Rethinking urban green financing for accelerating India’s cleantech system

Housing more than half of the world’s population, cities generate 50 percent of the global waste and consume two-thirds of the world’s energy. Cities emit 80 percent of greenhouse gas emissions, putting them on the frontlines of climate shocks such as heatwaves, flooding, and health-related problems. Moreover, more than 80 percent of the annual global costs of adaptation to climate change are estimated to be borne by urban areas. These concerns are accentuated in the Global South, where meeting the growing population’s basic needs with the limited resources at the city’s disposal takes precedence over sustainability and climate goals and becomes central to building political capital. Such trade-offs are especially prevalent in African and South Asian cities. Resource gaps thus act as major impediments to achieving urban circularity and building green infrastructure. How can cities bridge this gap to motivate and incentivise administrators and planners to envelope planning approaches and development initiatives through cleantech, often marred by resource and access constraints?

Resource gaps thus act as major impediments to achieving urban circularity and building green infrastructure.

Urban green challenges   

As cities recover from the economic disruption of COVID-19, there is a renewed focus on mobilising investment for low-emission and climate-resilient urban infrastructure. Investment opportunities in six sectors (waste, water, renewable energy, electric vehicles, public transport, green buildings) in emerging markets alone amount to US$ 2.5 trillion annually through 2030. However, urban local bodies (ULBs), particularly in the developing world, often face access barriers to financial support for its implementation. They must either rely on fiscal transfers from the provincial or federal governments or make difficult choices that prioritise local needs. India’s 74th Constitutional Amendment Act of 1992 (74th Amendment) prioritised decentralisation and urban self-governance of Municipalities or Urban Local Governments. Yet, India’s ULBs are among the weakest globally, largely reliant on grants from the centre and state. Insufficient revenues to meet increased infrastructure demands and the inability to access capital due to fiscal dependencies autonomously have made ULBs vulnerable and less efficient. Cash-starved, they are rendered further inefficient and ineffective.

Insufficient revenues to meet increased infrastructure demands and the inability to access capital due to fiscal dependencies autonomously have made ULBs vulnerable and less efficient.

ULBs’ effectiveness and functional flexibility get further complicated due to uncertainties over regulatory frameworks and tax policies, the lack of expertise in project development, lack of control over resources, poor infrastructure planning, high transaction costs and a dearth of effective funding models at the city and regional levels. Therefore, cities must overcome financial challenges to institute an enduring green investment ecosystem. However, these efforts are complicated due to uncertainties over regulatory frameworks and tax policies, lack of project development expertise and control over resources, poor infrastructure planning, high transaction costs and a dearth of effective funding models at the city and regional levels. Reserve Bank of India’s (RBI) Report on municipal finances shows large gaps in capacity and technology requirements related to urban climate finance, estimated in trillions of dollars. These gaps decelerate a city’s attempts to successfully implement Climate Action Plans (CAP) to achieve its net-zero targets. For instance, Mumbai’s CAP is yet to achieve efficacy as investments in sustainable public infrastructure are struggling to be a top priority. Furthermore, green project ideas often fail to progress without adequate preliminary studies at the local level. A case in point is the Maharashtra government’s plan to deploy over 5,000 electric buses that may prove counter-productive due to their non-feasibility for all route types. Even lesser regional studies of detailed climate mitigation, recovery strategies or greenhouse gas inventories make it difficult for ULBs to integrate climate investments.

Initiatives for raising urban green financing

The 2014 Climate Summit by the Cities Climate Finance Leadership Alliance launched one of the initial comprehensive frameworks for tracking urban climate finance. The framework aimed to accelerate investment in low-emission, climate-resilient infrastructure in cities while bridging investment gaps. Through mitigation and adaptation strategies, it proposes action-oriented methods and practical tools for assessing green investments based on project-level data and sector-specific capital expenditure.

Reserve Bank of India’s (RBI) Report on municipal finances shows large gaps in capacity and technology requirements related to urban climate finance, estimated in trillions of dollars.

