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ENERGY FINANCE

Climate finance: why is transport getting the short end of the stick?

Climate finance

Climate change is a global challenge that threatens the prosperity and wellbeing of future generations. Transport plays a significant role in that phenomenon. In 2013, the sector accounted for 23% of energy-related carbon emissions… that amounts to some 7.3 GT of CO2, 3 GT of which originate from developing countries. Without any action, transport emissions from the developing world will almost triple to reach just under 9 GT of CO2 by 2050.

In previous posts, we’ve explored the policies that would maximize a reduction of transport emissions. But how do you mobilize the huge financial resources that are required to implement these policies?  So far, transport has only been able to access only 4.5% of Clean Development Mechanisms (CDM) and 12% of Clean Technology Funds (CTF). Clearly, the current structure of climate finance does not work for transport, and three particular concerns need to be addressed: 

    • To determine whether a project is a good candidate for climate financing, experts largely rely on theMeasurement, Reporting, and Verification (MRV) methodology, which evaluates how the project would impact GHG emissions. Originally designed for the energy sector, the MRV methodology is a great tool to quantify the effects of supply-side actions, such as switching from fossil fuel to renewable sources. The way the methodology was designed, however, makes it hard to apply this model to transport projects, whose climate impact largely depends on the possibility of shifting demand from private cars to greener modes (mass transit, cycling, and walking).

 

    • An additional challenge is that climate finance tends to shun projects that can be funded through other channels, focusing instead on programs that may not be viable on their own. The goal here is to prioritize projects that will generate “additional” GHG savings. This principle of additionality is another concept derived from the energy sector that makes it hard for transport projects to access climate financing. First, emission savings are often presented as a co-benefit of transport projects: improved accessibility concerns come first, while climate is the added bonus. In addition, most transport systems are economically viable, at least on paper—which further undermines their eligibility for climate finance. Our sense is that this is a shame: for a variety of reasons, sustainable transport solutions remain chronically underfunded. In their absence, cities are embracing auto-centric, carbon-intensive development patterns that are hard to fix once locked into place. 

 

  • Lastly, climate financing is too often allocated based on the short-term benefits of a specific project: what is the impact of upgrading to a cleaner bus fleet? How many drivers will leave their cars behind after the opening of a new transit line? These may seem like sensible questions, yet the answers fail to capture the long-term climate benefits of transport investment. In many of our client countries, owning a car remains a coveted privilege: the few who can drive will hold on to their cars, while those who can’t afford it turn to other modes because they have no other option. Therefore, expanding mass transit or improving non-motorized transport options in developing countries may not immediately result into substantial modal shift. But these same interventions, coupled with judicious land use, will ultimately create an urban environment that reduces residents’ overreliance on private cars, even as cities grow bigger and richer. This type of outcome, of course, may take years or even decades to materialize, and can never be attributed to a single project. But this is the kind of comprehensive, long-term vision we need to make sure the quickly-growing cities of the developing world can evolve to look more like Barcelona and less like Atlanta: compact urban areas with competitive public transport, shorter commutes, and a much, much smaller carbon footprint. Turning this vision into reality will take significant investment, and requires us to design a framework for climate financing that fits the reality of the transport sector.

 This may seem like a tall order, but there are a number of promising options:

    • Per capita endowments. Under a business-as-usual scenario, transport-related emissions are expected to grow exponentially over the next decades. That is especially true in developing countries, most of which are currently experiencing rapid motorization and urbanization. To buck the trend, one idea would be to define a global limit on the volume of transport emissions per capita, and make climate finance accessible to cities as long as they remain below the limit. Such a mechanism would give decision-makers a powerful incentive to steer clear of car-centric development, and would provide them with the financial resources they need to do so.

 

  • Scope and ambition of a package of interventions.  Taken in isolation, a single transport project is unlikely to generate radical emission savings. To achieve maximum impact, climate finance should create incentives for decision makers to commit to a broader, longer-term package of complementary actions —including, in particular: correctly pricing carbon, fuel, and travel; improving the supply of public modes; and facilitating compact spatial development across a metropolitan region.

This debate may seem somewhat abstract at the moment given the limited availability of climate funds. Yet the needle needs to move, and it needs to move quickly: without action, emissions from transport are poised to reach 13.2GT a year by 2050… In order to meet the ambitious targets outlined in the Paris agreement, we need to bring the global number down to just 4.5GT annually. This cannot happen without access to an adequate and steady stream of  climate finance. 

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