Investment in Greener Cities: Mind the Gap

Public Policy & Economic Research

Investment in greener cities: Mind the gap

Investment in greener cities: Mind the gap between thepublicandprivate sector. institutional investors,Allianz islookingforwardtohelpingfosterthismuch-needed dialogue cities cannotshoulderthisresponsibility alone.Asoneoftheworld’sbiggestinsurers and The worldwillnottackleclimate changeunlesscitiesmodernizetheirinfrastructure. But Cities Platformswork. Institutional investorscanoffertheirexpertiseandactive participationinmakingsuchGreen Platforms –topackage,marketandsellurbaninfrastructure investmentstotheprivatesector. governments shouldthereforesetupcentralizedone-stop shops–wecallthemGreenCities assessing suchprojectsaretoohighcomparedwiththereturn theycanexpect.National to besmallandhighlydiverse.For institutionalandotherinvestors,thecostsoffinding sustainable urbaninfrastructureinvestmenttakesplace. Urbaninvestmentprojectstend However, nationalgovernmentsshouldalso lookatthestructureofmarketinwhich investments. frameworks forprivatelong-terminvestmentsandredesign therulesofpublic-privateco- level, especiallyintheEuropeanUnion.Nationalgovernmentsneedtoimprovelegal barriers toprivateinvestmentcanonlybeovercomeatthenationalorevensupranational Local governmentsneedtogetsmarterindealingwiththeprivatesector. Butmanyofthe urban infrastructureisthereforecrucialforsustainablegrowthworldwide. The questionofhowtoattractmoreprivatemoneyintothemodernizationandgreening cities arefallingwoefullybehindontheirgreentargets. the municipalclimatechangeagenda,isparticularlyundercapitalized.Already, most compared withneedandpotential.Theareaofenergysavings,whichshouldbeattheheart in municipalprojectsforrenewableenergyorpublictransport,thesumsareminiscule attractive additiontotheirportfolios.Butalthoughsomeprivateentitiesarestartinginvest the OECDcountries,andshould,inprinciple,findsustainableurbaninfrastructurean potential sourceoffunding.TheyhavesomeUSD70trillioninassetsundermanagement Private institutionalinvestors,suchaspensionfundsandinsurancecompanies,areanother finance. may makeitdifficultforbankstoreturntheirpreviouslyprominentroleininfrastructure shrink theirbalancesheets.Newregulation,suchastheBaselIIIrulesoncapital, traditionally financedthemajorityofinfrastructureinvestments,arestrugglingtorepairor investment needs.Theprivatesectorwillhavetostepin.However, banks,whichhave sustainable. Publicbudgetsareunderstraineverywhere;theywillnotcoverafractionofthese every yearoverthenext20yearstoupgradeurbaninfrastructureandmakeitmore The taskisenormous.Various studiessuggestthataroundUSD2trillionwillhavetoinvested programs tobecomegreener. hagen, ChicagoandMunich,butalsoMexicoCity, RiodeJaneiroandShanghaihaveambitious account forthevastmajorityofpublicspendingonenvironmentalpolicies.NotonlyCopen- and municipalitieswillhavetodrivechangeinstead.InmuchofEurope,localgovernments Many governmentsusethegridlockinglobalclimatetalksasanexcuseforinaction.Cities coastal orotherwiseexposedcitiesinparticular. course ofthiscentury. Storms,floodsandotherextremeweatherwillhurtusall,some Unless effectiveactionistakensoon,theworldwillheatuptoadevastatingdegreeover output andwealth.Theworld’stop600citiesalonegeneratehalfofglobalGDP. move fromruraltourbanareasovercomingdecades.Butcitiesalsoproducethebulkofglobal global greenhousegasemissions–asharethatissettorisefurtherasbillionsmore Cities aretheheartofworld’sclimatechangedilemma:theyaccountforthreequarters Executive summary 5 Investment in greener cities: Mind the gap Table of content 1. Cities and climate change...... 9 1.1 Why cities matter...... 10 1.2 Cities to the rescue...... 11

2. Investment in sustainable urban infrastructure...... 17 2.1 The investment gap...... 18 2.2 The investment case...... 20 2.3 What private investors are doing...... 25 2.4 Why is investment falling short of potential?...... 27 2.4.1 Policies and politics...... 27 2.4.2 Matching funds and projects...... 29 2.4.3 The special case of energy efficiency...... 31

3. How to narrow the financing gap...... 35 3.1 Local initiatives...... 36 3.2 National policies...... 39 3.3 The European framework...... 41 3.4 What investors can do...... 44

4. Where next?...... 49

Annex: What cities are doing to reduce CO2...... 52

End notes...... 56

References...... 60

Cities and climate change 10 1. Cities and climate change areas in 2050 as are alive today. alive are as 2050 in areas urban in living people many as almost be could there 2050, by billion 9.6 to grow to projected is population world’s1). the (see Since Chart gions in re emerging expected the with fastest growth to share three-quarters, is towards rise expected this 2050, By areas. urban in live people billion 7.2 world’s the of half roughly Today growing. keep will pollution global to contribution their in % Chart 1:Increasingurbanization,shareoftotalpopulationlivinginurbanareas gases. greenhouse of emissions global of 70% over for responsible are they and 70% of around consume ready the world’s energy al They change. hugely for climate matter Cities 1.1 Why cities matter Source: UNPopulationDivision. 10 20 30 40 50 60 70 80 90 0

1950

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1960

1965

1970

1975 1 1980 more, is What

1985

1990 - 1995 -

2000 by the year 2100, while the global mean sea level level sea mean global the 2100, year while the by 4.8°C and 2.6°C between by increase will ture tempera mean global the taken, are measures effective unless that show models projection climate Most reason. main the are gases house of green concentrations atmospheric increased that agree broadly researchers climate derstood, un fully yet not are change climate of tionships dramatically. change trends current unless produced emissions by in the carbon rise – cities further a to lead will growth urban tremendous rwh il e eeae b tee cities. these by generated be will growth GDP global of two-thirds almost years, the 20 next Over population. world’s the of quarter a than less GDP,with global of half over generate together cities major 600 world’s The economy. French of the upof 30% Japan’s makes Paris GDP; 40% generates alone Tokyo growth. and duction 2005 Latin America,Caribbean Although the dynamics and causal rela causal and dynamics the Although 2010 pro of global heart atthe also are Cities Northern America 2015

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Asia 2045 2 This This 2050 - - - - - xrm cl, s iey o accelerate. to likely is cold, extreme and forest fires droughts, floods, such as storms, events, weather extreme more towards trend ol rs b a mc a 8 centimeters. 80 as much as by rise could take effective measures without further delay. further without measures effective take can who actors – found be must level national the below actors New results. yield to gotiations ne intergovernmental these for wait to afford longer no can world The inaction. own their for excuse an as framework global a of lack this ing tak are governments Some national agreement. effective an without passed have conferences change climate UN Successive uncertain. main re emissions gas greenhouse cutting on accord is more becoming urgent, the chances of a global globe. the around businesses for problems cause hubs supply jor at ma For disruptions weather-related example, consequences. indirect various has also change While effective action While effective on climate change 4 Climate Climate 3 The - - - - tainability commitments. sus tainability vague to targets monitored legally and binding from widely, differed strategies these although – strategy green of sort some adopted had 94% full a 2012, in Cities LSE by survey a to responded that world the around cities 90 the mental protection. mental environ on expenditures governmental of 75% for responsible are governments local Europe in that estimates OECD have The funds: over also control cities Many transformation. green any to ingredient vital a are these and areas, ral ru than experts and businesses innovative of density higher a have to tend areas urban sectors. Also, various across strategies prehensive com- implementing and devising at good often are they and making, of autonomy policy gree in have a de usually Cities change. climate against fight the in actors leading as cities towards ed shift increasingly has focus the years, recent In 1.2 Cities to the rescue come greener and adapt to climate change. climate to adapt and greener come be to programs implementing and adopting heating. thermal or farms wind as such projects, energy Green Index City have developed own their green American North Siemens the in included cities greener. greener. become to doing are Shanghai, to Copenhagen from cities, what of examples more has 1 Annex targets. reduction CO2 their and worldwide ies ofcit selection showsa 2 Chart worldwide. forts ef reduction CO2 on effect significant a have would they initiatives, change climate these on iomna review. vironmental en an conducted have Index City Green Asian Many Many of the world’s proactively are cities 8 Since 2007, 19 out of 22 cities in the the in cities 22 of out 19 2007, Since 5 9 If cities followed through through followed cities If 7 All bar two of the 27 the of two bar All 6 Of Of ------11

Investment in greener cities: Mind the gap 12 1. Cities and climate change self-imposed CO2 reduction targets. CO2 reduction self-imposed towards work to them obliges which Mayors, of Covenant a signed have villages and towns ies, change. climate combat to measures 4,700 over adopted 18% of global GDP and pride themselves in having for account Yokohama, to Ababa Addis from ing to over 50 cities).grown rang members, The C40 has (which Cities” “C40 the is worldwide cities of network er.mega- The climate-focused largest oth each encourage and practice best exchange to together working increasingly are they gies, strate mitigation climate own their developing Source: GreenCityIndexSiemens,ERCD research Chart 2:CO2reductiontargetsofselectedcities 10 Cities around the world are not only only not are world the around Cities Rio deJaneiro Within the EU, mayors over of 5,000 Within cit Mexico City 2005-2020 2008-2012 -20% -12% 11 - - - - defenses and more resilient roads and bridges. bridges. and roads resilient more and defenses flood example for change, climate of sequences con the to help cope with is built that cities ture we include also infrastruc In this, frastructure”. in urban “sustainable in investment heading the under homes greener or supplies care power buildings, apartment bus make urban networks, to initiatives summarize we report, this of pose pur the For infrastructure. old, of upgrading or new, in investment with behavior their change to businesses and inhabitants urban for tives Many Many ofcombine incen these initiatives 1990-2050 2005-2030 1990-2030 1990-2050 2009-2020 1990-2025 New York Chicago Toronto London Munich Vienna -80% -30% -50% -80% -21% -60% - - - - - structure takes place. takes structure infra environmental in investment large-scale unless – flooding and landslides to vulnerable are countries developing in areas suburban and urban in live who people onebillion ofthe Many lc o som nrsrcue n e areas. key in infrastructure storm of lack a by exacerbated was cities Coast East other and York New on had Sandy Hurricane that impact devastating The change. climate with sociated as events weather extreme the to more vulnerable ever be will cities many infrastructure, Carbon neutral Carbon neutral ihu sc “lmt adaptation” “climate such Without Copenhagen 2009-2020 2007-2020 2005-2025 2010-2015 2010-2015 Stockholm Singapore Helsinki Jakarta -30% -16% -25% 13 12 - -

or of use transport public the encourage • com- and residential both buildings, make • renewable to supplies energy their switch • to: aim They areas. three on focused have cities most examples), for 1 Table (see measures of array vast a pass sustainabilitythoughurbanprograms encom hm, rnpr ad at management. waste and transport them), in used is that energy the specifically, (ormore buildings generation, power namely infra structure, of types four just from come countries rich in emissions all of quarters three because emissions CO2 cut to efforts cities’ of heart the emissions-free private transport. transport. private emissions-free and efficient; energy more mercial, sources; utial ifatutr ms b at be must infrastructure Sustainable Carbon neutral Chongqing 2007-2020 2005-2020 2005-2020 Melbourne Wuhan -20% -20% 14 Al - - - 13

