Cities and climate change: Mobilising investment in low-emission, climate-resilient urban infrastructure

This article is contributed by Jovin Hurry, who is reporting from Paris.

COP21

Urban areas account for over 70% of energy-related CO2 emissions and the world’s cities produce almost half (37-49%) of all global greenhouse gas emissions, according to the Intergovernmental Panel on Climate Change. Hence, climate action in cities is crucial to addressing the global climate threat.

In his article Five factors that make cities greener for Green Business Singapore, Mr Lothar Herrmann, President and CEO, Siemens Pte Ltd, Singapore, outlined how several cities have already made their infrastructure more efficient and implemented ambitious policies thereby improving their environmental performance.

The “Climate Summit for Local Leaders” last week in Paris City Hall – a historic convening of Local Leaders fighting climate change – revealed it no longer is enough to make a city green, it is about making it climate resilient above all.

Cities are on the front lines of climate impacts and urgently need to build resilience. More than 80% of the overall annual global costs of adaption to climate change are estimated to be borne by urban areas, according to the World Bank.

Unfortunately, cities face big obstacles in obtaining the financing they need, including uncertainty over regulatory and tax policies, lack of expertise in project development, lack of control over infrastructure planning, high transaction costs and lack of proven funding models at the city and regional level. Cities in developing countries in particular have difficulty obtaining commercial financing: of the 500 largest cities in emerging economies, only 4% are deemed creditworthy in international markets, according to the World Bank.

For a city hence to build climate-resilient urban infrastructure, it needs to identify ways to mobilize investment for this low-emission infrastructure.

“Major investment is urgently needed for climate action in cities,” said the UN Secretary-General in the summit.

The Cities Climate Finance Leadership Alliance (CCFLA) is a coalition of over 40 banks, national governments and civil society organizations launched by the UN Secretary-General. It’s aim is to accelerate investment in low-emission, climate resilient infrastructure in cities, and to close the investment gap in urban areas over the next fifteen years. It offers several recommendations for the mobilisation of this investment, with illustrated initiatives currently in place.

Firstly, cities are to urge national governments to adopt policies and incentives that encourage cities to invest in low-emission and climate-resilient infrastructure.

For example, Rwanda’s Environment and Climate Change Fund (FONERWA), which finances projects that promote climate resilience and green growth, targets 10 per cent of its funding to go to districts and cities. The government has committed $4.2 million, and mobilized $80 million from external sources.

Secondly, cities are to be supported in adopting frameworks that put a price on climate externalities.

For example, 23 cities, states, and provinces have employed carbon-pricing instruments so far, mostly in the form of carbon taxes or emissions-trading systems, depending on local contexts. By the fourth year of Tokyo’s successful cap-and-trade programme, emissions have been reduced by 23%.

Thirdly, cities are to have their facilities strengthened to develop investment-worthy climate action projects.

For example, the Cities Development Initiative for Asia (CDIA), led by the Asian Development Bank with a number of donors, has completed pre-feasibility studies for 85 infrastructure investment projects for medium-sized cities
 in developing Asia, of which 49 projects have attracted $5.9 billion in financing.

This Climate Summit built on the efforts of the Compact of Mayors, a global coalition of mayors and city officials pledging to reduce local greenhouse gas emissions and track their progress transparently.

They discussed how to create a network of labs to innovate new financial instruments and funding models. In fact, several effective labs exist for this purpose, including Climate-KIC’s new Low Carbon City Lab. The Global Innovation Lab for Climate Finance, established by a group of climate-finance donor countries, has piloted several initiatives that have attracted more than $170 million in funding.

It goes without saying that expanded and additional labs are needed to scale up funding. Labs could also serve to establish standards and lend credibility to help the green bond market grow, as the Climate Bonds Initiative, World Bank and others have been doing.

According to the latest CDIA report, around $4 trillion will already need to be spent on urban infrastructure annually over the next 15 years, just to keep up with projected growth in a business-as-usual scenario.

It will only cost an estimated half to one trillion dollars more in upfront investment to make this urban infrastructure low-emission and climate-resilient, which will pay dividends in decreased air pollution and increased efficiency and quality of life. The scale of urban investment needed is a critical opportunity to create better growth for cities.

Climate action in cities is crucial, and innovating financing is needed, to make the cities green and climate-resilient in a low-carbon economy.

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