through conventional sources like coal and gas and is using the fund for promoting environmentally clean infrastructure.
High growth rates can cause environmental degradation – decline in quality and quantity of natural resources and increase in pollution loads. The cost of environmental degradation was estimated at 4 per cent of the GDP for India in the mid 1990s. Clearly sound environmental policies which aim at reversing this trend is the need of the hour.
John Kovel writes that, ‘the world teems with brilliant innovations that deserve application as ways of checking the ecological crisis”. It is these innovations that need promoting through ‘green’ finance and investments.
