Towards a green economy 5.7 Financing

Finance can be a stumbling block to the introduction of concerted policies to shift cities away from a carbon and resource-intensive metabolism. Although several sources of revenues exist, in many countries national fiscal policy prevents local authorities from raising enough capital both, locally and on international financial markets. This has been reinforced in many parts of the developing world by decentralisation reforms that have often entailed a dispersal of central government functions, without any transfer of resources and power to autonomous lower level authorities. Layered on top of this has been the competitive pressure to offer tax concessions in order to attract potential foreign and domestic investors.

Three imperatives are central to advance on green city finance. First, getting a detailed understanding of the existing financial position in terms of potential revenue. This analysis should be based on domestic and international comparison with cities of similar size. Second, city governments need to initiate various forms of partnership with local businesses and community organisations. If cities set the framework for engagement, act transparently and accept the return on investments for private actors, then there is considerable room for leveraging private-sector capital. Third, horizontal and vertical networks are required. According partnerships and coalitions allows for cross-municipal cooperation and regional and international participation in various local government policy forums.

Many of the green city investment projects are within the reach of city governments, which can leverage national or private funds to pay for the initial capital investments. In Hong Kong, the enormous costs for new urban rail infrastructure are covered by the city’s principle rail operator, the MTR Corporation, which capitalises on the real-estate potential of its stations as part of an integrated rail-property development model (Cervero and Murakami 2009). In Paris and London, urban bike hire schemes are paid for privately in return for prime advertising space, while the biogas in São Paulo’s landfills are a resource that is privately turned into energy and for which the city receives carbon credits. Once the initial investment has been made, these projects bring in a

steady revenue stream that can be reinvested. Some projects do not even need initial capital investments as they rely on statutory regulations, such as the green building programmes in Berlin or Austin.

Table 9: Selected financing instruments provides a general overview on financing instruments that have been central to existing green city strategies. In successful cases, many of these tools have been directly available to city governments.

A priority in any green urban planning is investment in cost-effective public transport infrastructure particularly over investment in road construction that further promotes private car use. Surface public transport such as bus rapid transit needs to play a central role particularly in lower income contexts. Non-motorised transport has to be recognised as basis of any transport system and requires greater shares of overall transport budgets.

In both developing and developed countries, another priority is investing in education and training at the city level. Training of workers in green technologies and job skills would be required to ensure that they can access green employment opportunities. Table 10: Top-up training for low-carbon jobs provides some UK examples developed by the Institute for Public Policy Research (IPPR 2009), illustrating the nature and the extent of additional training that will be required to foster a shift towards a lower-carbon economy.

For poorer cities, however, access to finance, green technologies and skills may be out of reach. This is where support in up-front finance, technology, and capacity building is needed from the national government and international community. In the case of climate change, for example, the Copenhagen Accord proposes generating US$ 100 billion per year by 2020 in the support of climate change mitigation and adaptation in the developing world (Glemarec, Waissbein and Bayraktar 2010). Such finance would be particularly effective to enable fast growing cities in the developing world to “leap-frog” developed world cities in planning and installing efficient infrastructure that will reduce resource intensity and save money for decades.

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