Investment in greener cities: Mind the gap 14 1. Cities and climate change days car-free designating walking, and for cycling publicspaces Extending • cells fuel and hydrogen LNG, as such technologies, mobility friendly climate Encouraging • and parking free lower taxes, through for example vehicles, for electric incentives Establishing • attractive more transport public making generally and for transport public lanes separate Adding • filters and bio-diesel through for busses example conventional Upgrading • congestion restrictions, access through cars fuelled conventionally of use private, the Reducing • Transport savings and upgrading about energy occupants building with dialogue on-going an Conducting • website municipal losses on the thermal maps of buildings’ Offering • infrastructure built all monitoring and city-wide efficiency energy Mapping • districts urban greenfield in building climate-neutral Constructing • sense not does make upgrading climate-friendly if buildings Demolishing • density housing Increasing • neutral climate become to industry and business encourage to awards and competitions Using • and commercial private, for public, contracts of new models energy Employing • and street LED through for example sector, public and private the in electricity Saving • policies environmental exemplary with municipalities pilot Designating • and private in installations other and ventilation for lighting, technology smart Using • new buildings and for existing standards efficiency binding Setting • of buildings efficiency energy the in for investments subsidies and incentives tax Creating • Energy efficiency planning urban in production energy renewable for sites local Designating • consumers for local electricity into gas landfill Converting • small, and capacities storage energy flexible highly local, Installing • efficient more them making and networks heating district Expanding • the increasing while oil and coal from coming on energy reliance Reducing • Renewable energy Table 1: Measures for making cities greener free recharging recharging free reduction capacity road and charges buildings industrial lighting underground buildings public stations power heat and combined local gas-based natural needed. where fuel abridge as act can coal, less CO2 than produces which gas, Natural geothermal. and solar, biomass, hydro wind, mostnotably of sources, renewable share policy. municipal for framework clear a provides thus and wide nation buildings commercial and residential all for standards enforceable sets Certificate” Performance “Energy national a Germany, In by 2020. by 20% CO2 emissions reduce to notably most targets, climate EU meet to governments national their of commitment the on count can Union European the in cities example, For tives. initia climate own their implement to easier it find to tend targets climate ambitious with regions or countries in Cities framework. legal a and international and solid national ernments gov national and regional with strong partnerships needs planning infrastructure urban Sustainable vacuum. a in operate not do Cities - - - 15

Investment in greener cities: Mind the gap

Investment in sustainable urban infrastructure 18 2. Investment in sustainable urban infrastructure Table 2: Infrastructure investment needs urban for strains additional mean will change climate and urbanization continued both over, More level. local the at happen to need will this of lot a above, explained As transport. of means and buildings stations, power new and isting ex of emissions gas greenhouse the reducing of challenge the face countries developing and developed Both populations. growing their date accommo and economically up catch to them allow to requirements, their hugeinfrastructure own have countries Developing replaced. or renovated be now must and ago years 50 to 30 built was countries developed in infrastructure most aside, change Climate daunting. are needs investments infrastructure global of Estimates 2.1 The investment gap Around USD 50 USD 50 Around Around USD 41 Around USD 57 trillion Over USD 40 USD 40 Over How much?How trillion trillion trillion structure development maintenance and structure to invest in expanding their water, power their expanding in invest to needed (even without green targets and and targets (even green needed without Amount that cities worldwide will need need will worldwide cities that Amount Global infrastructure investment most investment infrastructure Global of which will be spent on urban infra spent on be urban will of which Global infrastructure requirements infrastructure Global Global infrastructure investment investment infrastructure Global and transportation systems transportation and development goals) development - - - USD 2 trillion per year. year. per USD 2trillion is that years, 20 next the over trillion 40 USD be could requirement investment global the alone, infrastructure urban for that imply studies able Avail livable. cities keep and greener systems energy make decades to upgrade infrastructure, coming over trillions of tens invest to have will world the that agree as economists shows, 2 Table But, change. climate fighting of estimates usually not cost of overlap many and with comparable them therefore are Estimates carbon neutral. infrastructure making of costs the or intact infrastructure current keeping of costs the example for scenarios, different to refer and timeframes and methodologies different use economists since least not widely, differ ments storms. violent more and frequent more by whelmed be over defenses will flood and dikes while tion, precipita additional may not cope with systems sewage and water example, For infrastructure. For what? For 15 siae o ifatutr require infrastructure of Estimates - When? 2007 - 2007 - 2005 2012 - 2013 - 2030 2030 2030 2037 estimates, quoted quoted estimates, (2007), in quoted Siemens (2010a) Siemens Booz&Company Booz&Company McKinsey (2013) McKinsey in OECD (2013c) OECD in OECD 2006/07 2006/07 OECD KPMG (2012)KPMG Source - - - - Around USD 50 USD 50 Around Around USD 41 Around USD 57 trillion Over USD 40 USD 40 Over How much?How trillion trillion trillion structure development maintenance and structure to invest in expanding their water, power their expanding in invest to needed (even without green targets and and targets (even green needed without Amount that cities worldwide will need need will worldwide cities that Amount Global infrastructure investment most investment infrastructure Global of which will be spent on urban infra spent on be urban will of which Global infrastructure requirements infrastructure Global Global infrastructure investment investment infrastructure Global and transportation systems transportation and development goals) development For what? For - When? 2007 - 2007 - 2005 2012 - 2013 - 2030 2030 2030 2037 estimates, quoted quoted estimates, (2007), in quoted Siemens (2010a) Siemens Booz&Company Booz&Company McKinsey (2013) McKinsey in OECD (2013c) OECD in OECD 2006/07 2006/07 OECD KPMG (2012)KPMG Source around 5% in the 1960s. the in 5% around of rates with compared 2013, in GDP of 1.7% of low 20-year a to fell infrastructure in vestment in public example, for US, the In GDP. of share a as and spending public overall of portion a as both countries, many in falling been actually Ratio ofgovernmentinvestmenttoGDPEU-15 Chart 3:PublicinvestmentininfrastructureEurope Source: EIB Chart 3). Chart (see bit a up numbers the drove programs lus stimu public when crisis, financial the of onset 1970 the and ofGDPbetween point percentage 1 fell spending by more than public infrastructure 0 1 2 3 4 5

1971

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1975

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1981

1983

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1991

1993 (andsome countries developed most In

1995

1997

1999

2001 17 2003 Infrastructure 2005

Total 2007

2009 - - - 19

Investment in greener cities: Mind the gap 20 2. Investment in sustainable urban infrastructure to to be to in the achieved years 2020. 95% leaving 2008, by targets reduction emission had met cities 5% carbon ofonly ple, their British - exam For goals. sustainability their of short far falling are cities most that surprising not haps n h future. the in further decrease not does spending structure infra public provided – globally year a billion 500 USD be could for pay can sector public the what and needs financing be infrastructure tween gap the that estimates Poor’s & Standard after 1990. after in set that decline industrial were the to due mainly reductions emission their that implies which Germany, of part eastern the in were ies cit successful the of Most 2010. in them meet to course on were targets reduction emission adopted have that cities the of quarter one only funding” was the biggest infrastructure issue. infrastructure biggest the was funding” of “lack a that said respondents the of half than more infrastructure, in involved officials public of survey worldwide 2009 a In future. the in ture infrastruc municipal for available be might ey year worldwide between 2013 2030. and between worldwide year a trillion 1 USD over at higher, even frastructure in in investment and demand between gap the ie ti dat o fnig i i per is it funding, of dearth this Given As a consequence, even less public mon public less even a consequence, As 22

