Page 347 - Low Carbon Development in China and India
P. 347
Low carbon development (LCD) provides a solution in the larger debate
of economic growth vis-a-vis environmental conservation. The path
to LCD holds several advantages including achieving energy security
as well maintaining sound state of the environment. But transition to
low carbon space would require significant flow of finance. The fund
flow in this space gets impeded due to a number of factors, including
inadequate policy environment, unfamiliarity with risks associated
with low carbon initiatives, and longer payback periods of low carbon
projects. Despite the barriers, transition is gaining momentum in India,
which is evident in the increased investments in low carbon space,
particularly renewable energy sector, and initiatives such as levy of
coal cess, trading of renewable energy certificates, and changes in the
structure of devolution of funds to states.
It is generally understood that projects in low carbon space possess
higher risks because of their longer payback periods, high initial capital
outlay, and lack of familiarity of lenders with this concept. Financial
constraints, inadequate policy provisions, and system complexity
often does not allow funds to flow as freely in low carbon projects as
it would have flown for their conventional alternatives. Banks, micro-
finance institutions, and non-banking financial companies (NBFCs)
require risk offsets to invest in low carbon development projects. In
this light, funds created to cover for such risks, such as the Partial
Risk Guarantee Fund and the Partial Risk Sharing Facility, should be
further strengthened to boost investment for low carbon growth.
Inclusion of renewable energy as one of the priority sectors by the
Reserve Bank of India (RBI) is a welcome move which could encourage
renewable energy industry. However, there is a need for concerted
effort to spread awareness regarding this banking provision among
stakeholders, especially project developers and investors. Also, low
carbon interventions in sectors other than renewable energy, such as
buildings, transport, agriculture, industry, waste, and forestry should
also be given due consideration under RBI norms. For many low carbon
technologies, there is a need to better study and research to discern
their long-term viability before launching them on a large scale. For
instance, carbon capture and storage needs a careful contemplation to
determine its cost-competitiveness and safety in longer time horizon.
Some other such technologies require more research & development
and adequate incentives for their commercialization, e.g., promoting
the use of hybrid vehicles requires more effort in terms of technology,
geographical suitability, and infrastructure for charging needs of
the cars.
312 Low Carbon Development in China and India
of economic growth vis-a-vis environmental conservation. The path
to LCD holds several advantages including achieving energy security
as well maintaining sound state of the environment. But transition to
low carbon space would require significant flow of finance. The fund
flow in this space gets impeded due to a number of factors, including
inadequate policy environment, unfamiliarity with risks associated
with low carbon initiatives, and longer payback periods of low carbon
projects. Despite the barriers, transition is gaining momentum in India,
which is evident in the increased investments in low carbon space,
particularly renewable energy sector, and initiatives such as levy of
coal cess, trading of renewable energy certificates, and changes in the
structure of devolution of funds to states.
It is generally understood that projects in low carbon space possess
higher risks because of their longer payback periods, high initial capital
outlay, and lack of familiarity of lenders with this concept. Financial
constraints, inadequate policy provisions, and system complexity
often does not allow funds to flow as freely in low carbon projects as
it would have flown for their conventional alternatives. Banks, micro-
finance institutions, and non-banking financial companies (NBFCs)
require risk offsets to invest in low carbon development projects. In
this light, funds created to cover for such risks, such as the Partial
Risk Guarantee Fund and the Partial Risk Sharing Facility, should be
further strengthened to boost investment for low carbon growth.
Inclusion of renewable energy as one of the priority sectors by the
Reserve Bank of India (RBI) is a welcome move which could encourage
renewable energy industry. However, there is a need for concerted
effort to spread awareness regarding this banking provision among
stakeholders, especially project developers and investors. Also, low
carbon interventions in sectors other than renewable energy, such as
buildings, transport, agriculture, industry, waste, and forestry should
also be given due consideration under RBI norms. For many low carbon
technologies, there is a need to better study and research to discern
their long-term viability before launching them on a large scale. For
instance, carbon capture and storage needs a careful contemplation to
determine its cost-competitiveness and safety in longer time horizon.
Some other such technologies require more research & development
and adequate incentives for their commercialization, e.g., promoting
the use of hybrid vehicles requires more effort in terms of technology,
geographical suitability, and infrastructure for charging needs of
the cars.
312 Low Carbon Development in China and India
