Green bonds should catalyse public transport

In recent years, there has been a large increase in the issuance of green bonds. A lion’s share of the resources mobilised, under the Green Bond Principles, has been by corporations in advanced countries. According to Climate Bonds Initiative, between 2014 and 2022, the issuance has increased from less than $50 billion to approximately $600 billion. According to OECD sources, about 97 per cent of the estimated $1.7 trillion in total sustainable funds are held in high income countries.

In the light of the large support for the bonds based on sustainability principles, there has been a large demand for green bonds worldwide. Multilateral development banks like the European Investment Bank have been one of the earliest in mobilising funds under the Green Bond Principles. Last year, however, the extent of such issuance by China was next only to that of the US. In India, the government issued, in January 2023, the first ever sovereign green bonds and successfully mobilised around $1 billion.

In the light of the financing problems confronted by State road transport corporations, and given the role played by mass road transport towards reduction of carbon emissions, it is important for developing countries to explore this route in mobilising resources. Other than the Bangalore, Karnataka and Maharashtra road transport corporations, none of the public transport corporations is generating any profits.

The recent developments in the Kerala State Road Transport Corporation, for instance, reveal that unless there is continual modernisation, the survival of these corporations would be under question. Caught under the triple pressures of debt servicing, escalating fuel expenses and rising operational costs, the road corporations are forced to be at the mercy of the State governments for the payment of wages and pensions.

And, these corporations are viewed as a big drain on resources. Is that so? Aren’t they worth being modernised when one of the top concerns of the world in the context of the growing climate change has been the reduction of carbon emissions, which in a populous country like ours is best done through the promotion of public transport. Our carbon footprint is low, thanks to the service provided by these transport corporations over the decades. Though it would be impossible to think of an economy free of fossil fuels, it would be best to explore options where the fossil fuels are used efficiently through incentives for public transport.

As per the government’s ‘Report on Indian Urban Infrastructure and Service’, there is a huge deficit with respect to the provision of urban public transport. The estimates of the committee suggest the requirement of capital investment in urban transport of ₹4.5-lakh crore for the period till 2031. The transport corporations are in need of resources and the States should underwrite and guarantee issuance of green bonds on their behalf towards facilitating their modernisation, this would contribute towards reducing greenhouse gas emissions.

In India, the guidelines relating to Green Bond Principles have been issued by the SEBI. Among the priority areas suggested include sustainable energy, mass public transportation and sustainable water management. With the demand for ESG bonds being high, developing country sovereigns should be ready to guarantee modernisation efforts of transport corporations by the issuance of bonds with respect to procurement of vehicles for these corporations which could be fuel efficient as well as energy saving.

Lesson from abroad

It is important in this regard to take some lessons in public policy from Singapore and China. The urban transportation policy of Singapore, which promotes public rather than private transport, has to be given serious thought by a populous country like ours.

The high tax on private vehicles makes it extremely costly for private individuals to own a vehicle. A study by Singapore Management University draws attention to how effectively motor vehicle taxes could be used as a tool of environmental sustainability. India should be incentivising use of public transport to such an extent that the production by the automobile industry shifts in favour of mass road transport vehicles.

In the area of climate mitigation and adaptation, other than the advanced economies, China has been in the forefront.

One of the most important avenues in which the bonds have been issued in China has been the field of urban transportation. Unlike emerging economies including India, where green bond issuance has been largely in dollars and euros, China has also been able to mobilise funds in renminbi. This would also help in reducing the exchange rate risks associated with such borrowing.

And most importantly, green projects are dovetailed by the Chinese government through its Five Year Plan. Given the higher annual carbon emissions per capita of China at present in comparison to upper middle-income countries, the Ministry of Industry and Information Technology in China reiterates in a recent document about the importance of lowering carbon emission by 18 per cent and energy intensity by 13.5 per cent over the 14th Plan Period (2021-25). As tracking different variables relating to sustainable development gains importance, India should be focussing more on transport planning.

The writer teaches economics at Sri Venkateswara College, University of Delhi

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