19 Boston Consulting Group puts puts Group Consulting Boston 21 In Germany, Germany, In 20

18 ------come in two forms, namely debtequity. and namely forms, two come in investments infrastructure speaking, broadly (see Tableprojects examples)for 3 but infra structure into money put can investors which in of ways a variety are There infrastructure. in ing invest of ways tailored and targeted more for diluted. become can – class asset this from gain to hope they benefits specific the and – infrastructure to exposure investors’ Therefore, infrastructure. operating from apart things other of myriad a do usually providers tion care groups and health construc utilities, However, companies. such in investing through mainly infrastructure nance fi to help investors Outside assets). operated owner- as to referred (often hospitals or roads toll power stations, operate and own that panies comes the from com- vestment in infrastructure ing in Europe in ing - spend infrastructure of two-thirds around for accounted sector private the past, the in ready Al low-carbon. cities make to needed is what including infrastructure, world’s the of share rising a finance to expected are investors vate pri constrained, severely sources public With 2.2 The investment case structure. infra sustainable in gap investment the of 85% finance to have will sector private the that ons reck The World Bank future. the in fall than rise Many investors are therefore looking looking therefore are investors Many in private of majority vast the Today, 24 23 , and this share is more likely to to likely more is share this and , ------developing. developing. still are markets These funds. debt frastructure in in invest can they buying or bonds, through infrastructure example for outright, tures ven infrastructure by issued debt the acquire lenders. public their or governments from loans sionary conces of form the in comes lending structure infra of share (see below).smaller A framework PPP a in governments alongside place take also and it of the domain can banks was traditionally finance Project station. power a by sold tricity elec the or road new a from collected toll the as such asset, infrastructure particular a by ated gener is that flow cash the through repaid gets investors the which in contract financial of type a is finance Project finance. project of form the takes often ventures infrastructure to Lending • Debt Beyond project finance, investors can can investors finance, project Beyond ------be illiquid and often incur high fees. fees. high incur often and illiquid be to tend they but movements market not to subject are funds infrastructure Unlisted ments. move market of impact the smoothing of the aim with portfolio their diversify to want who investors for suitable less them makes which movements, stockmarket broader on often depends funds infrastructure listed of value the However, tradable. also are shares the exchange, risk. manage to help them can which assets, infrastructure of portfolio a into buy can they and that professionals experienced by chosen are projects the that advantage the For have such investors, funds. funds equity ture infrastruc specialized through place take also can investment Equity outright. equity buy their then can Investors stockmarkets. on offerings public initial through financing get to enough directly. ventures infra structure in invest to expertise in-house the and muscle financial the has investors of number limited very operate a only However, not themselves. them do usually they although balance sheet, their on assets these keep then They outright. works water or stations power solar as such ventures infrastructure buy can Investors Equity • If the infrastructure fund is listed on an onan listed is fund infrastructure the If big are projects infrastructure Some - - - 21

Investment in greener cities: Mind the gap 22 Table 3: Risk-return profiles of infrastructure investments

Equity Debt

Direct investment Funds Direct investment Invest- ment funds (in- Infra- Project Unlisted frastruc- structure Infrastruc- Infrastruc- Shares invest- infrastruc- ture bond equity ture bonds ture loans ment ture funds or loan funds funds)

Shares Type of Shares in a Physical Shares in a in an Security Loan Security assets company object company existing company

Typically Typically Invest- Minimum over Minimum more than Minimum Minimum ment n/a 1 share EUR 100 1 share EUR 5-10 1 security 1 share volume million million

Limited Limited availabil- availabil- ity ity (since (globally Broad 2001 in Broad Limited Broad Limited Market 350 funds, availabil- Europe availabil- availabil- availabil- availabil- depth excl. ity incl. UK ity ity ity ity closed only about German 1,000 PPP- funds, plus projects) 10 FOF)

Typically 60-70% Typically leverage Typically Typically No lever- No lever- no lever- No lever- Leverage for project 70-80% for no leverage age age for age financing, the fund age funds up to 90% for PPPs

Medium- Medium- Time Short- to Short- to Short- to Short- to Long-term to long- to long- horizon long-term long-term long-term long-term term term

5-9%, 5-9%, 2-5% Yield ex- Early stage 8-14% for a Gov.: 3-7% 6-10%, depending depending depend- pectation 10-15%, diversified Corp.: depending on region/ on region/ ing on the (p.a.) later 7-9% portfolio 4-10% on region project project rating

Stock Stock Bond Bond invest- invest- invest- invest- Know-how Expertise ment and ment and ment and ment and require- Very high Very high in credit sector- sector- sector- sector- ments markets specific specific specific specific know-how know-how know-how know-how

Source: Steinbeis Research Center for Financial Services (2012) Note: The table is for illustration purposes only and not exhaustive. Numbers with regard to investment volumes, leverage, projects and yield expectations vary in practice. Know-how Know-how pectation pectation Leverage Yield ex Yield require horizon volume Type of Type Market Market Invest ments assets depth ment ment (p.a.) Time Time - - - Shares in a in Shares depending depending know-how on region/ region/ on Minimum long-term ment and and ment availabil company No lever No Short- to to Short- specific specific 1 share project sector- Shares invest Broad Broad Stock Stock 5-9%, 5-9%, age Direct investment Direct ity - - - Early stage stage Early only about about only Long-term financing, for project project for 1,000 PPP- 1,000 Very high Very later 7-9% later availabil up to 90% 90% to up ity (since ity Typically Typically Typically Typically projects) leverage leverage Physical Physical EUR 100 100 EUR Limited Limited for PPPs for incl. UK UK incl. million 10-15%, Project Project 2001 in in 2001 Europe Europe 60-70% 60-70% invest object ment over over - - Equity Shares in a in Shares depending depending know-how on region/ region/ on Minimum long-term ment and and ment availabil structure structure company No lever No Short- to to Short- specific specific 1 share project sector- invest equity equity Broad Broad funds Infra Stock Stock 5-9%, 5-9%, age ity - - - - Funds funds, plus plus funds, diversified diversified infrastruc ture funds ture more than than more 8-14% a for 350 funds, funds, 350 70-80% for for 70-80% Very high Very availabil company Medium- Medium- Typically Typically Typically Typically (globally (globally portfolio EUR 5-10 EUR the fund the Unlisted Unlisted German German existing existing Limited Limited to long- to million 10 FOF) Shares Shares closed closed in an an in term excl. excl. ity ity - - ture bonds ture Infrastruc know-how Minimum long-term 1 security Gov.: 3-7% 3-7% Gov.: ment and and ment availabil Typically Typically no lever no Short- to to Short- Security Limited Limited specific specific sector- invest age for for age Corp.: Corp.: funds 4-10% Bond Bond Direct investment Direct ity - - - - Infrastruc ture loans ture ing on the the on ing Expertise Expertise availabil Medium- Medium- No lever No in credit credit in markets depend to long- to rating Broad Broad Loan Debt term 2-5% 2-5% age n/a ity - - - - depending depending know-how Minimum ture bond bond ture long-term funds (in funds ment and and ment on region on availabil Typically Typically frastruc no lever no Short- to to Short- Security Limited Limited specific specific 1 share or loan loan or sector- Invest invest funds) 6-10%, 6-10%, ment ment Bond Bond age ity ------them attractive to private investors: investors: private to attractive them make can that common in features have certain to tend projects infrastructure class, asset tinct dis a as treated be can infrastructure whether investors. and governments both to tractive at more them make to PPPs redesign to efforts now are there places, many In lifespan. projects the through half-way PPP renegotiated contracts governments some after cautious become have investors hand, other the On poorly. performed or cost-overruns large had experi that PPPs with mixed ence had have governments Some bureaucratic. and they complicated slow, them because find them from away shy investors private many Nevertheless, the of countries. half world’s about in used now are and 1990s sector. public the to revert might asset the of, period say,a fixed 20 of to ownership 30 years, After profit. operating the of share a receives tor inves the return, In risk. performance and tion construc the example for project, the of risks the of some over takes and capital the provides investor private the Usually, investment. debt and equity both involve and forms of variety a take can PPPs hospital. or school road, a as such project infrastructure an operate cases some in and build, finance, to companies private and body government a between long- collaboration term to medium a is PPP A PPPs. or nerships, part public-private are frameworks used widely most The capital. private and public combine Although there is some disagreement disagreement some is there Although the in UK the by pioneered were PPPs projects infrastructure Increasingly, ------equities. outperformed slightly and bonds outperformed have significantly funds infrastructure unlisted some And 4. Chart in shown as basis, return tal to risk-adjusted a on equities other to relative well performed have equities infrastructure But performance. historical their about alizations gener make to possible not is it investments, investors. for private returns post-tax increase further can which subsidies, or incentives tax of form the in support public receive projects, ergy en renewable as such projects, infrastructure Other predictable. be therefore should and lated regu usually then is them from operating or building make investors private that profits The supply. they service the over a quasi-monopoly have motorways, or stations power as such manageable. better circumstances, certain under are, which dominate, risks litical po and macro-economic general and erational op instead, assets; other than risks market dict hard-to-pre to vulnerable less are investments infrastructure that means This costs. ceptable ac at prematurely project the exit to able being without time, long a for sums large commit to required are Investors market. secondary liquid no is there assets infrastructure most for that fact the from arises which premium, illiquidity so-called a from benefit often assets structure Sap ratios (Sharpe variability low comparatively with returns good investments can in principle offer Infrastructure • Potential risk-adjusted toincrease returns Given the diversity of infrastructure infrastructure of diversity the Given assets, infrastructure traditional Many 27 25 ad o dfut risk. default low and ) 26 Infra ------23

