By Alex Whiting (Thomson Reuters Foundation)
The C40 – a group of 90 cities in an international network of megacities committed to tackling climate change – says that it will need to raise $375 billion by 2020 for low-carbon transport, buildings and other infrastructure. This highlights the need for substantial private investment to develop the “green” infrastructure that is required to help prevent global warming reaching precarious levels. James Alexander, the C40’s city finance program director, emphasizes the vast scale of action required to contribute to the Paris Agreement’s “well below 2 degrees Celsius” climate change target. According to Alexander, 70 percent of the group’s cities already see the effects of climate change, a rise from 50 percent just two years ago.
Low-carbon projects in cities are too small, too risky and lack a track record in attracting finance, according to Shirley Rodrigues, London’s deputy mayor for environment and energy, who explains that there is a need to reduce the cost of finance, allow for more public and private investment, and increase the use of innovative green finance mechanisms like green bonds. Long-term stability and incentives are currently lacking for investors who are ready to fund environment-friendly infrastructure, and cities in developing nations require more skills to develop finance-ready and bankable projects.
For cities in countries with poor credit ratings, creditworthiness remains a considerable challenge. This makes it more difficult and expensive for them to obtain money from capital markets to fund sustainable infrastructure such as an electric bus fleet being planned in Mexico City. Major development finance institutions and municipal taxation are some alternative sources of funding for infrastructure projects. However, regardless of the source of funding, it is critical to have a way to pay back the financing.