Financing Climate Change Resilient Urban Infrastructure

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Abigayle Bridges
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1 From Planning to Investment Defining Bankable projects Financing Climate Change Resilient Urban Infrastructure Paul Schuttenbelt South Asia Coordinator, Cities Development Initiative for Asia (CDIA), January 2013

2 Asia s Urban Challenges

3 The Climate Financing Challenge: the Demand side Stabilization pathway: To limit the increase global temperature of 2 0 C or lower (UNFCCC) To achieve the stabilization pathway: Mobilization of US$ 100 billion each year from developed countries for climate change mitigation and adaptation activities Additional estimated investment/financial flows of US$ billion for mitigation actions to reduce GHG emissions by 25% below 2000 levels in 2030 Additional estimated investment/financial flows of US$ billion in 2030 for adaptation actions

4 Financing Climate Change Mitigation/Adaptation Public Finance Budget of City Authorities (Local Budget) Mainstreaming city development plan with climate change mitigation and adaptation measures in some cases, operational/routine expenditures resulting limited budget for climate change actions; National Programs (National budget) Climate change mitigation and adaptation measures supported by line ministries supported by mainstreaming actions; Tax and Levies e.g., Possibility to provide incentives for financing climate change measures, specifically ear-marked for climate-related activities (carbon/environmental tax) Municipal Bonds and Loans Has been an important instrument for infrastructure development in developed countries, but not yet seen much in developing countries in Asia

5 Financing Climate Change Mitigation/Adaptation Private Participation Public Private Partnerships and investments Mainstreaming climate change mitigation and adaptation with infrastructure development: e.g, PPP in waste management and drinking water services Corporate Social Responsibility Voluntary support from private sectors limited contributions is seen in developing countries, e.g., Indonesia Carbon Market To date: limited window for financing support due to complicated and long mechanism and low carbon price Driven by climate policy with private sector as the player in the field

6 Special Climate Change Funds: Financing Climate Change Mitigation/Adaptation International Climate Funds o Established under UNFCCC in 2001 o GEF as the operating entity o to finance projects relating to: adaptation; technology transfer and capacity building; energy, transport, industry, agriculture, forestry and waste management; and economic diversification Green Climate Fund Long-term Low-carbon Development Support: o International support to developing countries for NAMAs, NAPAs o Modalities and mechanism is still under progress

7 Results Which funds can be used for: Mitigation/Adaptation Level of intervention Nature of support Type of intervention supported Conclusion: Only 3 out of 15 international funds are accessible to cities (Global Climate Partnership and bilateral funds - EU, Japan)

8 Sources of Finance Climate Finance Flow Type of Finance Intermediaries Instruments Distribution channels/ Mechanism Uses Developed countries Developed countries Developing countries Developing countries Carbon market revenues (EUAs,AAUs) Tax revenues (carbon tax, general tax) Carbon Offset market Voluntary/ Philantrophy Global Capital markets Source: Buchner, updated and modified 2 2 <1 NE Public Finance/ Domestic Public Budgets 7 Private Finance NE NE 11 NE NE Bilateral - Agencies - Banks - Climate Funds Multilateral - Agencies - Banks - Climate Funds Offset/ Carbon funds 1 2 <1 4 < Risk instruments: - Long term export credits with insurance - Guarantee Carbon offset flows Financial instruments (FIs):Grants (this may include grants for policy incentives) (FIs): Concessional loans (FIs): Commercial/ market rate loans NE Various distribution channels, e.g: - National budget/dom estic Public Finance or through PPP - NGOs - Carbon compliance mechanism, e.g, CDM - Local commercial Banks and Financial Institutions Adaptation REDD Mitigation Recipient -National Government -Local Government -Communities -Local private sectors, including SMEs 16 NE (FIs): Equity 18

Climate Finance for Cities: Challenges Limited capacity in

adaptation measures with the local development plan Not enough

g: Waste to Energy Energy savings in lightening, buildings Green

9 Climate Finance for Cities: Challenges Limited capacity in integrating and mainstreaming the potential mitigation and adaptation measures with the local development plan Not enough knowledge about co-benefits, e.g: Waste to Energy Energy savings in lightening, buildings Green Transport etc Coordination with national government, e.g: budgeting cycle, gaps in policy/regulations, national development priorities

10 What roles partners could play to address the challenge in accessing climate finance for cities? Capacity building and technical assistance for cities to shift the paradigm towards urban resilience through bottom-up approach Facilitate coordination between city level and central/national government level in accessing available climate funds and improve capacity to enable cities in accessing climate finance Increase the capacity in Monitoring, Reporting and Verification of emissions at city level Enhance for greater investment interest in urban infrastructure that support low-carbon and climate resilient development

11 SOLID WASTE MANAGEMENT Infrastructure Solutions Setting Priorities BRIDGE Make Projects WATER TRANSPORT URBAN REGENERATION MASS RAPID TRANSPORT AIRPORT Link Bankable Projects POWER SUPPLY WATER SUPPLY ROAD NETWORK to INDUSTRIAL PARK Financing

12 CDIA Scope and Approach Through a demand driven approach, CDIA assists cities to implement their development strategies Infrastructure Investment Project Cycle Up-stream Down-stream City Development Plan/Strategy Infrastructure Investment Prioritization Pre-Feasibility Studies Linking projects to financing Feasibility Study Financing Arrangements Capacity Development Project Implementation Operation & Maintenance

13 Areas of Attention The CDIA partnership established in 2007 is jointly managed by ADB and GIZ and financially supported by ADB, BMZ, Sida, Government of Austria and the Shanghai Municipal Government with about $58 million ( phase). Budget for phase is $65 million. CDIA is assisting medium sized Asian cities to bridge the gap between their development plans and financing of their infrastructure investments, with emphasis on: - Urban environmental improvement - Urban poverty reduction - Improved governance - Climate change mitigation or adaptation

14 Selected City Interventions Cochin, India Integrated Urban Transport Project CDIA Support: US$ 370,000 Sector Interventions 1. Priority Bus Lanes Investment Value: US$ 41.3 million 2. Ferry Services Investment Value: US$ 49.5 million Linking to Finance Public-Private Partnership

15 Selected City Interventions Rajkot, India CDIA Support: US$ 360,600 Sector Interventions 1. Urban Transport Improvements on selected main road corridors Central area improvement Bottleneck elimination Investment Value: US$ 15.7 million

Selected City Interventions Khulna, Bangladesh CDIA Support: US$ 483,000 Sector Interventions (Phase I) 1.Urban Transport (Phase 1) Investment Value: US$ 13.5 million 2.

16 Selected City Interventions Khulna, Bangladesh CDIA Support: US$ 483,000 Sector Interventions (Phase I) 1.Urban Transport (Phase 1) Investment Value: US$ 13.5 million 2.Drainage Investment Value: US$ 11 million 3.Solid Waste Management Investment Value: US$ 6.5 million Sector Interventions (Phase II) 1.Pro-poor Urban Transport (Phase 2) Investment Value: US$ 13.8 million Linking to Finance ADB City Region Development Project (CRDP) KfW grant (Pro-poor Urban Transport)

17 other City Interventions Chennai, India, SWM and Sanitation Pimpri, Water Supply and Sanitation Visakhapatnam, Water Supply Vijayawada, transport and slum upgrading

Selected City Interventions Technical effectiveness (do proposed investments solve the problem) Impact (the extent to which the investments impact the

18 Selected City Interventions Technical effectiveness (do proposed investments solve the problem) Impact (the extent to which the investments impact the city Cost effectiveness; Financial sustainability (is it affordable, PPP able) Equity (are investments distributed fairly across different population groups).

19 Areas of Attention Water Supply 8% Slum Upgrading 5% Solid Waste Management 10% Wastewater Management 12% Chart Title Energy Efficiency 3% Urban Renewal 15% Urban Transport 28% Flood & Drainage Management 19% Good Governance 6% Climate Change 33% Chart Title Poverty Reduction 24% Environmental Sustainability 45% Mitigation 58% Adaptation 42%

20 Cities Development Initiative for Asia Suites , Hanston Building Emerald Avenue, Ortigas Center, Pasig City 1600 Metro Manila, Philippines

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