Investment in greener cities: Mind the gap 24 2. Investment in sustainable urban infrastructure Chart 4:Actualinfrastructurerisk-returnprofile2000-11(Euroterms) grow. to tinued con earnings infrastructure crisis, and economic financial recent the During assets. other than downturns economic in value less lose to be to expected are they means tend which countercyclical, also investments Infrastructure bonds. government or equity corporate as such classes asset other with correlation low a have can investments infrastructure on returns the chosen, vehicle investment the on Depending diversification • Portfolio years. up 30 to sometimes and years ten least at of period a over returns offer predictable can steady, assets infrastructure structured, is on and depending how In theory, investment the • Longevity Source: ThomsonReutersDatastream, AllianzSE Compound average annual return 10 12 14 0 2 4 6 8 0 10 Cash Risk (standarddeviationoftotalreturn index standardisedbyitsmean) Corporate Bonds Government bonds 20 World equities - 30 are less likely. are gains capital while income long-term of stream steady a provide to tends infrastructure ades, dec last can which phase, brownfield the ing (or phase. Dur operational the than brownfield) riskier considered also is but gains capital yield a in PPP. of tion two phase the can The greenfield combina a or finance, project or governments from come typically These needed. are outlays capital large phase, (or greenfield) construction Forthe development. infrastructure of stage the investment. of the lifespan tire en the over returns real stable guarantee also can but returns, nominal stable secure only not Such mechanisms fees. its through prices rising or / and costs input higher on pass may utility regulated a example, For tariffs. tion-adjustable infla have often contracts asset Infrastructure • Inflation hedge Investment options differ depending on depending differ options Investment 40 Infrastructure (Equities) Emerging Marketsequities 50 60 - - - - - in 2012).in slightly fell then it 2011(although in billion 279 to of a 2004 peak in USD USD rose from billion 40 n predictable. and is supportive environment and policy regulatory the provided – certainty long-term high tively rela with opportunities investment good offer can energy renewable why reason only the not Such subsidies are projects. renewable energy in more below).more (of behind which lagging are buildings, efficient energy example for infrastructure, sustainable of areas other investment, private attract to ue tariffs feed-in as such incentives, provided have governments as has many changed, finance cent energy years, In more re ofbulk today’s infrastructure. energy or semi-private have public the provided utilities private, by investments Corporate investments. entrants. new, private from competition will as further, increase will transport public in operators private of ipation partic forward, Going fordecades. railways and ports roads, toll airports, operated and owned have investors Private investments. brownfield and greenfield for both while, a for functioning been have sustainability, to environmental urban key both transport, and mobility in ments invest forprivate markets The sector. onthe ing While transport and energy will contin will energy and transport While energy-related of said be can same The depend- differ also options Investment 30 28 , to get private investors engaged engaged investors private get to , 29 Investment in clean energy energy clean in Investment - - - - - dropped by 2012in 38% dropped alone. they where Europe, in precipitously most crisis, but financial the during world the of parts most in fell finance project for Loans ronment. envi economic uncertain more a to adjust and regulation new with cope sheets, balance pair re to sought have they as lending their back cut have have finance, project most provided which historically Banks, financing. infrastructure sector private hit also has it investment, constrained public only not has crisis financial The are doing 2.3 What private investors predominance in infrastructure finance. infrastructure in predominance to return will they that it unlikely finance) make project as (such debt long-term against capital more hold to and levels liquidity sufficient have to banks for requirements III Basel ahead, ing Look area. this in expertise inhouse and rience expe their them with taking market, that from withdrawn largely have they or bankrupt gone either have banks finance project active most 31 Some of Europe’s 32

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Investment in greener cities: Mind the gap 26 2. Investment in sustainable urban infrastructure Insurers • Institutional • contribution: a valuable they should least, be a in a good position to make at theory in But, needs. finance infrastructure world’s the cover cannot investors institutional course, Of gap. investment infrastructure the mutual also to funds, and help sovereign wealth funds bridge but companies insurance and notably pension funds investors, to institutional Both • funds give to their clients. clients. their to give funds or annuities) turns and that pension insurers re fixed of terms (in promises financial the for match good a be could infrastructure by offered flows cash long-term stable The ing). let (hs s ald se/iblt match asset/liability called is (this clients their vis-à-vis have they liabilities long-term the match to investments stable long-term of sustainable infrastructure investment investment needs. infrastructure sustainable of part substantial a cover could they theless, Never infrastructure. for available be ple, princi in would, management under assets of their a fraction only portfolios, investment their to diversify need investors institutional Since solutions. pension funded fully with systems pension pay-as-you-go supplement countries and age populations as grow to sets under management. under sets as in trillion 70 USD over have alone tries projects and know their lifecycles. their know and projects these insure also they because projects ture infrastruc with associated risks the of edge Therefore, many people are now looking now looking are people many Therefore, pension 34 in particular investors funds and often in 33 life This sum is likely likely is sum This have the insurers OECD good knowl coun need ------over the next five year. five next over the infrastructure in billion 10 EUR invest would it in June 2013 lion. In that AXA France, announced bil 1 GBP of assets planned initial with UK the in debt fund infrastructure an launched Allianz 2013, January in and projects; energy newable re in billion 1.7 EUR than more invested date rsrcue et netet ouin plat form. Solutions Investment Debt frastructure In Macquarie the by identified opportunities infrastructure European Northern 500 for USD million earmarked 2012 in Re Swiss ample, ex for insurers, the Among surveys. such rate o nrsrcue investments. infrastructure to ested” in infrastructure investments. infrastructure in ested” inter “extremely currently are funds pension and insurers that confirmed respondents the of 84% finance, infrastructure in involved tions institu financial European of survey 2013 years. a In recent in growing been has class asset this it is infrastructure, clear that investors’ interest in in investment institutional for data comparable At • and shares. shares. and bonds in investments traditional their from away portfolios their diversify to investors institutional encouraging are markets uity 36 present, Aviva has committed 1.5% of its assets assets its of 1.5% committed has Aviva ncoa eiec ses o corrobo to seems evidence Anecdotal Although there are no consistent and and consistent no are there Although low interest 38 rates 37 and Allianz has to to has Allianz volatile 35 eq ------

in the three years following 2013. following years three the in infrastructure for billion 2 GBP earmarking 7%, to allocation target its largest) second increased Britain’s (USS, Scheme Superannuation versities for 14% of its assets in infrastructure in 2013. in infrastructure in assets its of 14% for tribution to climate finance. climate to tribution have investors so made far con small a only very institutional Generally, infrastructure. tainable it sus when comes to smaller even are numbers of total plan assets in 2012. in assets plan total of to 2% 3% from to infrastructure allocation target its increased US, the in funds pension largest the of one CalPERS, base. low a from often albeit following, been have countries other in Funds allocation in 2011, according to one study. one to 2011, according in allocation asset funds’ investment pension 1-3%of tracted at had funds infrastructure dedicated Union, European the In difficult. is numbers exact the down tracking although – limited remained far so has infrastructure in engagement investors’ 20%. to share that increase to planning was and 2012 in structure infra in assets its of 15% almost had (OMERS) Scheme Retirement Employees Municipal tario On the example, For exposure. infrastructure their significantly raise to first the were funds pension Canadian and funds superannuation On the whole, however, institutional institutional however, whole, the On Australian the funds, pension Among 39 AustralianSuper aimed aimed AustralianSuper 41 44 In the UK, the Uni the UK, the In 42 43 The 40 ------investor interests. interests. investor affect that changes policy with react often then Governments markets. protected previously of liberalization the interna require commitments new tional or rises; project infrastructure an to opposition public available; becomes ogy technol new change: might however, stances, - Circum unchanged. structure market or work frame regulatory the keep to or tariffs, or tolls of amount certain a collect to investor the low al to be could commitments Such time. of ods peri long very over often – commitments made previously honoring governments on depends projects of many infrastructure The profitability risk • Political environment. economic and litical po their by determined is – assets other of that than more – investments infrastructure of ity profitabil the that is to fact related the investors institutional facing is that obstacles of set One 2.4.1 Policies and politics available. returns the through compensated sufficiently are investments ture infrastruc in involved costs and risks the unconvinced that appear investors Many vestors. in potential back holding are that challenges structural also above. Butare there as explained reason, major one is crisis financial The ment? invest private and actual for new infrastructure demand between amismatch such there is Why ing short of potential? 2.4 Why is investment fall ------27

Investment in greener cities: Mind the gap 28 2. Investment in sustainable urban infrastructure market mechanisms, such as emissions trading trading emissions as such mechanisms, market or subsidies taxes, laws, through done be can This infrastructure. conventional and tainable sus between field playing the level to needed often is action Government infrastructure. able sustain than profitable more relatively then looks which infrastructure, conventional into priced usually not are plant) power coal-fired a by caused pollution the example (for ternalities ex so-called that is reason The infrastructure. conventional than action government on more tends to depend even infrastructure Sustainable • Externalities investors. for private upside risk little very but risks downside many potentially have investments means that infrastructure services, “public” of provision the through earned profits private cap to and project, a of terms the define claims. tion a wave of compensa sector, triggering transport the in especially contracts, PPP of dozens ating renegoti 2011 started in Portugal taxpayers. for billion 2.5 GBPsome save to order in deals vious of pre terms the of PPP) renegotiated and type a (PFI, initiatives” finance “private of use tration’s adminis previous the re-evaluated government or roads. provision energy supplies, water in invested he has capital the recoup to ability investor’s an undermine thus can ments made predecessor. Politics by its commit honor to obliged feel not simply might government new a or investor; the to generous overly was concession negotiated previously a that decide might it program; policy social its of part as fees usage lower to tempted be might ical ical considerations. ten depend on cycle and the electoral other polit h tmtto o gvrmns o re to governments of temptation The UK the 2012, December in example, For What is more, government incentives of incentives government more, is What 45 For example, a government a For government example, ------segments of infrastructure at the same time. time. same at the of infrastructure segments different in invest to investors institutional for harder it make also can they But gas. and power for markets monopolistic previously in tition compe foster to designed are distribution and transport generation, energy of “unbundling” on rules EU’s the instance, For investors. for es consequenc have unintended Some regulations energy. renewable and infrastructure in ments for invest requirements onerous capital impose liquidity) and capital bank on rules (stricter III Basel and 2016) in force into come to due risk, mitigate to hold must insurers that capital of amount the sets that directive (theEU’s II vency Sol investment. long-term discourages that tion investors. private for attractive be could that partnerships which public-private of establishment the complicates highways, interstate on collection toll prohibits law federal US Furthermore, funding. private than competitive more infrastructure of financing public makes regulation tax example, for US, the In infrastructure. into flowing nance orfi impede even prevent – private can national supra or national local, – regulations and Laws framework • Legal 2012. in Bulgaria did as installations, power solar for subsidies reduced retroactively 2011 in government Spanish the example, For itable. unprof investment private initial the rendering change, or technological considerations of fiscal because regimes subsidy and rules alter to cide de later might governments However, schemes. Another example is EU financial regula financial EU is example Another 46 ------vestors would bother with them at all. them with bother would vestors in private why poignantly asks manager onefund that burdensome so be can projects ture infrastruc large with associated hassles” tory ants may even harbor suspicions of doing so. of doing suspicions harbor may even ants serv civil cities some in investors; institutional private with have in working experience officials city few very only level, local the at But UK. ture Infrastruc or Deutschland Partnerschaften like partnerships, public-private such facilitate to bodies national established have governments large infrastructure projects. infrastructure large for required licenses environmental the secure etr novmn i infrastructure. in involvement sector private for obstacle main the was sector public ineffective an that said companies frastructure projects. In one for survey, working executives in public for money private attracting for capabilities needed the lack that administrations lic a PFI tender. PFI a conclude to average on years three almost takes it for instance, UK, the In for investors. drawback a be can procedures bureaucratic slow-moving and regulation of complexity sheer the vorable, is Even stable when and framework fa the policy • Bureaucracy Investors also often struggle with pub with struggle often also Investors 47 In Brazil, it can take five years to to years five take can it Brazil, In 48 In India “regula 49 50 Some ------this new asset class more effectively. more class new asset this in money their invest them help to supposed is which Platform, Infrastructure Pension the launch to together came funds pension UK ten proficiency. Forand 2013 in example, experience more has that investor bigger a with along” ging “tag by or others, with up teaming by expertise in-house of lack the overcome to trying are tors in renewable energy. renewable in investment direct for teams up setting warrant to enough large are worldwide institu investors tional 150 only that reckons study Another “good knowledge” of the infrastructure sector. infrastructure the of knowledge” “good had they that said 4% just investors, stitutional do not. institutions financial most smaller But investors. as do someinstitutional large very expertise, have that funds someand specialized banks finance Project professionals. dedicated of team a by provided be only can that perience ex and expertise of kind the requires structure basis. stand-alone a on evaluated be cannot they so and profitability, networks) forfunctioning their road or grids power as (such networks on pend de projects infrastructure Many funds. commit they before consider investors that rate” “hurdle the increase can which technologies, untested and new on depend sector, infrastructure able undo. Many in the projects, in sustain particular can be and hard to expensive vestment mistakes in that means which payments, upfront large require to tend and illiquid also are They ings. undertak complex very often are projects ture Infrastruc themselves. investors institutional the of side the on exists hurdles of set Another 2.4.2 Matching funds and projects n 21 sre o Gra-ae in German-based of survey 2013 a In In short, investing successfully in infra 52 Some institutional inves institutional Some 53 51 ------

