Financing, Governance cornerstones for a just, equitable energy transition in Cities

As the planet warms, the impacts of climate change are becoming more severe and widespread, with cities being particularly vulnerable. On one hand cities are critical growth engines for any economy with rapid urbanisation and prosperity; and on the other, heatwaves, floods and cyclones are becoming more frequent and intense, causing damage to infrastructure and public health. Climate change is also exacerbating social and economic inequalities in cities, with low-income communities often bearing the brunt of its impacts

Cities are responsible for about 70 per cent of the global CO2 emissions, but they also have the potential to be leaders in reducing emissions and building resilient communities. Discussions around just and equitable energy transition are predominantly limited to transitioning away from coal, industrial decarbonisation and mining communities. This article aims to look at just and equitable transition from a city and urban development lens and key sectors and enablers to aid this transition towards achieving a net-zero emissions future.

Financing climate actions at the city level can be a daunting task. Municipal budgets are often limited, and many cities struggle to secure the necessary funding to address climate change. Additionally, climate action is a long-term process, and the benefits may not be immediately apparent. This underpins the need to secure robust governance mechanisms backed by strong political leadership to champion climate action across sectors which is sustainable, just and equitable.

Key sectors Transportation Sector

The transportation sector is one of the most significant contributors to Greenhouse Gas (GHG) emissions in cities. To ensure just transition, cities must prioritise sustainable mobility solutions such as public transportation, cycling, and walking beyond focussing on electric vehicle penetration which has a major affordability barrier currently. Here are some examples of best practices around urban planning across global cities like Bogotá, Copenhagen, Montréal and Barcelona. These must be complementary to the existing efforts, for example congestion fee in London, by cities and states on incentivising adoption of electric vehicles (EVs).

Buildings

Secondly buildings are responsible for a significant portion of emissions due to their energy consumption for heating, cooling, and lighting. States and cities need to put affordability, equity and credibility at the core while development of green buildings that are energy-efficient, powered by renewable energy sources, and built by low carbon footprint materials. Finance will be a critical enabler in ensuring this transition is at scale and is affordable for the masses. Examples of a few best practices from cities of Surat, India and Vancouver, Canada.

Industrial Sector

Thirdly the industrial sector which includes manufacturing, construction, and even waste management are major sources of emissions and air pollution. Cities can work with industry leaders to promote the adoption of low-carbon technologies and processes, such as the use of renewable energy sources and the reduction of waste through recycling and composting. Cities can also look at innovative financing models such as the carbon credits example of Indore city in India to incentivise effective waste management. Via innovative governance and policy design, cities can also incentivise the adoption of sustainable practices through tax breaks and other financial incentives completed by large scale behavioural change and sensitisation campaigns.

Agriculture

Another but a less talked about sector from a city context is the agriculture value chain space. Cities can collaborate with companies, supply chain players and local farmers to promote sustainable modes of transportation and smarter agriculture practices such as local food production and distribution.

Power Generation and Use

Finally, on power generation and use, cities need to ramp up renewable energy to supply to buildings and electric vehicles charging stations. This requires setting affordable tariff structure, investment in renewable energy infrastructure, such as rooftop solar, wind turbines and effective waste to energy plants in collaboration with energy providers and distribution companies.

Some ways to leverage financing for cities Public-private partnerships

Public-private partnerships (PPPs) can bring together public and private sector resources to finance and implement climate action initiatives. For example, a city could partner with a private company to finance and install solar panels on public buildings. The private company would provide the financing for the project, and the city would pay back the financing over time, with interest. This can help to reduce the financial burden on the city while still achieving climate action goals. An example is ‘Green city’ Gandhinagar in India.

Green bonds

Another financing strategy for climate actions is the use of green bonds. Green bonds are fixed-income securities that are specifically earmarked for socially responsible and environmentally friendly projects. Cities can issue green bonds to finance climate action initiatives, such as renewable energy projects, public transportation, and energy efficiency improvements. We are already seeing positive signals from states like Maharashtra which announced investment in green bonds in their recent budget for FY 2023-24.

Dedicated climate funds

Climate funds are dedicated funding sources that are specifically designed to support climate action initiatives. Cities can apply for funding from climate funds to support a wide range of climate actions, including renewable energy projects, energy efficiency improvements, and climate resilience initiatives. For example: Tamil Nadu government’s ambitious decision to set up a Green Climate Fund at the state level will definitely see finance flows for city level climate action as well.

Conclusion

Cities offer a huge opportunity to holistically and more impactfully address the climate crisis due to the relatively smaller scale as compared to state or national level. While doing this it is also important to ensure this transition is just and equitable catalysed by coordinated efforts among government, industry, financial institutions and civil society via robust governance mechanism and financing strategy. Lastly learning from national and global best practices and replicability of the same with greater political intent will ensure rapid scale up.

Cities need to ramp up renewable energy to supply to buildings and electric vehicles charging stations. This requires setting affordable tariff structure, investment in renewable energy infrastructure, such as rooftop solar, wind turbines and effective waste to energy plants in collaboration with energy providers and distribution companies