Cities’ Climate Infrastructure Financing: Urgency of Reform

Penn IUR Urban Link

Cities’ Climate Infrastructure Financing: Urgency of Reform March 17, 2020

MAURICIO RODAS PENN IUR, KLEINMAN CENTER FOR ENERGY POLICY, AND PERRY WORLD HOUSE VISITING SCHOLAR; FORMER MAYOR, QUITO, ECUADOR

The decisions cities make today will determine the planet’s future. Cities are where the battle against climate change will be defined. Worldwide, cities are responsible for 70 percent of global greenhouse gas emissions. According to the Global Commission on Economy and Climate, under a low-carbon scenario $93 trillion needs to be invested worldwide in climate-resilient infrastructure by 2030; 70 percent of this estimate relates to urban areas. If cities are to contribute to their countries’ abilities to meet Paris Agreement commitments, they will need to invest trillions of dollars in renewable energy, transportation, water and waste management, green buildings, sustainable public spaces, and other climate-resilient infrastructure systems.

However, the current financing architecture does not offer cities the affordable options they need in order to make these investments. To address the dissonance between the insufficient supply and growing demand for climate-resilient infrastructure financing, two things are imperative: a comprehensive transformation of the international financial ecosystem, and an expansion of local capacity to receive financing and execute projects.

Supply of Climate-Resilient Infrastructure Financing While the supply of financing mechanisms available to cities is increasing, it remains insufficient. Most of these financial instruments and funds are chained to sovereign debt and city creditworthiness and are highly politicized, which significantly delays the financial flows cities need. Financial supply architecture must undergo a paradigm shift in order to expand climate-change-related infrastructure funding as well as enable direct access by cities (without national governments as intermediaries) to these funds and lower cities’ transaction costs…

Demand for Financing Climate-Resilient Infrastructure Cities must also change how they plan, invest, and manage infrastructure projects in order to secure funding. Many cities are undertaking pioneering actions and setting ambitious goals to reduce emissions and meet the Paris Agreement. Cities have gradually started to modernize urban policy frameworks, build their capacity for developing “bankable” climate infrastructure projects, incorporate sustainable development planning, and raise their concerns in the international arena… Solving Supply and Demand Weaknesses Weaknesses from both supply and demand are hampering countries and cities in meeting the Paris Agreement goals. A complete redesign of the international financial architecture is necessary to ensure cities have access to the resources they need to transform their infrastructure. Simultaneously, cities need to turn ideas into “bankable” projects, update their policy frameworks, and improve their financial performance.

Novel city diplomacy initiatives like the U20, through its engagement with the G20, could be an appropriate forum for discussing policy reforms that would lead to an increase in the supply side.

At the same time, cities struggle to understand the supply side, the opportunities for project financing, and the resources available to help them prepare their business case for climate-resilient infrastructure projects. To close this information gap, the University of Pennsylvania’s Institute for Urban Research (Penn IUR), Kleinman Center for Energy Policy (KCEP), and Perry World House (PWH) are hosting the City Climate-Resilient Infrastructure Financing Initiative (C2IFI). Working side-by-side with partners like the Cities Climate Finance Leadership Alliance (CCFLA), C2IFI is building an open source knowledge-sharing platform that will enable mayors, city officials, and municipal stakeholders to find partners, data, financing instruments, best practices, funding models, and experts to assist them with project preparation and advance climate-resilient infrastructure. Cities need access to information that speaks their language and helps them understand the players, new models, and technical assistance available.

C2IFI will also provide tailored guidance directly to cities. The initiative is currently working with students from schools across the University of Pennsylvania on a pilot project with Freetown, Sierra Leone to identify financing options for the project preparation phase of a cable car construction project.

Investing in climate-resilient urban infrastructure will be exorbitantly expensive—but it is urgently needed. Multi-stakeholder collaboration, disruptive ideas, and a cross-sectoral approach are needed to overcome the imperfections of a financial ecosystem still mired in a country-centered approach

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