Investment in greener cities: Mind the gap 30 2. Investment in sustainable urban infrastructure location with confidence. with location al asset their plan to investors allow to assets infrastructure (unlisted) of performance the on risk data not are sufficient there Often management. and allocation asset regarding practices and to could which investors apply standardized capital) for example (for rules standardized set could regulators which for class asset distinct fully a constitute (yet) not do They diverse. very are infrastructure” “sustainable or structure” “infra heading the under fall that projects of plethora the that is reason One funding. get to struggled have ones smaller Most subscribed. over been usually have projects large very few A projects. suitable find to hard it find can ing invest green or infrastructure for teams cated view. of point investor institutional an from small are projects infrastructure urban sustainable Most them. monitoring and evaluating finding, for required be would that effort the warrant not do projects smaller investors, institutional the Even those institutions that have dedi have that institutions those Even nte rao i ta, n h ee of eyes the in that, is reason Another 54 - - - - - long-term investors. investors. long-term of needs the to have specifically more tailored will be to conditions the infrastructure, ban ur sustainable into money institutional more attract to necessary be will funds investment ture funds. infrastruc by charged typically fees formance per and management high the with issue took polled investors vey, over 70% of institutional the predictable returns. predictable and longevity low risk, including infrastructure, (sustainable) from gain to hope investors tional institu that benefits some potential undo of the that dividends, out paying of instead flows cash or their aging and portfolio churning reinvesting lever as such practices, in engage therefore and menttend to returns funds short-term seek high invest such However, investors. institutional for accessible easily more them make thus and projects investment smaller bundle can funds Infrastructure or green investment investment green or Infrastructure 56 While pooling of both projects and and projects both of pooling While 55 Moreover, in one2013 in Moreover,sur ------vestors, meanwhile, face multiple challenges: challenges: multiple face meanwhile, vestors, in Private programs. national under companies gy Efficiency Fund (EEEF) Fund Efficiency gy Ener European the or Germany in Förderbank such KfW as institutions, financial or sponsored state-owned by provided is financing efficiency do not. often projects retrofitting appeal, public some have may Park, a London’s Olympic as such development, ofnew big efficiency energy the on spending While agenda. efficiency energy hard-to-explain and obscure the than rather projects, energy able renew popular) and (visible support to prefer often Politicians sell. to hard often and small be tend to projects efficiency – most energy savings eration With the exception ofheating and cogen district constraints. budget stringent of times in sector public the for especially but times, of best the at proposition investment tough a is save” to ing “Spend support. political or attention public tle tend to get policy, they lit for climate critical are renovating their housing stock their renovating by emissions carbon their reduce quickly most could cites that shows Research area. ropolitan met average an of emissions gas greenhouse the of 40% around contribute alone buildings warrants commercial and Residential treatment. efficiency specific energy of issue the ture, infrastruc urban sustainable on report this In ficiency 2.4.3 The special case of energy ef half in schools. in half one in to from hospitals ranges ings over quarter - build public in reductions emissions for tential 59 So far, at least in Europe, most energy energy most Europe, in least at far, So Although energy efficiency investments investments efficiency energy Although – which can achieve significant energy energy significant achieve can which – 58 60 , as well as by utility utility by as well as , 57 and that the po ------The • Energy • Energy • There • Energy • sive and complex. and sive expen prohibitively becoming without up scale to difficult are They technologies. and sectors many across spread are that projects by a number large of small characterized ally usu also are they stakeholders, volve various inhabitants or the whole global population. whole orglobal the inhabitants city’s the all to accrue emissions lowerof fits bene wider the while bills, gas or electricity lower of terms in benefits the reaps who ant but renovation; it is ten the efficiency energy an for pay to supposed is landlord or owner building’s the cases many In align. to hard and pay-back times can be very long. very be can times pay-back and involved, are parties so many because assess to hard is risk credit their costs, upfront high teristics. charac return and risk distinct with ment invest separate a not therefore is efficiency Energy finance. corporate general for bond a issues utility a when example for tivities, ac other for financing with amalgamated sectors. infrastructure other for is there like model, interests is efficiency efficiency no efficiency established of the investments investments various investments third-party stakeholders do tend not are financing only to often have are in 61 ------31

Investment in greener cities: Mind the gap 32 Box 1: The UK Green Deal

At the beginning of 2013, the British government launched the Green Deal to encourage businesses, house owners and tenants to make energy efficiency improvements to their homes or premises. Property owners and tenants can install new technologies without taking on a large loan. Unlike conventional loans, the Green Deal loans stay with the building if the tenant or owner moves. The new resident then assumes the debt. The loan is repaid through the energy savings generated over a period of up to 25 years.

For Green Deal loans to work, the expected savings in energy costs have to equal or outweigh the initial investment. Accredited Green Deal assessors evaluate the buildings to make sure that only properties in which the finances add up are admitted to the scheme.

The loans can be used for the insulation of lofts, floors, walls and windows; metering and controls of water, gas and power; and improvements to the heating and hot water system.

Green Deal Providers can be energy companies, consumer companies or specialized finance providers. They may use funds from their retained earnings, raise them on capital markets or sell the Green Deal Receivables to a third party financier. One financier is a consortium supporting a new special purpose vehicle, the Green Deal Finance Company (TGDFC), which provides finance to Green Deal Providers across the market. The British Department for Energy and Climate helped TGDFC with a GBP 7 million implementation loan. As of 2013, however, take-up was lower than the government had hoped for.

Sources: www.greendealinitiative.co.uk; Vaughan & Collinson (2014) fe-tnig fiiny utility. efficiency free-standing a through results notable achieved has Vermont homes(see their 1).Box to ments of USState The improve efficiency energy make to tenants and owners property incentivize to Deal Green the in energy efficiency. energy in projects for investors private and nicipalities mu to support and advice expertise, provides that participation private-sector with agency public Agency),a Energy (German Agentur ergie En Deutsche the efficiency. established 2000 in energy Germany in gap investment the ing margin. a wide by 2020 by 20% of target savings energy its miss to likely is EU the why reason main the is ment underinvest This to renewable energy. available sums the below well even and – needed is what below far remain investments efficiency energy Nevertheless, below). (see efficiency and ings sav energy encourage to more do to states ber mem- its prompt to initiatives several adopted oe onre hv satd address started have countries Some 62 The UK in 2013 launched launched 2013 in UK The 63 The EU has has EU The ------33

Investment in greener cities: Mind the gap

How to narrow the financing gap 36 3. How to narrow the financing gap several levels. levels. several at improvements for scope greater see We investment. facilitate to how on dialogue a begin to time the is now fast, growing infrastructure green for need cities’ and lackluster, opportuni looking ties investment other With narrowed. be to gap this for conducive more be to needs framework regulatory and policy The daunting. remains gap financing the sector, this in gaged en more becoming are investors institutional that signs encouraging some are there Al though challenges. change climate their manage cities help to needed urgently is capital Private - - - vestors. vestors. in private to attractive them makes that scale a attain to projects specific on collaborate to and finance infrastructure private with experience Platform” Cities we propose below) to their share “Green the as (such institutions such use also could officials City terms. acceptable at funding private help that find them institutions national supra or national regional, from benefit would done some with success (see Box 3). Smaller ones already has Chicago as backers, financial with projects infrastructure match to exchanges up the cycle. through political Larger cities could set them to sticking and – plans policy climate and infrastructure long-term publishing and ing adopt through financing private more could attract governments municipal authority, the have they Provided 2). Box (see infrastructure sustainable into finance private more attract to efforts the driving for suited well particularly are they that assume to reasons good are there and infrastructure, improved of beneficiaries immediate the be will agglomerations Urban 3.1 Local initiatives - - - Box 2: Why cities are key 37 to attracting private finance into infrastructure

• Cities and municipalities feel the pressures of ageing or inadequate infrastructure more acutely than national politicians in far-away capitals. They may therefore be highly motivated to attract additional sources of finance for improvements and renewal.

• Cities can be more directly accountable and less bureaucratic than national governments. They should be able to implement initiatives faster and more economically.

• People living in cities have a more direct connection to “their” roads, hospitals and metro lines than to, say, overland gridlines, motorways or wind parks. This could have the following implications: a) greater acceptance of infrastructure construction (less NIMBYism) b) broader application of the user-pays principle c) deeper understanding of the benefits – in terms of efficiency and transparency – that can stem from private sector involvement. d) Potential for urban citizens to invest in local infrastructure.

