In recognition of cities’ pivotal role in climate action, the United Nations Climate Change Conference, known as COP, will include for the first time a summit dedicated to localized efforts to curb climate change. The Local Climate Action Summit, hosted by the COP28 presidency and Bloomberg Philanthropies on December 1 and 2 in Dubai, will provide an official platform for subnational leaders to highlight their successes toward decarbonizing, building climate resilience, and gaining community buy-in for such efforts. The summit also offers leaders an opportunity to come up with the financial framework needed to scale up initiatives at the city level to fully realize their decarbonization potential.
Why the focus on cities?
While national-level discussions often dominate climate and energy policy decisions, cities, which are responsible for more than three-quarters of global energy consumption and more than half of global greenhouse gas emissions, have emerged as proactive leaders in crafting and implementing innovative strategies to reduce their carbon footprint. To lower emissions, strategies can take advantage of the unique characteristics of cities such as high population density, compact urban environments, and engagement with local communities to maintain societal buy-in. These features lend themselves to efficient public transportation networks, implementing energy-efficient infrastructure, and promoting more resilient cities. For example, Mexico City’s Metrobús public transit system led to an estimated reduction of 326,000 metric tons of CO2 between 2011 and 2018—equivalent to 72,500 gasoline-powered cars driven in one year.
Further underscoring the importance of cities to climate mitigation is their expected growth. More than half of the global population today resides in cities, and that percentage is expected to rise to 70 percent by 2050. Projections show that during this same time period the world will add at least fourteen new megacities, each with more than 10 million people, creating the need to simultaneously expand and transform cities’ infrastructure, energy systems, and societal habits to foster low-carbon, resilient, and prosperous environments. Vibrant, young populations are vital to these emerging megacities and will need good paying jobs, healthy environments, economic growth, and opportunities to establish secure livelihoods. Navigating this growth within a low-carbon and resilient framework can foster a more equitable and just future. To achieve this, targeted financing mechanisms are essential for empowering cities to invest in sustainability, promote economic prosperity, and address the impacts of climate change on urban populations.
Current state of play
Cities in developing nations, where much of the world’s population growth is projected to occur, have immense potential to drive sustainable growth, offering a significant opportunity to reduce inequality and advance global climate goals. The International Finance Corporation puts a $2.5 trillion annual price tag on urban sustainable investment opportunities in developing nations through 2030, promising not only economic growth, but also impactful reductions in global emissions.
According to the Coalition for Urban Transitions, urban initiatives can feasibly reduce greenhouse gas emissions in cities by nearly 90 percent by 2050 while also generating twenty-four trillion dollars in economic returns. Despite this potential, total climate finance to cities reached an annual average of only $384 billion during 2017-2018, and less than 10 percent was directed to developing economies globally. In contrast, a disproportionate 83 percent of funds were allocated to projects in North America, Western Europe, East Asia, and the Pacific.
What explains this gap in financing?
Like COP, multilateral development banks and financing institutions were designed to cater to national governments, posing a challenge for cities. Despite initiatives by institutions like the World Bank, Inter-American Development Bank, and African Development Bank to provide limited funding for urban sustainability projects, these funds often do not align with the specific needs and capacities of cities. As noted by Mayor Claudia López of Bogotá, Colombia, and Mayor Mar-Len Abigail Binay of Makati City, Philippines, many cities in the Global South need the support of development banks’ financing instruments to access loans and de-risk climate projects.
A primary hurdle to the expansion of financing in developing economies is credit worthiness. The World Bank estimates that only 20 percent of the largest five hundred cities in developing countries meet this criterion. Funding is also often contingent upon a sovereign guarantee from the national government, a condition susceptible to delays due to various political or economic factors. These onerous requirements contribute to the funding disparity between cities in developed and emerging economies, highlighting the need for more tailored and accessible financial mechanisms for cities to drive low-carbon growth.
COP28’s Local Climate Action Summit offers a platform for city leaders and coalitions to amplify their progress toward net zero and present recommendations for improving their ability to meet future climate goals. It’s also an opportunity for national-level leaders and multilateral institutions to realize the role of cities both on the forefront of mitigating the impacts of climate change. Bodies such as the Global Commission for Urban SDG Finance and the Cities Climate Finance Leadership Alliance have been working on proposals to accelerate city climate action. Several recommendations are clear:
To start, multilateral financial institutions, which often support pilot projects in emerging markets, should reform their institutional approach by creating long-term pathways for financing city-level, climate-related projects. Last year, US Treasury Secretary Janet Yellen called on development banks to “target additional resources towards sub-sovereign levels.” The Development Bank of Latin America and the Caribbean (CAF) has made promising steps by pledging to expand their mandate to sub-national stakeholders, yet remain an exception. The broader landscape of financial institutions and development banks have not integrated city lending practices into consistent strategy. For example, in 2022, the World Bank Gap Fund only supported small-scale projects in two countries in Latin America and the Caribbean. These programs must be rapidly scaled across developing nations to meet the demand of city governments.
The private sector should work in tandem with development banks to generate greater investment for urban climate projects. If multilateral climate financing mechanisms reduce risk for companies by pooling projects perceived as too small or speculative, private finance can play a larger role in driving significant shifts in city-level mitigation efforts. The business community can commit to doing business in cities with clear pathways toward decarbonization, promoting a circular economy, and supporting workforce development opportunities. Fostering greater city-to-business collaboration holds the potential to grow green jobs and accelerate the low-carbon energy transition while generating municipal revenue.
Finally, additional research and resources should be devoted to amplifying the role of subnational networks in connecting cities in emerging markets. Such networks, which have become more common with global urbanization trends, serve as platforms for city leaders to exchange strategies, gain access to trainings, and advocate for common priorities, including climate mitigation. While there is little empirical analysis on the topic, a 2021 study found a positive association between membership in city networks and increased reductions in urban greenhouse gas emissions. Currently, networks such as ICLEI – Local Governments for Sustainability, which serves as a focal point for the local government constituency to the UNFCCC, charge annual membership fees. Additional research on the value of participation in global networks could substantiate membership fee waivers or reductions for cities in emerging markets.
City financing mechanisms should be viewed as must-have tools of global climate governance, not nice-to-have options. Centering cities as enablers of both adaptation and mitigation in addressing climate change can help advance the global energy transition, establish low-carbon industries, and importantly, gain and maintain societal buy-in to deliver green and economically advantageous solutions to cities.
Amid the many announcements and commitments expected at COP28, there is potential to drive real progress by supporting—both financially and politically—innovative solutions proposed by cities.
Willow Fortunoff is a former assistant director at the Atlantic Council Adrienne Arsht Latin America Center and Fulbright Research Fellow.
Maia Sparkman is an associate director for climate diplomacy at the Atlantic Council Global Energy Center.
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