Planning and financing urban development in the context of the climate crisis

1. The centrality of cities

Cities are beacons of opportunity. A growing proportion of the global population is urban, as people are drawn to the jobs, services and amenities concentrated in towns and cities. In 1950, just 29.6% of people lived in cities; today, the share has risen to 56.2%%. By 2050, it will be 68.4% (UN DESA 2018). Particularly in the global South, these numbers translate into a profound reconfiguration of national economies and societies. Human and economic development is increasingly subject to the performance of cities.

By many metrics, towns and cities are failing. Nearly a billion people worldwide – one in four urban residents – live in so-called ‘slums’, where they do not have access to decent housing with improved water and improved sanitation (UN Habitat 2016). This figure likely underestimates the scale of urban poverty: hundreds of millions more city dwellers do not have secure tenure or safe, reliable, affordable drinking water, sanitation and electricity (Mitlin and Satterthwaite 2013). Urban areas of all sizes and at all levels of income are grappling with rising inequality, which – in the context of competition for well-located urban land – drives the displacement of low-income urban residents either rapidly (through forced evictions) or gradually (through gentrification) (Lombard and Rakodi 2016; Soederberg and Walks 2018; Rodríguez-Pose and Storper 2019).

Rising levels of urban poverty and inequality pose an immense challenge to planners, financiers and public administrators. There is clearly a need to radically re-think these disciplines in order to meet the needs of existing and future urban populations. In response to these deep development deficits, there is a growing body of research and practice focused on more inclusive and equitable approaches to spatial planning, land governance, municipal finance and infrastructure investment (for example, see case studies in: Martine et al. 2008; Watson 2009; Swilling 2010; Parnell and Pieterse 2014; Cabannes 2015; Boonyabancha and Kerr 2018; Mitlin et al. 2018). Much more needs to be done to refine, adapt and scale these innovative approaches, but they offer hope for different forms of urban development that can realise the Sustainable Development Goals (SDGs) and New Urban Agenda (NUA).

Yet cities face a further challenge: a climate emergency. With current climate policies and commitments, global temperatures are projected to increase by around 3°C. However, the recent special report of the Intergovernmental Panel on Climate Change, Global Warming of 1.5°C (IPCC 2018), shows the catastrophic consequences of global warming of even 2°C above pre-industrial levels, including ecosystem collapse, widespread water and food scarcity, and extreme weather events such as flooding, heat waves and storm surge. Already, cities from Cape Town to Chennai are facing chronic water shortages, while cities from Melbourne to Mumbai are struggling with extreme high temperatures. It is therefore imperative to hold the average global temperature increase to no more than 1.5°C. This will require system change at an unprecedented pace and scale: global carbon dioxide emissions must halve by 2030 compared to 2010 levels and reach net-zero by around 2050 (Bazaz et al. 2018). Failure to achieve these targets will erode the development gains of recent decades and make it even harder to eradicate poverty and reduce inequalities. Even in the unlikely event that these targets are realised, human economies and societies will still experience an average temperature increase of 1.5°C and urban centres must be prepared for more frequent and severe climate-related hazards.

The central importance of cities for human wellbeing and climate safety are now explicitly recognised in international instruments including the eleventh Sustainable Development Goal, the Paris Agreement and the New Urban Agenda. The IPCC special report on 1.5°C in particular identifies urban and infrastructure systems as one of four key systems that needs to reach net-zero emissions by mid-century, alongside energy, land use and industrial systems (de Coninck et al. 2018). Today, cities account for 71-76% of carbon dioxide emissions from final energy use (Seto et al. 2014), and likely an even larger share if consumption-based carbon accounting is used (Sudmant et al. 2018). One can argue that urban decision-makers and built environment professionals have primary responsibility for driving the transition to a low-carbon, climate-resilient economy.

The domains of urban planning and urban finance will have particularly crucial roles to play in responding to climate change and delivering sustainable development. However, as evidenced above, business-as-usual approaches are failing in most regions of the world. There is an urgent need for new strategies and mechanisms to create thriving cities that offer a decent quality of life for all while staying within planetary boundaries. Literature on this topic remains relatively scarce and fragmented. This special issue was commissioned as part of a dedicated effort to address this critical evidence gap.