• Most cities are growing, some of them very fast. This means: a) up-front financing of infrastructure is even more important, as urban infrastructure should be larger than current requirements – which in return puts excessive strain on current budgets b) the consequences are particularly severe if short-term budgetary considerations prevent a much-needed expansion and improvement of infrastructure c) a privately-funded shift of current expenditures to future users could be more bearable.

Source: Allianz SE research 38 Box 3: The Chicago Infrastructure Trust

In March 2012, the city of Chicago established the Chicago Infrastructure Trust (CIT). The CIT is an exchange that matches public infrastructure projects and private investors. The city is paying for the CIT’s USD 2.5 million running costs, while financial institutions, including Macquarie Infrastructure and Real Assets, Ullico, Citibank and JPMorgan, have committed to investing some USD 1.7 billion in the scheme.

According to initial plans, the CIT itself will provide some capital, bond financing and grants as well as offering tax-exempt debt to attract more investment. Returns on investment could vary from 3% on tax-exempt bonds to 8% for equity partners.

The city hopes to raise about USD 7 billion in total to finance improvements to streets, parks, water and sanitation, schools, commuter rail and O’Hare airport. The private sector will invest money in projects and receive returns via tolls, user fees, premium pricing or tax breaks.

The CIT’s first project is a USD 13 million investment to make 62 city buildings more energy-efficient due to start in March 2014 (the scale of the project was reduced significantly from over USD 100 million during the preparation phase). Other projects discussed in 2013 were the conversion of some of Chicago’s 340,000 street lights to energy efficient lighting and replacing almost 4,000 city-owned cars and trucks with gas-driven vehicles.

Sources: www.chicagoinfrastructure.org; The Economist (2012a); Ruthhard (2014) ter use and the prevention of leaks. prevention the and use ter wa of reduction the as such goods public cover taxes while operators to fees usage pay users which in systems payment mixed use example, for could, Cities investment. initial the to recoup harder it makes and income reduces this since water conserve to incentive little has provider water run privately a example, For levels. age us increase or maintain to interest their in is it of hence and usage form fees, the in profits ceive re operators concession private most present, At resources. save to consumers for incentives providing time same the at while finance vate pri attract to as way a such in tariffs usage and PPPs their redesign to need governments City 64 - - - - change objective. change climate UK’s the fulfilling of aim the with also infrastructure, new and existing in vestment in encourage to aims annually, updated since and 2010 in published first Plan, Infrastructure National British the example, For investment. infrastructure more sustainable to a approach holistic adopt to seeking are countries Many savings. energy as well as energy renewable to switch a encourage can taxes carbon or energy while transport, public private or emissions-free of use the encourage can taxes Fuel taxation. or trading emissions through either carbon, on price a putting through example, for done, be such as climate change from emissions. This can externalities for account investors that sure ing mak by investments conventional and tainable sus between field playing the level to help can governments level, broadest the On cities. all benefits that policies investment pro-green for framework a provide can The government level. national municipal the at action than tions condi investment local for as more, not matters if much, level national the at policy Often 3.2 National policies 65

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Investment in greener cities: Mind the gap 40 3. How to narrow the financing gap utny evcs n b a ou fr knowl for forum a be and services sultancy con provide infrastructure, on urban sustainable data disseminate and collect would form bring. can investors some private that know-how financial and technical the and (perhaps fee-based) participation private-sector with support government combining best, work might institutions Semi-public infrastructure. urban sustainable into finance private tracting These of at sole task the shops one-stop with be would Platforms”. Cities “Green national lish advice. knowledge-based provide supply and match gregate projects, investment demand and ag can that institution an from hugely benefit would investors private and municipalities Both needed. is partnerships public-private related project- beyond approach new a capital, private to sector entire this open To locations. and tors sec various across spread and sporadic small, be to tend projects such that is infrastructure urban sustainable in investment institutional models. risk-sharing sophisticated more and policy) public and consumers of interests the balancing also while utility say,a in, capital their investors private guarantees that contract of a type asset base” model (RAB, “regulatory the as such model, PPP traditional the to ternatives al of use the explore should governments ward, them to identify suitable projects. suitable identify to them allowing by projects PPP of set-up the in deeply more investors private involve and processes tendering of complexity the reduce example, for They could, investors. for private more attractive them make to PPPs, for frameworks legal tional In the first stage, the Green Cities Plat Cities Green the stage, first the In estab therefore should Governments to hurdles biggest the of one However, oenet cud eein h na the redesign could Governments 66 Looking for Looking ------have to be beforehand. answered would debt issued jointly the for liable is who and participate could projects and cities which of Questions administration. their and handling sector, private the to investments frastructure in urban selling and marketing standardizing, packaging, by aggregator an as act would form sharing. risk and PPPs efficiency, energy ning, plan sustainability to regard with themselves to exchange and experience best practice among Platform new the use could officials City them. require that projects investment for guarantees public design to help could Platform The tion. coopera project-based or conferences sporadic through achieved be can than sector private the and public the between dialogue effective and focused more a foster thus would It investors. potential and finance, private with experience limited only have whom of many officials, city between intermediate would It sharing. edge investors. investors. retail to also investments infrastructure urban sustainable sell to seek could Platform Cities Green the stage, final a In banks. infrastructure and development regional or national of tivities ac and availability the on dependent mandate of expansion an such make could projects. Governments infrastructure urban sustainable in co-invest to markets the also in capital perhaps raising start could it size, critical a reached of scale. develop economies and costs tion transac reduce processes, streamline to help would Platform Cities Green the departments, and municipalities different from sellers the ing n h nx se, h Gen iis Plat Cities Green the step, next the In Once the Green Cities Platform has has Platform Cities Green the Once 67 By consolidat By ------of uncertainty. of uncertainty. degree a with investors potential leaves targets longer-term binding of absence the decades, in measured often are horizons investment ture infrastruc Since 2050. by % 85-90 by emissions carbon reduce to commitment general a only is there 2030, Beyond levels. 1990 with compared 40% by CO2 reducing of target 2030 a discussing was writing, of time the at and, 2020 to savings energy and emissions CO2 renewables, of use the for targets firm has EU The policies level. EU the at change climate their for framework policies. and directives byEU determined ingly conditions and are increas financing structures market targets, environmental where Europe, in than truer this is Nowhere not. or attractive infrastructure urban find investors stitutional in whether determine also level pranational su or international the at developments policy However,level. or national local is the vestments in stimulate to measures of locus natural The framework 3.3 The European The EU member states agree the broad broad the agree states member EU The - - - - - ergy efficiency. efficiency. ergy en and innovation planning, urban better for ideas produce to society civil and industry ies, cit together brings (EIP-SCC) Communities and Cities Smart on Partnership Innovation ropean Eu the while 4) Box (See infrastructure urban green into resources Structural additional attract to Funds EU the leverage to seeks program JESSICA The greener. cities European make to specifically designed initiatives policy of couple change. climate fighting than poverty for port the economylocal or inner-city reducing sup renewal, urban at more aimed were exist ordid What programs investment. ban planning ur for framework institutional or legal EU-level nois policy, but there or regional environmental as such competences, ini existing its under tiatives policy urban some launched has EU The of subsidiarity. principle EU the under states ber memto - the left have mainly been planning and investments. of sustainable attractiveness ative rel the increase to here needed is Progress sion. discus under still are system the fix to how on proposals wide-ranging more But price. carbon the up prop to attempt an in years coming over issued be will that permits of number the duce In November 2013, to re agreed EU governments industries. polluting and fuels fossil from away switch widespread a or savings energy in ment invest encouraging for inadequate is that level a – 7 EUR to modestly, only recovered had 2014 of start the by and 2013 early in 3 EUR of low a to 2008 in 30 EUR around from fell ofcarbon ton Trading System (ETS). System Trading Emission the be to supposed is change climate oe eety te U a luce a launched has EU the recently, More policy urban of questions specific More The EU’s key instrument for combatting combatting for instrument EU’s key The 68 The price for emitting a emitting for price The ------41

Investment in greener cities: Mind the gap 42 Box 4: The EU’s JESSICA program

Joint European Support for Sustainable Investment in City Areas

JESSICA was set up as cooperation between the European Commission and the European Investment Bank (EIB) for the use of EU Structural Funds (grants from the EU budget for regional development in EU countries) for the 2007-13 budget period.

EU countries can allocate money from the Structural Funds into Urban Development Funds (sometimes via holding funds) and then use it for public-private partnerships and other projects that are part of an integrated plan for sustainable urban development. One example of a JESSICA supported project is the London Energy Efficiency Fund (LEEF), with GBP 100 million capital to be fully invested until 2015.

JESSICA is supposed to leverage Structural Fund allocation through private-sector capital while also resorting to the expertise of private investors in project management. The capital can be invested in form of equity, loans and/or guarantees. Project returns are supposed to be reinvested in urban development.

