 "Anantha Nageswaran")
Private capital is not fully prepared to embrace the risks and opportunities associated with funding the energy transition, according to Chief Economic Advisor (CEA) V Anantha Nageswaran.
During his address at the Raisina Dialogue 2024 organised by the Observer Research Foundation on Thursday, Nageswaran mentioned that explicit costs for further derisking by multilateral agencies or sovereigns may have to be factored in.
While urging multilateral development banks to act on the recommendations of the independent expert group under India’s Group of Twenty (G20) presidency to mobilise private capital, the CEA added, “There is a lot of talk about funding energy transitions and climate change requirements. But, in truth, much of the talk remains just that.”
Nageswaran said that the discount on the yield of sovereign green bonds issued by India is barely 1-2 basis points (bps).
“For all the effort and cost that goes into identifying projects that satisfy the criteria for green bonds and getting the rating, all of these efforts have translated into 1-2 bps,” he said.
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The CEA emphasised that, more than financial resources, the need of the moment is for financiers and developed countries to go back to the Paris Agreement and remember that it is about common but differentiated responsibilities.
He also highlighted the need to accept that there are economic trade-offs in terms of energy transition versus securing energy availability for our countries.
Nageswaran also pointed out that attracting private capital and getting actual money is difficult, primarily because technology has remained unproven on scale, and dependence on one or a few countries for resources is also a challenge.
Stressing the need for blended finance from multilateral institutions and developed countries, Nageswaran said, “With all countries marching in lockstep on net zero is also a challenge as this problem gets compounded. Paradoxically, the availability of private resources is even more difficult.
He said that a mechanism to decide who would bear the foreign exchange risk has not yet been evolved.
“Many of these questions of details have not been sorted out. When you begin to cost for these things, some of the complaints about fossil fuels apply to alternatives as well.”
Nageswaran mentioned that renewable energy projects, for instance, require so much land compared to other alternatives.
“In a country like ours, which has the highest population density per square kilometre among G20 countries, such as India, the cost-benefit trade-off indeed changes,” the CEA said.
He said the best way to attract capital or lower the risk premium is to be fully transparent about the trade-offs involved.
“Only when the information is complete between the lenders and borrowers and the true economic cost is recognised will the money keep flowing.”
The CEA also said that small and medium enterprises will have to be given more time to adapt first before being called upon to shoulder responsibilities with respect to emissions.