2. Purpose of this special issue

At its 43rd and 44th sessions in Nairobi and Bangkok respectively, the IPCC resolved to intensify assessments of how cities contribute and respond to climate change. This decision led to the first IPCC Cities and Climate Change Science Conference – CitiesIPCC – which took place from 5–7 March 2018 in Edmonton, Canada. The conference created a platform for science, policy and practice communities to come together to assess the current state of knowledge on cities and climate change. CitiesIPCC has contributed to a rich dialogue that revealed different constituencies’ paradigms, priorities and blind spots, and allowed the coordinators and participants to map priorities for an urban climate research and action agenda (World Climate Research Programme 2019).

At CitiesIPCC, ‘planning and design’ and ‘finance’ were identified as two of the six research areas where more research is needed to inform action. Both are critical to sustainable development, climate mitigation and adaptation in urban areas. Urban form plays a critical role in determining the amount of emissions generated by cities (for instance, through demand for materials, the extent of land use change and levels of energy consumption for transport), as well as shaping vulnerability through influencing exposure to climate hazards. The quality and quantity of infrastructure further determine the carbon intensity and climate resilience of urban activities over decades, and is heavily subject to the preferences of financiers.

Urban planning and finance are closely co-dependent. Land use planning is effectively anchored through strategic investment in energy and connective infrastructure (including transport, water supply and sanitation), which in turn guides private investment (Duranton and Venables 2018). Land-based financing is the bedrock of municipal finance and infrastructure investment in many parts of the world (Peterson 2008). The productivity of urban economies determines the resources available to fund and finance service delivery. Labour and firm productivity in turn depends on density, proximity and connectivity within cities, which is a function of spatial planning and transport infrastructure (Duranton and Puga 2004; Rode et al. 2019). Urban planning and finance therefore need to be considered in close conjunction, with both disciplines needing a substantial review and reinvigoration in order to meet the climate challenge (Solecki et al. 2018). This underpinned the decision of the CitiesIPCC steering group to commission a special issue that addressed both topics.

Urban plans and investments need to align with science-based targets to avoid climate catastrophe – but rarely do so. Different cities, countries and regions will have common but differentiated responsibilities in the global effort to deliver the Paris Agreement. Mature cities may need to revitalise flagging urban economies while retrofitting and refurbishing an established infrastructure stock. Fast-growing cities may need to steer planned investment towards low-carbon, climate-resilient options, with a focus on providing core services. High-income urban residents will need to reduce their consumption of high-carbon goods and services. Low-income urban residents will still need to see real increases in material prosperity (Coalition for Urban Transitions 2019). While small urban areas and lower-income countries may have more opportunities to ‘leapfrog’ to sustainable urban solutions, they also face additional challenges due to a lack of locally-specific data, shortfalls of finance and lack of critical capabilities, especially among built environment professionals in both the civil service and private sector (Dodman et al. 2017).

The climate emergency indisputably imposes new constraints and challenges on urban planning and finance. However, layering climate considerations into urban planning and investment can also unlock synergies and co-benefits. For instance, a focus on reducing vulnerability can reveal wider opportunities to address flooding, biodiversity conservation, energy efficiency, emission reduction, and protection of urban infrastructure against extreme weather events (Ürge-Vorsatz et al. 2018). Low-carbon investments in cities at all levels of income can generate significant energy savings and economic returns (Gouldson et al. 2015; Colenbrander et al. 2017, 2018). Actions to cut greenhouse gas emissions and enhance resilience can also improve public health by, for example, reducing air pollution and improving road safety (Cifuentes et al. 2001; Campbell-Lendrum and Corvalán 2007; Chapman et al. 2016). These wider benefits to mitigation can both help to build public appetite for the more ambitious climate actions necessary to reach net-zero emissions and advance the 2030 Agenda for Sustainable Development.

3. The papers in this special issue

This issue offers seven original papers on financing and planning climate action in cities. Each paper speaks to the intersection of these two disciplines, but together they represent a wide range of paradigms and experiences from different regions.