Sources: EIB (2008), European Commission (2013c), LEEF (2013) local infrastructure projects. projects. infrastructure local to smaller, Bond initiative Project the expanding of possibility the discussing was Commission European the 2014, In provision. broadband as well as energy and transport for infrastructure cross-border on focused are facility structure infra Europe” “Connecting billion sion’s 30 EUR Commis European the and phase pilot Bond purpose. this for harnessed be also could new Bonds Project EU’s The future. the in investments ture infrastruc urban sustainable for market a of development the to contribution significant a make could EIB the guarantees, and vestments co-in its Through small. remains projects ture infrastruc urban in investments EIB of share overall the although sustain infrastructure, in urban able investments targeted for basis a provided concept has Communities Sustainable the EIB’s Since 2008, projects. ban infrastructure ur to lend to mandate a had not recently, until has, it policy EU of confines the within and ties trea EU of basis the on operates EIB the since However, development. infrastructure for able avail euros of billions has lender, public main The European Investment Bank, the EU’s The Investment Bank, European 69 At present, however, both the Project Project the both however, present, At ------for infrastructure and green investments. green and infrastructure for posed to help a define more favorable framework sup is which Europe, in investment long-term on Book Green a published Commission pean Euro the 2013, March In infrastructure. urban sustainable of attractiveness the and affect policies directives EU of number large a policies, Europe. across EPC of take-up the support to campaign a launched also has Bank, Investment European the with ing stock. ing hous public the of 3% renovate mid-2014 to and by savings energy for opportunities and financing frameworks policy improve to countries member obliges now which directive, Efficiency Energy the of shape the in package more ambitious a adopted EU the 2012 Buildings in and of directive, Performance Energy the added EU the 2010, In differently. directive the preted inter and implemented countries EU various and countries, EU the in slowly only spread EPC achieved. savings efficiency energy the through recompensed be to projects efficiency energy in investors private allows that contract debt of type a (EPC), Contracting Performance Energy on directive a adopted 2006 in EU the financing, frastructure in EU countries. EU in frastructure in city sustainable for environment investment areas is a for there need to the new improve legislation which in and modified or abolished be to need directives EU which about mendations - recom issue then should It areas. urban in ture infrastruc sustainable for specifically that matter regulations and rules EU the of audit an with up this follow to want might Commission Beyond climate change and investment investment and change climate Beyond To address the gap in energy efficiency efficiency energy in gap the address To 70 The European Commission, together together Commission, European The 71 The ------43

Investment in greener cities: Mind the gap 44 3. How to narrow the financing gap back to the investor (See investor Box 5for examples). the to back flow investments efficiency energy from returns are needed to make that sure the New structures any funds focused purely on energy efficiency. energy on purely focused funds any hardly are there infrastructure, and renewables for vehicles funding distinct of range a already is there while Moreover, benefits. potential the outweigh to tend – structure financial tractive unat environments, regulatory and policy cult diffi size, small – projects investment ficiency ef energy most of disadvantages the that find investors private present, At projects. efficiency energy of funding private encourage to needed ment. co-invest public-private facilitate to particular in products, financial new develop help to ate co-oper also could They infrastructure. urban sustainable in investments to regard with edge knowl and experience exchange to platforms such use could investors Private size. critical a reach quickly they so that them use and support should investors private Platforms, Cities Green resources. pool to in efforts participants should be therefore active investors institutional Smaller level. European or national - im the at conditions investment for proved advocates be to or – infrastructure in directly invest to small too are investors Most fragmented. heavily still is market investment infrastructure The play. to role their have tors inves sector private infrastructure; in sustainable gap investment the of tackle responsibility to sole governments the not is it course, Of 3.4 What investors can do New financing instruments are urgently instruments New financing establish to decide governments If 72 ------

Box 5: Ideas for energy 45 efficiency funds

Energy efficiency funds could help to overcome some of the hurdles that private investors face when financing energy efficiency projects. Such funds could be established in cooperation with the public sector and could take one of the following forms:

• Real estate funds would acquire and renovate buildings to provide energy efficient office space. Since the investment would be in real assets, it would not require investable energy efficiency securities, and investors could benefit from the advantages generally offered by real estate investments, such as tax breaks, portfolio diversification and inflation hedging.

• PPP-related funds would provide senior and mezzanine loans for energy efficiency retrofitting. They would usually involve some form of public-private partnership, either through private entities investing alongside the public sector or the public sector providing a guarantee or fiscal advantage.

• Core energy efficiency funds could comprise an energy efficiency fund as well as investments in energy efficiency related technologies, smart grid companies, business services that support energy efficiency management, and construction companies that specialize in retrofitting of commercial buildings.

• Vendor financing would help both the manufacturers of energy efficiency equipment to sell their products and clients to buy or lease assets that it might otherwise not be able to finance. The repayment terms could be structured so that interest payments and capital repayments are below the energy efficiency savings.

Source: Allianz SE research 46 Table 4: Ideas for greener cities

• Adopt transparent and reliable long-term infrastructure and environmental plans City governments • Set up local exchanges to pair projects and potential investors • Re-design PPPs and usage tariffs to discourage resource consumption

• Establish a Green Cities Platform to package, market and sell sustainable urban infrastructure projects • Re-evaluate the investment framework with a particular National governments focus on attracting private finance to sustainable urban infrastructure, including improvements to PPP frameworks • Use taxation or emissions trading to create a level playing field for green and non-green projects

• Help to provide long-term certainty for investors, for example by clarifying climate change targets beyond 2030 and fixing flaws in the ETS • Conduct an audit of EU rules and policies that affect private The EU financing of climate-friendly urban infrastructure; modify those that impede long-term investment (including capital requirements for banks and insurers) • Harness existing policies, including Project Bonds, to support investment in sustainable urban infrastructure

• Support and use Green Cities Platforms if these are established • Exchange expertise and experience on sustainable urban infrastructure Private investors • Explore new financing vehicles, in particular to facilitate public-private co-investments • Conduct a dialogue on the establishment of energy efficiency pilot funds National governments City governments governments City Private investors Private The EU The support to Bonds, Project including policies, existing Harness • private affect that policies and rules audit of EU an Conduct • for example for investors, certainty long-term Help provide to • efficiency of energy establishment on the adialogue Conduct • facilitate to particular in vehicles, new financing Explore • urban on sustainable experience and expertise Exchange • established are these if Platforms Cities Green use and Support • field playing alevel create to trading or emissions Use taxation • aparticular with framework investment the Re-evaluate • sell and market package, to Platform Cities aGreen Establish • resource discourage to tariffs usage and PPPs Re-design • investors potential and projects pair to exchanges up local Set • infrastructure long-term reliable and Adopt transparent • investment in sustainable urban infrastructure urban sustainable in investment insurers) and for banks requirements capital (including investment long-term impede that those modify infrastructure; urban of climate-friendly financing ETS the in flaws fixing and 2030 beyond targets change climate by clarifying pilot funds funds pilot co-investments public-private infrastructure for green and non-green projects non-green and for green PPPframeworks to improvements including infrastructure, urban sustainable to finance private on attracting focus projects infrastructure urban sustainable consumption consumption plans environmental and 47

Investment in greener cities: Mind the gap

Where next? 50 4. Where next? encourage private finance flows into infrastruc into flows finance private encourage to and policies investment sustainable develop to more do to need governments National EU. the in particular in cooperation, international as well as and governments national local tween be partnerships strong require therefore will infrastructure urban sustainable in investment Increased frameworks. policy supranational as well as national on critically depend also tions condi investment Local conservation. source re encouraging also while investment private long-term to conducive are regulations and cies closely aligned. more become policymakers regional and governments national investors, cities, of interests and policies the unless pen hap not will this However, gap. the bridge help to need will investors Institutional constrained. remain to likely is lending bank while structure infra renovate and climate-proof to sufficient ment not will capital be available. Public funding invest the and needs infrastructure most cities’ between gap huge a already is there However, infrastructure. their upgrading and generating re in more much invest they if change climate and growth population both with coping while policies. reduction emissions effective establishing for ing-point start natural the therefore are They emissions. account for 70% around of gas greenhouse global also cities But them. on depend to continue will growth global and GDP,world’s the of most ate gener Cities 2050. by 70% around to rise to set is share that and areas, urban in lives already tion popula world’s the of 50% than More linked. bly inextrica are change climate and Urbanization Cities need to make sure that their poli their that sure make to need Cities economically develop only will Cities ------infrastructure. infrastructure. urban into investment private to barriers the of one overcome to help thus and investors tential sell to po projects infrastructure and urban sustainable package standardize, to help would organizations These Platforms”. Cities new “Green of establishment the consider therefore should governments National diverse. highly and sporadic small, be to tend which infrastructure projects, urban evaluating and finding with struggle will investors institutional many place, in regulations best the with Even proved. - im be could infrastructure urban sustainable for marketplace the how on dialogue a start to investing. sustainable and long-term impede not should – insurers and banks for requirements capital to provisions unbundling energy from – rules Existing infrastructure. urban sustainable in investment private for matter that policies and rules its all of inventory an do could EU The es. plac many in improved and simplified be could for The co-investments public-private rules ture. need involved players all Importantly, - - opportunities. vestment climate in new creating time prevent same the at while change to chance greater a is overcome, there be can investment infrastructure urban sustainable private to barriers however, If, disasters. natural and weather extreme lated climate-re from suffer up will – many cities and heat will climate sionthe global goals, reduction emis carbon their reach to financing new find and needs capital. public available financing cities’ between gap the narrow to helping years, future in significantly grow could infrastructure urban sustainable in investment institutional structure, market and framework policy right the With opportunities. investment new for looking also are They ing. financ infrastructure urban sustainable vance ad- to position strong a in in are – involved infrastructure risks the of understanding a deep as well as investors institutional long-term level. retail and institutional the at both investment increased stimulate could that funds investment ficiency ef energy pilot establish to how discuss should public and bodies investors potential In particular, infrastructure. urban sustainable in nities opportu and products investment new velop de help can They work. Platforms Cities making Green in participation active and expertise their offer can They gap. investment the bridge The time to act is now. If cities cannot cannot cities If now. is act to time The as experience ample with – Insurers help to bit their do can investors Private ------51