The 2021 State of Cities Climate Finance Report examined urban climate investment and the barriers and steps for overcoming challenges. Such continuous and in-depth evaluation measures at the national and local levels can provide ULBs with a blueprint for budgeting and channelising urban green investments. For example, the alliance mapped the landscape of urban green finance in Hyderabad and Kolkata for green finance disbursements from public and private sources at both national and international levels. Another replicable initiative is the City Climate Finance Gap Fund, which demonstrates a unique collaborative model and works directly with city groups and networks, bringing expertise and financing opportunities for sustainable urban renewal. Such alternate funding instruments can provide ULBs with innovative investment opportunities for implementing projects within and across cities. Cases such as Senegal’s capital city, Dakar, where the Gap Fund provides technical assistance to developers for planning and constructing affordable green housing, illustrate such efficiency. Similarly, in Ethiopia’s Addis Ababa, the Gap Fund integrates climate smart capital investment plans into urban development. In India, the Gap Fund assists Mangalore and Kolar in climate diagnostics and action plans for solid waste management. In Ahmedabad, it supports the local government in developing resilient urban infrastructure. However, despite these endeavours, ULBs continue to face significant challenges in mobilising finance in the urban ecosystem for transformational green and clean action.

Another replicable initiative is the City Climate Finance Gap Fund, which demonstrates a unique collaborative model and works directly with city groups and networks, bringing expertise and financing opportunities for sustainable urban renewal.

Enabling and empowering ULBS for green investments

Innovative funding instruments and alternate financing opportunities can help cities fulfil basic infrastructure requirements and allow ULBs to meet their climate action ambitions, especially in the Global South.

• It is imperative that urban green financing follows a multifaceted and multistakeholder approach with global alliances to form a collaborative circular network beyond the centre and state. ULBs must partner with multilateral organisations, civil society, social enterprises, communities and private investors to make urban perspectives integral to green investment dialogues. Collective insights will help investors prioritise engagement models and motivate ULBs to mainstream green objectives.
• While the RBI outlines alternate financing models and municipal bonds, reforms and policies for ULBs must speak to ground realities faced by climate policymakers, climate finance practitioners, local communities, urban planners, and municipal finance officials. Such local conversations can create interlinkages and bridge gaps for catering to home-grown green infrastructure demands, allowing for adaptation and periodic refinement of policies.
• In the absence of regulatory guidelines for green investments, common city-level financing frameworks can drive ULBs to fulfil the objectives of the 74th Amendment. Early to late-stage green funding opportunities will allow ULBs to execute finance-ready projects while regularly evaluating plans, budgets, strategies, and investment programmes. This can help ULBs invest in building green and smart cities.
• Additionally, it is critical to enhancing ULB personnel capability through technical assistance and capacity-building programmes for low-carbon and climate-resilient urban planning and development. Importantly, ULBs must also gain insights from native and local communities through participatory development approaches while planning green investments. This will enable local authorities to circumvent exploitation, implement best practices, and identify financers for high-quality green projects.
• Maintaining a portfolio of proposed and ongoing projects can help ULBs frequently examine the gaps in technical and financial assistance and consider the potential for attracting additional financing. Further, in-depth studies of green project concepts, pre-feasibility studies, project financing and late-stage project preparation can help build and sustain an active investment pipeline. This will encourage ULBs to work towards improving the overall urban quality of life and focus on clean air, public health, social inclusivity, circular economy and job creation across sectors.

Maintaining a portfolio of proposed and ongoing projects can help ULBs frequently examine the gaps in technical and financial assistance and consider the potential for attracting additional financing.

ULBs’ financial well-being and know-how are central to making them self-sufficient and accountable for sustainable development. Cities are a nation’s engines of growth, and green investment dialogues will have to be more sensitive towards local urban needs and follow a multistakeholder approach for raising unique and diverse green finance flows. Building these synergies is crucial to allow ULBs to effectively and vigorously contribute to and accelerate India’s cleantech system for building inclusive, clean, and healthy future cities.

• Urbanisation
• India
• Economic
• GREEN BUILDINGS
• GREEN FINANCING
• infrastructure
• public transport
• renewable energy

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