The first paper by Roland White and Sameh Wahba (2019) begins by underscoring the need for private investment to fill the urban infrastructure financing gap. White and Wahba demonstrate that public budgets and overseas development assistance fall far short of what is needed, particularly considering the higher upfront costs and greater technical complexity of lower-carbon options compared with conventional urban infrastructure. The authors then challenge a common assumption among researchers and practitioners working in this field: that creating ‘bankable’ projects is sufficient to attract private finance. Rather, these authors underscore that private investment in municipal infrastructure depends on the presence of robust institutional, fiscal and regulatory systems. These frameworks are often beyond the competence or control of local governments and utilities. National (and in federal countries, provincial) governments have pivotal roles to play in reforming policies and practices to create an enabling credit and investment environment, including by empowering subnational government agencies with sufficient own-source revenues and project management capabilities. Although the climate imperative adds new urgency to urban finance, White and Wahba argue that it does not fundamentally change the expectations and requirements of private investors.

White and Wahba’s work provides an important new bridge between the established body of literature on urban finance and the growing demand for research on urban climate finance. Financing low-carbon, climate-resilient infrastructure at scale, they argue, depends on a prosaic agenda with a long history behind it: strong fiscal underpinnings with appropriate and reliable fiscal transfers from the national level and sufficient own-source revenues at the local level (Bird and Smart 2002); higher-quality financial data, budgeting and financial management systems at the local level (Cartwright et al. 2018); effective mechanisms to record and track liabilities across levels of governments (Ahmad 2015); and the systematic tackling of other preconditions for private investment, including clear legislation about the conditions for using particular financing instruments (Gorelick 2018), the development of comprehensive, fair land registries and valuation systems (Berrisford et al. 2018) and the political appetite to collect taxes in an equitable and effective way (Goodfellow 2015). The climate crisis does not change these fundamentals, but demands renewed attention to municipal finance to enable action.

The second paper in this special issue also recognises the importance of an enabling national environment, but focuses specifically on the roles and responsibilities of local governments. Nicholas Simpson, Kayleen Simpson, Clifford Shearing and Liza Cirolia (2019) make the case that urban resilience depends on a financially robust municipality or utility, capable of sourcing, allocating and managing the funds necessary to adapt to projected climate shocks and stresses. Mobilising new infrastructure investment is important, they argue, but not sufficient to secure climate safety. These authors illustrate their argument with the experiences of the City of Cape Town, examining its fiscal assumptions and choices during the recent water crisis.

The drought that hit the Western Cape between 2015 and 2018 reinforced the urgent need for substantial new expenditure to diversify the city’s water supply and expand its storage capacities. Responsibility for funding this investment continues to be disputed among national, regional and local entities. At the same time, the drought severely disrupted the revenue stream accruing to the municipality from the sale of water. This was driven by a combination of demand management and individual investment in decentralised water technologies to secure a private supply. Simpson et al. note that the latter trend highlighted tensions between governing for fiscal sustainability versus environmental sustainability: local governments may not choose to support or incentivise decentralised climate actions (from rainwater harvesting tanks, to boreholes, to solar panels) that negatively affect the municipal fiscus. Such private measures may also reduce the scope for cross-subsidisation of essential services, exacerbating the vulnerability of the poorest. These challenges raise serious concerns about the appropriateness of existing municipal fiscal systems and processes in the context of a climate emergency, and should inspire municipal authorities to urgently consider how to navigate these novel finance and governance challenges.

Both the papers by White and Wahba and by Simpson et al. underscore the importance of grounding urban and climate studies firmly in fiscal and financial realities. This provocation brings us to the third paper in this special issue, prepared by Marta Olazabal, Ibon Galarraga, James Ford, Elisa Sainz De Murieta and Alexandra Lesnikowski (2019). Many scholars and practitioners have argued that there is a need for better methods to assess the extent to which adaptation measures reduce vulnerability and build resilience (Ford et al. 2015; Magnan 2016). This can support governments to craft more effective policies and allocate scarce funding most efficiently to build the adaptive capacity of urban residents.

Olazabal et al. respond to this call by offering the Adaptation Policy Credibility framework, a metrics-based model to examine the likelihood that urban adaptation plans and policies will reduce or avoid the impacts of climate change over the long-term. The framework is structured around three criteria: (1) policy and economic credibility, (2) scientific and technical credibility, and (3) legitimacy. Across these categories, the framework uses 17 indicators and 53 metrics to assess the credibility of a local adaptation policy. Olazabal and her colleagues pilot this framework in Copenhagen, Durban, Quito and Vancouver, identifying specific opportunities for each city to strengthen their adaptation planning in the next policy cycle. In all four case studies, they identify clear concerns about funding adaptation actions. Olazabal et al. underscore that a policy is only credible if commensurate resources are assigned from public budgets or a clear plan is in place to acquire them from other sources. They further add that there needs to be a rational allocation of scarce resources among development and adaptation projects, recognising possible synergies between these agendas.

