7 Ways to Attract and Use Climate Finance for Transport
It is not possible to effectively address climate change without substantive greenhouse gas (GHG) emissions reductions by the transport sector. But putting the pieces together – especially in developing countries – will require fine-tuning transportation climate finance readiness to match growing demand.
First, a few reasons why transportation is so important to climate: Transportation generates about 23 percent of energy-related global carbon dioxide (CO2) emissions. Transportation is also the fastest-growing source of carbon emissions, on track to double by 2050 under a business-as-usual scenario. Unless current trends shift, vehicle ownership will double worldwide between 2010 and 2030, with ownership in developing countries growing three times faster than in developed countries. In addition, overall trips and distance traveled is growing fastest in developing countries, where passenger and freight traffic will increase almost twice as fast as GDP.
These factors all add up to more vehicles on the road and more emissions in the atmosphere, at the exact time we are about to bust the world’s carbon budget. Preventing this growth will require global investment in low-carbon transport options like integrated transport solutions, including Bus Rapid Transit (BRT) and metro, land-use planning, and non-motorized transport infrastructure. Clean transportation alternatives exist, but they’ll cost an estimated $3 trillion per year according to the International Energy Agency (IEA) – three times the amount currently spent on transportation.
So with constrained public budgets in even the most well-off nations, how can developing countries attract more money and use the funds they already receive more efficiently? A new report written by WRI experts for the German International Cooperation (Deutsche Gesellschaft fuer Internationale Zusammenarbeit (GIZ)) outlines seven routes governments in the developing world can take to accelerate investment in low-carbon transport. The report is part of the Bridging the Gap initiative, a multi-stakeholder effort to link global climate change and land transport.
Seven Building Blocks to Encourage Transportation Investment
These seven building blocks can encourage greater low-carbon transport investment in developing countries. These conditions outline a pathway to on-the-ground readiness, which can be pursued in any order or combination.
Institutional Arrangement – Public institutions must send a clear signal that low-carbon transportation is a priority by setting concrete goals and coordinating interactions among public institutions. Example: India’s federal government created a national urban development program (JnNURM), which collaborates with regional and local governments to provide technical support for infrastructure development.
Enabling Environment – Creating a favorable, overarching context for transportation investment requires a stable economy, enforceable regulations, and competent local industry. These factors are crucial to attracting foreign investment of almost any kind, while important secondary enabling features include low fossil fuel subsidies, high transportation engineering capacity, and integrated transportation-land use planning. Example: Brazil’s Growth Acceleration Plan (PAC 2) is an emblematic policy platform highlighting urban mobility, investment, and management initiatives to support infrastructure development.
Financial Strategy – Attracting transportation investment requires a planned course of action to first identify available funding sources and then combine them strategically. Building a pipeline of bankable projects is key to raise interest of potential funders. This effort should be undertaken early, and at high levels of government. Example: The Mexican government’s federal public transport program (PROTRAM) supports a comprehensive financial strategy by offering grants intended to be blended with other funds.
Attracting the Private Sector – The United Nations Framework Convention on Climate Change (UNFCCC) estimates 85 percent of climate finance investment in the next decade must come from the private sector. Private funders are looking for long-term investment but are averse to risk. To encourage private investment in transportation, governments can utilize policies and instruments that reduce risk, increase return, and guarantee remuneration. Example: In São Paulo, Brazil’s Metro Line 4 is operated by a private company that invested over $500 million in infrastructure and operations since 2004.
Assessing Co-Benefits – Awareness of the socio-economic, environmental, health, and other positive externalities of low-carbon transport can help strengthen the case for investment among local and international audiences. Improved mass transit systems reduce congestion and traffic fatalities while improving job access and air quality. Example: Non-environmental benefits for Mexico City’s Metrobús BRT helped to motivate diverse stakeholder support.
Tracking Emissions – Financing for low-carbon transport is often predicated upon the strategies and capabilities to properly measure, report, and verify (MRV) projects, while emissions are often tracked through the ASIF framework: Activity of transport vehicles, share of modes, intensity of energy used, and fuel carbon intensity. Example: Bogotá’s TransMilenio BRT system managed to secure carbon offset funding through the Clean Development Mechanism because it was able to quantify emissions reductions.
Data Requirements – Collecting and managing data on transport activity, mode share, emissions rates, and fuel carbon content is essential to evaluating investment impact. Transportation observatories, innovative data collection, and monitoring solutions which pool resources among several jurisdictions can be a good option here. Examples: South-eastern Europe (SEETO) and Sub-Saharan Africa’s observatories (SSATP) collect and monitor data across wide regions.
These seven building blocks for encouraging transportation investment can be challenging, but each creates broad positive externalities extending beyond highways and byways. By focusing on these conditions, developing countries can strengthen their institutions, processes, and general investment climates (Table 2).
Where will the Investment Money Come From?
Although international climate finance channels have historically underserved the transportation sector, things are speeding up. Climate and environmental funds are devoting an increasing proportion of resources to transportation (Figure 3), and more than $130 billion in new finance is expected from the Green Climate Fund and national Fast-Start Finance pledges.
Private investment, which accounts for roughly half of global transport investment, is resurgent after a dip during the global financial crisis, and a consortium of multilateral development banks have pledged to spend $175 billion on sustainable transport between 2012 and 2022. In addition, readiness conditions will help to elicit more funds as sources increase.
The road forward for financing low-carbon transportation is clear — provided countries are ready to take advantage of funding opportunities and developing countries know how to access and make the best use of these resources.