Climate finance, carbon markets and carbon pricing

Prelims and Mains

The European Union's Carbon Border Adjustment Mechanism (CBAM) entered its definitive phase in January 2026, and it is not the climate logic of it that developing exporters object to.

• It covers iron and steel, aluminium, cement, fertilisers, electricity and hydrogen.
• Iron and steel are about 90 per cent of India's exports to the European Union that the mechanism covers.
• The objection is to who wrote the rule and who pays, not to whether carbon should carry a price at all.

Prelims and Mains

A government that borrows for a solar park rather than for anything else is selling a sovereign green bond, and the only way to tell whether investors value the promise is to watch what they will pay for it.

• Price and yield move inversely, so heavy demand for a bond lowers the yield the issuer has to pay on it.
• The greenium is that discount measured against a comparable conventional bond of the same issuer and tenure.
• India has issued these bonds since 2022-23, and about ₹877 billion, or $9.2 billion, is outstanding.
• The 30-year bond of August 2026 drew a greenium of four basis points, the highest average since issuance began.
• The discount has held steady across issues rather than fading, which is the unusual part.
• Insurers drive the demand in India, because green bonds count towards their infrastructure investments.
• The government reads a standing discount as a demand signal rather than as a saving, because a few basis points on one issue is small money.

Prelims and Mains

A green label is worth asking for because it lowers the cost of capital, and nothing needs that more than a plant that takes a decade to build and longer to pay back.

• Private nuclear developers asked the National Institution for Transforming India (NITI Aayog) for green energy status, so that nuclear projects could raise money through green instruments.
• The World Bank and the Asian Development Bank are reviewing their own limits on nuclear investment, and their rules on what they will not fund are copied by others.
• The Central Electricity Authority flagged rules still pending under the SHANTI Act, long gestation and scarce manpower.
• Widening the label raises money for more projects and weakens what the label tells an investor, and those two move against each other.
• Where an activity does not fit, the usual middle path is to call it low carbon or to fund it as transition finance, under conditions.