The New Development Bank approved two renewable energy projects in India and Brazil totaling USD 800 million.
The European Investment Bank provided EUR 8.4 billion of new financing to improve various projects inside and outside Europe in areas of renewable energy generation and energy efficiency, sustainable transport, clean energy, social housing, telecommunications and water infrastructure.
October developments indicate that climate finance flows towards sustainable cities that are implementing climate action.
A Climate Policy Initiative report shows that mitigation finance accounted for 93% of global climate finance flows tracked in 2017-2018, with renewable energy as the primary destination sector.
Mitigation finance in October reflects renewable energy as the continued dominant destination sector, with investments also directed towards energy efficiency and sustainable transport. Reports released last month show that climate finance has reached record levels. Yet they also make clear that action still falls far short of what is needed under a 1.5°C scenario. Cities and other subnational actors play a crucial role in implementing climate action. This Update examines the latest developments and publications on these issues.
MDBs Support Clean Energy, Sustainable Transport
The New Development Bank (NDB) approved two projects totaling USD 800 million, bringing the Bank’s portfolio to 44 projects with loans aggregating to USD 12.4 billion. The NDB provided a sovereign loan of USD 500 million to Brazil for the Fundo Clima to finance projects contributing to climate action in the area of urban mobility, waste treatment, renewable energy and energy efficiency. The Bank also provided a USD 300 million loan to support India in increasing investment in renewable energy.
The International Finance Corporation (IFC), a member of the World Bank Group, provided Ukraine with a financing package of USD 50 million to scale up sustainable energy investments, particularly for small and medium-sized enterprises (SMEs). Specific focus lies with improving supply-side efficiency in the power sector, increasing the share of renewable energy and enhancing end-use energy efficiency.
The European Investment Bank (EIB) provided EUR 8.4 billion in new financing to improve various projects inside and outside Europe in the areas of sustainable transport, clean energy, social housing, telecommunications and water infrastructure. To harness renewable energy and improve local energy infrastructure, for example, financing supports: construction of four new onshore wind farms in Poland; an upgrade of Austria’s energy distribution; and waste-to-clean-energy conversion in Germany.
Projects that promote renewable energy generation and energy efficiency technologies in Brazil received EIB support with financing of EUR 100 million to Banco de Desenvolvimento de Minas Gerais. Over the next four years, the projects aim to support small-scale solar photovoltaic (PV) plants and run-of-the-river hydropower plants and improve energy efficiency in public buildings, street lighting and industrial facilities.
EIB Directs Climate Finance Towards Sustainable Cities
The EIB announced that it aims to allocate at least 50% of its financing activities for projects that support climate action and environmental sustainability by 2025. A significant share of these projects will be implemented in cities. The importance of supporting climate action by cities and other subnational authorities was also highlighted at the UN Secretary-General’s Climate Action Summit.
The EIB support for cities and regions announced in October includes:
- A EUR 355 million scheme to protect Athens, Thessaloniki and the Peloponnese (Greece) from floods;
- A EUR 350 million loan to co-finance Warsaw’s metro (Poland);
- EUR 300 million for the construction of affordable and energy efficient housing in five cities in Sweden;
- EUR 200 million financing to support clean urban transport in Spanish cities, including Las Palmas de Gran Canaria, Barcelona, Valencia and Palma de Mallorca;
- A EUR 115 million loan to acquire new electric and diesel-hybrid buses, install charging infrastructure and renew tram and metro tracks around Rotterdam (the Netherlands);
- A EUR 100 million loan to the city of Graz (Austria) to finance the modernization and expansion of its tram infrastructure, including the renewal of the tram and bus fleet;
- EUR 90 million for the financing of six high schools and professional schools in Guadeloupe (an overseas region of France in the Caribbean);
- A EUR 63.6 million loan for energy efficiency improving investments in Bucharest (Romania); and
- An EIB partnership with the Croatian Bank for Reconstruction and Development to enable easier access to energy efficiency loans for Croatian businesses and municipalities.
Climate Finance Can Deliver Maximum Impact in Developing Countries’ Urban Areas, Where Most Needed
According to the Global Commission on the Economy and Climate, a USD 93 trillion investment in low-emission infrastructure is required over the next 15 years, 70% of which is needed for urban areas. This translates into a per annum investment of USD 4.3 trillion – 5.4 trillion until 2030, yet the current investment scale remains at USD 2.5 trillion – 3 trillion per year.
Similar discussions on climate finance and sustainable cities took place during this year’s forum of the UNFCCC Standing Committee on Finance (SCF), held from 12-13 September in Beirut, Lebanon. An SCF report (FCCC/CP/2019/10/Add.1−FCCC/PA/CMA/2019/3/Add.1) presents conclusions drawn from the Forum to the 25th session of the Conference of the Parties (COP 25) to the UNFCCC in December, including considerations of: planning and financing sustainable cities; capacity building and enabling environments for mobilizing and accessing climate finance for sustainable cities; and the role of climate finance in building more inclusive sustainable cities. Interpreting the financing needs for urban infrastructure, the report emphasizes, requires a nuanced and regionally contextualized approach, given that, by 2050, 90% of population growth will be concentrated in medium-sized cities in Africa and Asia, and the financing needs of developed countries are focused on maintaining and retrofitting aged infrastructure.
The broader context of developing countries’ financing needs related to implementation of the UNFCCC and the Paris Agreement on climate change was addressed by the SCF at its 21st meeting in October in Bonn, Germany. An outline of the first report on the determination of these needs, due in 2020, is highlighted as one of the outcomes in the SCF report of its work in 2019 (FCCC/CP/2019/10−FCCC/PA/CMA/2019/3). The report, issued in advance of COP 25, also contains outlines for the 2020 Biennial Assessment and an overview of climate finance flows.
The Climate Policy Initiative (CPI) reflected on tracked climate finance in 2017 and 2018, the first major wave of investments following ratification of the Paris Agreement, in its report titled, ‘Global Landscape of Climate Finance 2019.’ Data show that climate finance flows reached a record high of USD 612 billion in 2017, driven particularly by renewable energy capacity additions in China, the US and India, as well as increased public commitments to land use and energy efficiency. This was followed by an 11% drop in 2018 to USD 546 billion. Put in perspective however, annual investment must increase much more and rapidly. Citing the Intergovernmental Panel on Climate Change (IPCC) and the Global Commission on Adaptation (GCA), the report stresses that “investment required to achieve the low-carbon transition range from USD 1.6 trillion to USD 3.8 trillion annually between 2016 and 2050, for supply-side energy system investments alone … while the Global Commission on Adaptation … estimates adaptation costs of USD 180 billion annually from 2020 to 2030.”
The authors argue that several factors will determine the scope and scale of the transition to a net zero-carbon future, and recommend that:
- Governments continue to raise their levels of ambition in national climate plans and target resources to enable these plans to be implemented;
- Public and private actors coordinate to rapidly scale up finance in sectors beyond renewable energy generation, including energy efficiency, adaptation and climate resilience, food, technology and research and development;
- Development finance institutions align their portfolios and operations with the Paris Agreement to catalyze private finance at scale;
- Capital markets and banking shift towards green finance; and
- Public institutions “make every dollar count” and ensure quality as well as quantity.
In addition, many see the linkages between climate action and health benefits as obvious win-win option for investors. A new study in Palgrave Communications by the Center for Climate, Health, and the Global Environment at the Harvard T.H. Chan School of Public Health (Harvard C-CHANGE) finds that the amount of climate and health benefits achieved from renewable energy and transportation improvements depends on the country where they are made.
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The SDG Knowledge Hub publishes monthly climate finance updates, which largely focus on multilateral financing and cover, inter alia, mitigation and adaptation project financing news and lessons, institutional events and news, and latest developments in carbon markets and pricing. Past climate finance updates can be found under the tags: Finance Update: Climate Change; and Finance Update: Sustainable Energy.