Cities are as complex as the fast-growing numbers of people who inhabit them. As urban areas swell, they generate equal parts prosperity and demand. While cities contribute over 80 percent of global GDP, they also consume over two-thirds of the world’s energy and account for more than 70 percent of global carbon emissions.
The concentration of people, industry, and infrastructure leaves cities especially vulnerable to climate change. The urgency to act on climate change has increased further with the Intergovernmental Panel on Climate Change’s latest report, which warns that even a 1.5°C rise in global warming will have catastrophic effects.
Yet the challenge of global warming also offers an opportunity for cities to attract investment as they pursue low-carbon development options. More than $29.4 trillion in climate-related investments could be drawn to cities by 2030 if they are to achieve their climate-policy commitments in six priority sectors, according to a just-published IFC report.
Climate Investment Opportunities in Cities—the newest publication in IFC’s Climate Investment Opportunities Report Series—analyzes climate-related targets and action plans in six regions, identifying opportunities in green buildings, public transportation, electric vehicles, waste, water, and renewable energy.
IFC’s conclusions reflect a global trend. Since the 2015 Paris Agreement, there has been a groundswell in city-level commitment to climate action: almost 9,400 cities around the world have committed to over 20,000 individual and cooperative actions to address climate change.
Each of these actions is important because 60 percent of the area that’s expected to become urban by 2030 hasn’t even been built yet. With planning and foresight, these urban areas in developing countries could leapfrog ahead, avoiding some of the problems that plague cities today.
Building a Greener World
Green buildings are a good example of achieving positive results in financially effective way. As municipal officials race to accommodate ballooning populations, cities will have to construct new buildings and improve existing ones. Green buildings—both new construction and retrofits—represent a $24.7 trillion investment opportunity, according to the new IFC research.
To illustrate the variety of investment opportunities around the world, the report includes in-depth profiles of cities of various sizes and different stages of development. These sections highlight each city’s context and climate-related action plans, assess the related investment potential for priority areas, and showcase the financing solutions being put in place to achieve these ambitions.
For instance, Nairobi, which has a burgeoning technology sector that’s spurring significant jumps in the population and economy, presents an investment potential of $8.5 billion, with the majority ($5 billion) in electric vehicles. Amman, another quickly expanding mid-sized city, has a total investment potential of $12 billion, most of it in the areas of public transportation ($4 billion) and green buildings ($4 billion).
Leveraging the Private Sector
Despite cities’ commitment to green growth, the sheer scale of the challenge dwarfs local budgets. The report offers ideas for cities to use their public funds and direct policy decisions to leverage the private sector for innovation, management, and capital for investment. Improving creditworthiness and developing a pipeline of bankable climate-smart projects will be key to this.
Many in the private sector have acknowledged the underlying investment potential in helping move cities to a greener growth path. Financing approaches like public-private partnerships for light rail in Manila and green bonds in Johannesburg are already offering promising results, as is land value capture in Ahmedabad—a tool through which municipal governments recover part of the increase in property value resulting from public investment. These examples are also included in the IFC report.
Published in November 2018