Investment in greener cities: Mind the gap Annex: What cities are doing to reduce CO2 according to its “Renewable Energy Offensive”. 2025, by Energy “Renewable renewables its from to demand according electricity city’s the of 100% cover to aiming is utility, water and many‘s first climate-neutral residential areas (Freiham, Neuaubing). (Freiham, areas residential climate-neutral many‘s first Ger build to wants also Munich lanes. cycling priority and buses hybrid including has transport, for also pans Munich of city The lights. street of example for efficiency, energy increasing and buildings; municipal on installation panel solar for program a capacities; energy biogas in increase an bed; river a under installed station power hydro high-capacity first world’s the including sector, hydro-electric city’s the of extension wind; offshore and on- in investments direct production; energy geothermal in et prl die b te ainl Kiacuzntaie te ainl lmt Poeto Initia Protection tive). Climate National (the Klimaschutzinitiative Nationale the by driven partly environ ment, urban climate-neutral a towards path the on embarked have cities many too, Germany, In Munich education. environmental enhanced but not last least, and, waste; organic from extended biogas production including energy and waste waste reduction intelligent treatment, further buses; emission low with system transport public efficient new-built); and (existing buildings private of public and efficiency energy the maximizing system; heating district on city’s based the production The Danish capital wants to become 100% carbon neutral by 2025, according to its Climate Plan. Climate its to according 2025, by neutral carbon 100% become to wants capital Danish The Copenhagen countries: OECD in projects of atable individual below is and world the around cities from a few examples are Here greener. to become efforts their in suit following now are countries market emerging in cities and notbehind, are far America of North many, parts and Ger including countries, European Other areas. urban on focus a with emissions, gas greenhouse of reduction the and protection for climate strategies to comprehensive there from step a small only was it era, post-industrial the In nature. and society between balance sustainable a achieve to and ment environ the to protect strategies long-term adopting in frontrunners became They of survival. matter a is conditions weather extreme to adaptation that realized long have zones, temperate of edge the at living societies, Nordic policies. climate their in advanced most the are countries Nordic of cities The could could be by reduced up to by 98% 2030. production energy from emissions gas greenhouse path, ambitious most the Following latest. the at 2050 by production energy neutral carbon to paths different foresees which development2020+” plan provider, adopted its “HelEn energy municipality-owned the 2010, Energia, 2020. February In Helsingin by 20% to renewables of share the increase and 20% by emissions gas greenhouse reduce to objectives EU with aligned were that guidelines energy new approved 2008 January in Council City Helsinki The Helsinki targets. reduction carbon to contribution asignificant make to supposed also are buildings efficient energy more and scheme cycling city-wide a transport, Greener year. per CO2 tons 855,000 by emissions cut to supposed is which the of production, core energy the sustainable to At move a areas. is other strategy and efficiency energy transport, production, energy in initiatives 50 started or completed either already has it goal: ambitious this reaching to way its on well is penhagen 76 One of the most advanced German cities is Munich. The Stadtwerke München, the local power power local the München, Stadtwerke The Munich. is cities German advanced most the of One 74 The main pillars of this strategy are: combined heat are: and power strategy of this The pillars main 77 The strategy is based on several pillars: an increase increase an pillars: several on based is strategy The 73 Co ------53

Investment in greener cities: Mind the gap 54 Annex: What cities are doing to reduce CO2 Latin America Green City Index City Green America Latin the in average 17-city the of fraction a is consumption electricity from emissions capita Rio’sper sult, re a As hydropower. mainly sources, renewable from comes Rio’selectricity of 88% coal, on pendence de Shanghai’s to contrast gas In 2020. by 20% levels),2016 greenhouse by and 16%2005 2012 (from by 8% in of emissions cut a foresees 2009, in adopted plan change climate city’s the Sustainable”, “Rio Janeiro de Rio emissions. carbon in reduction asubstantial should leadto it quantified, been yet not has expansion this of effect net the Although km). 368 York’s New and km London’s 408 with compared track, of km 420 (with metro largest world’s the already is which system to double of size metro its the aims Shanghai projects, low other many carbon Amongst annually. tons 246,000 by emissions carbon its and year per tons 100,000 by use coal its cut would Shanghai plan, to according go investments the If project. farm wind more offshore Asia’s households– largest for million 4 than gigawatts 2.1 of total a producing farms wind offshore 13 2020, by have, to planning is city households.The 24,000 to power supplying megawatts 24 of capacity total a with them, of three had it 2007, By 2003. in station power wind first its built Shanghai biomass. and solar, wind, in investments long-term large through years, coming in renewables to coal from moving in frontrunner a become and generating biogas. generating and year per tons million 1.4 by emissions CO2 cutting Seropedica; at facility waste state-of-the-art new a by it replacing 2011 and in landfill waste Gramacho old city’s the closing forests; urban large two the protect to help also will which capacities, transport public of expansion massive policies; reduction congestion including: initiatives, green further to leading 2016 are in Games Olympic 2014the and in Cup World the hosting for preparations The initiative. cities C40 the heading now is mayor city’s The for to example, publish a CO2 inventory. emissions America, Latin in city first the was Rio policies. ergy en clean and environmental coherent of record track long a has – 1992 in Summit Earth first setting average of the 22 major Asian cities assessed in the Asian Green City Index. City Green Asian the in assessed cities major22 Asian of average the the twice than more is which capita, per CO2 of tons 9.7 emits people, million 20 almost its with hai, Shang result, a As 2000). in 65% from down was that (although 2007 in use energy total its of 47% and production electricity city’s the of 95% for accounted coal energy: for demand heavy this cover to coal on mostly relies Shanghai more, is What manufacturing). automotive (steel,construction, industries heavy energy-intensive of agglomeration its to due high unusually is consumption energy Shanghai’s Shanghai traffic. zone reduce to charging a congestion on is or and renewables-based ethanol itfleet the car city’s hybrid technologies, entire operates electricity, running buses public operates it sector, transport the In rented. or sold are they when of buildings efficiency energy the for standards imposes and investments building for subsidies increasing is and To renewable waste. system from as and sources ing well cooling as energy save energy, Stockholm heat district on a centralized relying is increasingly the city production, In energy key passes areas. all encom- agenda climate Stockholm’s decisions. administrative and policy all for assessments impact environmental conducts and issues environmental mainstreams that system administrative an for reduce to seeks it step, today’s from emissions 4 tons of per CO2resident equivalent to 3 intermediate tons 2015.in is known well Stockholm an As 2050. by fuel-free fossil be to wants capital Swedish The Stockholm 79 (0.073 tons of CO2 compared with 0.202). Rio – host of the agenda- the of host – Rio 0.202). with compared CO2 of tons (0.073 75 78 However, Shanghai could could However, Shanghai - - - - - Source seperation/ methane production seperation/ Source Thermal building refurbishmentThermal Solar Center receiver station CenterSolar receiver CHP district heating system CHP district District heating &cooling District Public building efficiency Incineration-based CHP Incineration-based Offshore wind power wind Offshore Congestion charging Congestion Traffic signal lighting Biogas from sewage from Biogas Landfil gas reuse Landfil Bus transit rapid Bike sharing Bike Project Waste/ Wastewater Transportation Solid WasteSolid Buildings Energy Copenhagen Christchurch Gothenburg Vancouver Stockholm Stockholm Helsinki London Munich Sydney Vienna Seville Berlin Paris City 77 (2005-07) Capital costs, costs, Capital USD million 39.2 562 453 244 652 196 132 2.9 80 75 41 15 3 in CO2, tons kilo Annual savings savings Annual 2,700 0.36 63.4 1.54 31.6 598 205 720 150 120 110 1.8 18 14

projects in OECD cities Table 3: Sustainable urban infrastructure actual published. be to still are although results reduction, emission carbon to contribute substantially should these All transport. and public housing developmentsshort access services to with municipal new mixed-density building and areas city under-populated sprawl by rehabilitating urban approaches to reducing and innovative system; recycling and separation waste fine-based and prosecution a system); transit rapid bus work, net train (such electric as transport public of enhancement projects; reduction congestion initiatives; saving energy are: program the of components Other supply. water warm and production electricity decentralized for energy solar on focus a with energy, renewable with fuels fossil replace to gradually aims 2011. in strategy This DevelopmentStrategy Growth 2040 its launched WorldCup,Johannesburg Index. City Green African the in tons 0.984 of average 15-city the above in well – tons wood 1.5 reach of person per emissions CO2 burning and townships, widespread the the Add coal. from comes matters electricity make To Johannesburg’s ofwinters. harsh 90% often worse, its in energy of lot a of needs cities Johannesburg coastal hotRio, the and to Shanghai in contrast In live buildings. inhabitants and million infrastructure 4 poor its with of townships half cramped roughly that challenge particular the faces Johannesburg Johannesburg Source seperation/ methane production seperation/ Source Thermal building refurbishmentThermal Solar Center receiver station CenterSolar receiver CHP district heating system CHP district District heating &cooling District Public building efficiency Incineration-based CHP Incineration-based Offshore wind power wind Offshore Congestion charging Congestion Traffic signal lighting Biogas from sewage from Biogas Landfil gas reuse Landfil Bus transit rapid Bike sharing Bike 80 Project Despite this difficult starting point, and motivated by the 2010 the by motivated and point, starting difficult this Despite Waste/ Wastewater Transportation Solid WasteSolid Buildings Energy Copenhagen Christchurch Gothenburg Vancouver Stockholm Stockholm Helsinki London Munich Sydney Vienna Seville Berlin Paris City 77 (2005-07) Capital costs, costs, Capital USD million 39.2 562 453 244 652 196 132 2.9 80 75 41 15 3 in CO2, tons kilo Annual savings savings Annual 2,700 0.36 63.4 1.54 31.6 598 205 720 150 120 110 1.8 18 14

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Investment in greener cities: Mind the gap End notes 30 Bloomberg New Energy Finance (2013) Finance Energy New Bloomberg 30 Re(2011)29 Swiss price cost-based teed, aguaran receive of energy renewable producers the subsidyscheme which under used 28 Awidely (2013)27 Inderst (2014) Poor’s & 1998. Standard 1.5% since debt been has finance for project rate default 26 annual The average deviation standard (risk its premium) to return excess or portfolio’s investment of an ratio the is ratio The Sharpe 25 (2012) al. et Baietti 24 Wagenvoort (2011)23 Sippel (2010) for CO2 trends. year base 1990 as uses usually 22 The UN 21 GVA (2010/2011) Group (2013) Consulting Boston 20 &Poor’s19 (2014) Standard 18 (2010) KPMG (2013)17 al. et Kuntze &Poor’s16 (2014); Standard Thomasson (2012) 15 (2011) The World Bank (2013b) Commission 14 European 13 (2011) The World Bank (2012) Miller USD 10 billion, than more city the cost could which infrastructure, protection new storm championed Bloomberg Mayor Cuomo Michael and York New Andrew Sandy, both Governor hurricane 12 After http://eumayors.eu/ 11 10 http://www.c40.org/ 9 Siemens (2011a) 8 Siemens (2011b) (2013) