Funding low carbon cities: local perspectives on opportunities and risks

Abstract

There are compelling reasons for policy makers to be interested in the low-carbon agenda. More than half of the world's population lives in, and more than half of the world's economic output comes from, cities. Up to 70% of global carbon emissions can also be attributed to consumption that takes place in cities. Recent research has shown that cost-effective investments in low-carbon options could deliver a 40% reduction in GHG emissions from cities by 2020, while also providing wider economic benefits such as enhanced competitiveness and increased employment. As yet, however, investments in low-carbon cities have not been made at scale due mainly to the scale of the finance required, local government budgetary constraints, and perceptions about their costs and benefits. With a focus on the UK, a contemporary account is provided of what local authorities see as the major financial risks associated with funding low-carbon cities. Practical proposals – which also have more general relevance to the future financing of low-carbon cities around the world – are offered on how local authorities, in conjunction with central government, the private sector, and institutional investors, can effectively manage these risks.

Policy relevance

Cities house more than half of the world's population, generate more than half of the world's economic output, and produce between 40% and 70% of all anthropogenic GHG emissions. In the UK, 70% of such emissions are under the influence of its local authorities. Thus, one of the key public policy challenges for the low-carbon transition is how it should be financed. There are several obstacles and related risks to this transition, including financial and legal obstacles and the differing views and perceptions of stakeholders. These can be attenuated, somewhat, by national government support at scale, local authority leadership, and cooperation between other authorities and the private sector, and the development of tools and guidance to reduce transaction costs.

Keywords:

• climate finance
• local government
• low-carbon cities
• low-carbon investment
• public policy

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Erratum

Notes

‘How can cities and regions finance their transition to a low carbon economy’ workshop in May 2012 convened by the Centre for Low Carbon Futures (www.lowcarbonfutures.org/) and the Centre for Climate Change Economics and Policy (www.cccep.ac.uk/Home.aspx). Copies of the workshop presentations and the workshop briefing paper are available at http://www.lowcarbonfutures.org/news/post/131-clcf-and-cccep-workshop-on-financing-low-carbon-cities-was-hosted-at-chatham-house

Top-down approaches are used, in the first instance, to seed or catalyse the development of project pipelines.

See, e.g. the C40 Group of Cities (www.c40cities.org), the Carbon Disclosure Project's Cities Programme (CDP, 2012), and the Organisation for Economic Co-operation and Development (OECD)’s work on cities and climate change (OECD, 2010).