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FEATURE: Climate finance options for cities

Lisa Junghans, Policy Advisor – Climate Change, Adaptation and Urban Transformation at Germanwatch talks about a recent CDKN-supported publication on financing climate compatible development in cities.  The publication is an output of CDKN supported project.

The city of Paris has been at the centre of international attention, giving stage to the adoption of the Paris Agreement. While this will boost global action against climate change, the City of Paris itself demonstrated leadership in tackling climate change. Issuing green climate bonds worth 300m EUR, the city underlined its efforts to curb emissions. With the cash, Paris aims at financing a number of projects relating to renewable energy, energy efficiency, low-carbon transport as well as urban climate change adaptation.

Many cities around the world are struggling with acquiring finance for friendly urban developments. Generally there are three different channels: international, national and local sources of money. While this appears to be a sound basis of financing, each one entails multiple access challenges for cities. On the international side, most financiers require the funds to pass through national budgets or ministries often leaving only small percentages for municipal actions. National sources of money often come with political strings attached, asking city decision-makers for political like-mindedness as a prerequisite.[1] Accessing existing local sources on the other hand is often politically unpopular as it competes with other local budget lines.

So, how to go about financing climate compatible developments in cities? In the last two decades a number of cities around the world have pioneered innovative local approaches of how to overcome financing challenges to fund green projects. Moreover, international funds are more and more getting an understanding of the importance of offering direct access modalities to climate finance beneficiaries, also. for cities. The recent publication ‘Finding the Finance’ provides an overview of financing schemes and sources that are used by cities around the world to meet climate change mitigation and adaptation objectives.

While, for example, London has introduced a congestion charge that curbs emissions and at the same time provides for a local revenue source, Shah Alam City in Malaysia trialled a development charge collected from a project developer; the revenues then finance green infrastructure in surrounding areas. Similar to Paris, Johannesburg in 2014 issued green bonds as a means for collecting finances for low-carbon city projects. Other innovative approaches of how cities can raise funding locally include community-owed energy systems, crowdfunding schemes, bonus programmes and many more.

On the international side, the French Development Agency, the Climate Development Initiative for Asia as well as the Subnational Finance Program run by World Bank offer direct access modalities to cities. Furthermore, the Green Climate Fund, capitalised with around US$ 10bn, may soon also become a source of financing for climate compatible developments in urban areas, naming urban areas as one of its result areas.

On the whole, cities around the world need to engage in transformative actions to safeguard their urban development aspirations into the future. In this endeavour financing plays a vital role. Visionary city decision-makers, developers and urban planners will need to tap into all flows of finance, including local revenues raised through innovative and socially acceptable ways as well as international funds that catalyse larger developments.

[1] Shankland, A. & Chambote, R. (2011): Prioritising PPCR Investments in Mozambique: The Politics of ‘Country Ownership’ and ‘Stakeholder Participation’

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