These questions are the focus of the fourth paper in this issue, by Jesse Keenan, Eric Chu and Jacqueline Peterson (2019). Keenan et al. recognize that adaptation investments may be perceived as less attractive than other investment opportunities, as they rarely generate direct revenue streams or immediate productivity gains. Many adaptation investments also carry high levels of risk and uncertainty. Even without these deterrents, Keenan and colleagues note that public budgets (especially at the local level) are often insufficient to cover the projected costs of adaptation. Local governments therefore often depend on private, philanthropic and multilateral agents as sources of adaptation funding and financing.

Keenan et al. recognise that drawing in these national and global agents offers advantages to local government, including greater availability and flexibility of resources. However, they underscore that this funding and financing strategy also creates a need to critically examine who pays, who benefits and who participates in adaptation planning. For instance, the authors propose that decisions to use adaptation funding – direct expenditure in preparation for or response to climate change impacts – versus adaptation financing – the deployment of market-based instruments to attract third-party funding to an adaptation action – may be informed by particular economic or moral views around the relative importance of equity versus efficiency, or of sovereignty versus value creation. Yet at the same time, public and private decisions about adaptation investment cannot be easily disentangled: private investments are often contingent on enabling policy frameworks or targeted public interventions, while government agencies frequently draw on private finance or deploy public-private partnerships. Moreover, few local governments have the power to meaningfully negotiate funding and financing solutions with global actors.

Keenan et al. therefore call for a fundamental shift in research and practice around urban climate finance. Rather than focusing narrowly on mechanisms to fill the resource gap, they urge for critical appraisals on the incentives and governance implications of different funding and financing options. They argue that making the trade-offs more explicit can enable more informed decision-making, and ultimately ensure that adaptation investments align with local visions for long-term urban development.

The fifth paper in this special issue, by Murtala Uba Mohammed, Nura Ibrahim Hassan and Murtala Muhammad Badamasi (2019), examines the intersection of urban and climate plans in the city of Kano in Nigeria. This case study complements the work by Keenan et al. by offering an example of a large urban area that urgently needs investment in human development and climate resilience – but one with little capacity to mobilise funding and financing to implement its plans. Indeed, Kano exemplifies many of the challenges facing cities across the global south: fragmented governance, with eight local authorities; a rapidly growing population at 3.9% per year; severe service deficits and inequality; and the disappearance of urban green space. Mohammed et al. outline how the climate of Kano is changing, with rising surface temperatures and more severe flooding. These hazards can be attributed both to global warming and the expansion of the built environment, which creates urban heat island effects and increases rainwater run-off.

Mohammed et al. explain that the local governments in Kano have limited capacities to plan effectively for these emerging climate risks. Without sufficient and affordable formal housing available, informal urbanisation is the norm with all its attendant health costs (Ezeh et al. 2017). This makes it difficult for local authorities to shape urban form in a way that realises the potential productivity gains typically associated with urbanisation. Neither climate change mitigation or adaptation are meaningfully taken into account in formal planning processes. The example of Kano underscores the conclusions of Keenan et al. about local governments’ limited ability to navigate an imbalanced funding and financing landscape, as well as White and Wahba’s arguments about the need to build basic project planning, budget management and operational capabilities in local governments.

The sixth paper in this special issue also dives into the experiences of African cities. Cristina Udelsmann Rodrigues (2019) examines emerging climate hazards in two coastal capitals, Luanda in Angola and Maputo in Mozambique. Local governments in these cities face many similar climate challenges to Kano, particularly prolonged floods that lead to loss of life, the destruction of shelters and disruption of economic and social activity. Low-income and other marginalised urban residents are the most vulnerable to these impacts due to lack of risk-reducing infrastructure and limited access to resources.

