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FEATURE: Fresh ideas for cities to finance climate projects

Fareeha Irfan Ovais, CDKN’s Country Programme Manager, Indonesia, reviews some fresh ideas for how cities can finance their climate projects – in the newly launched CDKN-Germanwatch report Hand in Hand for Urban Transformation.

The sixth biennial Mayor’s Summit on climate change, the C40 Cities flagship event, concluded in Mexico earlier this month. The event attracted mayors and leading thinkers from around the world to advance a shared agenda through collaboration and knowledge sharing on the global potential of climate actions in cities.

The world’s cities are at the forefront of climate change, both in the fight against climate change and in experiencing its impacts. Cities emit more than 70% of global emissions and consume around the same proportion of the world’s primary energy. At the same time, they generate 80% of the global Gross Domestic Product (GDP). In the face of rising global temperatures and increased incidence of climate induced disasters, urban structures and services are particularly vulnerable to the impacts of climate change such as heatwaves, storm surges and rising sea levels.

According to recent estimates, the world’s big cities need a total investment of US$375 billion to curb climate change. “It is a lot, but there is no other option. Together we will seek that money,” said the new president of the C40 network of big cities, Paris Mayor Anne Hidalgo at the Mayor’s summit. If that amount is made available “humanity will have a chance of surviving,” she added.

Climate change puts the squeeze on developing cities

Cities around the globe but particularly in low income countries, face a number of challenges: high population growth, limited access to water and sanitation as well as poor housing. These problems are likely to worsen with climate change. To build climate resilience in cities, urgent steps are required. These include, but are not restricted to, building disaster resilient infrastructures, improving drainage and storm water collection structures, constructing flood protection embankments, developing green zones and relocation of vulnerable groups living in hazardous areas of the city.

To boost mitigation and reduce greenhouse gas emissions, city governments can promote a number of ‘climate friendly’ measures in the sectors of energy, transport, waste and land use. These include reducing energy consumption in buildings via installation of solar water heaters, adding adequate insulation, double glazing windows, improving architectural design as well as encouraging energy efficiency measures. In addition, low carbon measures in the transport sector such as, incentivising the use of public and non-motorised transport, and reducing private vehicle use, can substantially reduce emissions.

Cities can fund climate projects from multiple sources

Considerable financial investment is required to meet these adaptation and mitigation needs of cities. To finance this paradigm shift, cities can access funds from a variety of sources including international, domestic and local sources – according to the new CDKN-Germanwatch report Hand in Hand for Urban Transformation. Says Lisa Junghans, Policy Advisor on Climate Change at Germanwatch, “the sheer scale of investment needed to transform cities into climate compatible urban spaces makes all three channels relevant. While locally-raised funding is important to strengthen ownership and safeguard the sustainability of interventions as well as the stability of revenue, it will take time to establish governance structures that ensure a steady flow of local revenue dedicated to climate change work,” she explains.

National sources are also important and it is the state’s responsibility to allocate resources to implement climate change adaptation and mitigation activities in selected cities. However, in view of resource constraints, particularly in developing countries, these allocations are inadequate to meet financing needs. International funds, are required to close the financing gap and fuel climate compatible development in cities.

Accessing international climate finance is not without challenges, and given the sheer scope of financing required, will not suffice to meet all requirements. Nevertheless, international funds remain crucial not only to meet the stated objectives of a proposed project, but also to catalyse the deployment of national or sub-national resources.

Financing climate action in Asian cities – Insights from CDKN research

A project funded by Climate Development Knowledge Network (CDKN) is working to assess the climate finance needs and gaps in three cities across three countries – India, Indonesia and the Philippines. Based on research and extensive stakeholder consultations, the assessment has outlined possible sources of domestic and international sources for cities, including from the Green Climate Fund (GCF) – the primary fund for channeling a significant part of the US$ 100 billion committed for combatting climate change in developing countries.

Recommendations for accessing funding from the GCF include the creation of innovative access modalities such as cities themselves serving as implementing entities. Also proposed is a National City Facility that receives GCF funds and coordinates urban climate change projects across the country.

Hammad Raza, Regional Coordinator, CDKN and General Manager Programs at LEAD Pakistan explains further. “For cities to move towards transformative low-carbon and climate-resilient development, steady and predictable financial revenues from domestic and international resources are essential. The recommendations compiled by the project are equally applicable to most cities in developing countries, be it Colombo, Addis Ababa or Faisalabad.”

Need for new capability in cities

One of the barriers to enhancing the flow of climate finance for cities is the lack of technical and institutional capacity in city governments. While local authorities understand the problems and potentially transformative solutions required, turning them into bankable project concepts or proposals remains a challenge. Moreover, city institutions find it difficult to meet the requirements set by funding institutions on fiduciary standards and social and environmental safeguards. However, concerted efforts for capability building and training can help cities overcome these barriers to receiving international assistance. This international assistance in the form of financial and technical support that can be used to fund build resilience and fuel low carbon economic development in cities of developing countries.


The author is Country Programme Manager, CDKN Indonesia, and Team Leader, Climate Finance Readiness at LEAD Pakistan. Read the full report here: Hand in Hand for Urban Transformation


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