In the absence of effective formal planning or public investment, Udelsmann Rodrigues highlights the role of ‘do-it-yourself (DIY) urbanism’ – actions undertaken independently by urban residents that directly shape urban space – to address climate risk. She highlights how families will frequently adapt their own houses and neighbourhoods to climate change by strengthening walls, securing roofs, elevating floors, digging drainage ditches and so on. These efforts aim to fill the gaps left by formal planning institutions. While many people relocate temporarily during floods, most are reluctant to move away to parts of the city where they may struggle to access jobs or services. The absence of effective urban planning and investment means that residents in Luanda and Maputo must too often choose between economic development and climate adaptation. Although Udelsmann Rodrigues nods to the large body of literature on upgrading informal settlements through collective action (for example, Douglas et al. 2008; Adelekan et al. 2015; Brown and McGranahan 2016), she finds that there is little local coordination or organization among the communities that she interviews. DIY urbanism in these contexts seems to be a fragmented and individual effort. As outlined in the introduction to this editorial, it is clear that new approaches to urban planning and urban finance are needed to bridge the formal and informal sectors, aggregating and aligning these climate actions to respond to the immense, interrelated challenges facing cities.

The final paper in this issue offers a very different case, focusing on planning and financing climate change mitigation in a high-income city. Daniel Gabaldón-Estevan, Kati Orru, Clemens Kaufmann and Hans Orru (2019) evaluate the implementation and impacts of the fare-free public transport system in Tallinn in Estonia. Fare-free public transport systems are now in place in 97 cities and towns worldwide (Kębłowski 2018).

In Tallin, Gabaldón-Estevan and his co-authors find that eliminating fares has increased the mobility of the most cost-sensitive groups: the elderly, people with disabilities, students and other people on low incomes. This advances equity goals within the city. The fare-free public transport policy has also burnished Tallin’s green credentials, possibly serving to build popular appetite for further low-carbon plans and investments. However, Gabaldón-Estevan underscore that this transition did not significantly contribute to increased ridership (though simultaneously investments in public transport may have done so) and imposed costs of €16 million (about US$ 18 million) per year on public budgets. This raises wider questions about the policy’s contribution to both environmental and fiscal sustainability, as well as the replicability of the policy to lower-income contexts.

4. Looking forward

Decisions about urban planning and finance have always played a major role in determining the quality of life in cities. The disciplines have long been critiqued and their implementation contested, from Georges-Eugène Haussmann’s demolition of medieval Paris to the battles between Robert Moses and Jane Jacobs for the soul of New York City. But the climate emergency clearly adds new urgency to ancient debates, as the varied experiences of Cape Town, Copenhagen, Durban, Kano, Luanda, Maputo, Quito, Tallinn and Vancouver illustrate in the following pages.

The seven papers in this special issue illustrate how individual city governments might respond to a changing climate, and the importance of meaningful partnerships with national and provincial governments, research institutes, civil society, businesses and other financiers. They speak to the critical interrelationship between spatial planning and urban infrastructure investment to secure climate safety, and highlight the possible tensions between environmental and fiscal resilience for municipalities worldwide.

Planning and financial innovations will have a role to play in delivering climate-compatible cities. Innovation is already happening in cities at different scales (Bulkeley and Castán Broto 2013): Gabaldón-Estevan et al. outline the municipal-level innovation of Tallinn’s fare-free public transport, while Udelsmann Rodrigues discusses household-level innovations in her examples of DIY urbanism. Successful innovations can then be scaled and replicated to other cities. But innovation is not the whole answer. Delivering low-carbon, climate-resilient urban development also depends on, as White and Wahba put it, a more prosaic agenda of strengthening local capacities to design and implement inclusive spatial plans and bankable infrastructure projects. The climate crisis adds significant complexity to this agenda (as Simpson et al. make clear), but does not radically change it. Yet this agenda has long been stymied by political economy considerations, which now limit effective climate mitigation and adaptation in cities. Keenan et al. articulately describe this challenge.

This special issue begins to address the dearth of literature on urban planning and financing in the context of climate change. There is much more to learn and even more to do. Moreover, this effort cannot be the province of planners, investors and local governments alone. It depends on the concerted efforts of a wide range of urban actors, including activists, architects, bankers, engineers, regulators, surveyors and more. Future research on this critical topic must support them to go further and faster if we are to avoid climate catastrophe and creating thriving cities for all.

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Notes on contributors

Sarah Colenbrander

Sarah Colenbrander is an environmental scientist and development economist by training. She is currently Head of Global Programmes for the Coalition for Urban Transitions, a joint initiative of the World Resources Institute and C40 Cities Climate Leadership Group.

Aliyu Barau

Aliyu Barau is a geographer and landscape scientist by training. He is currently Associate Professor of Urban and Regional Planning at Bayero University Kano.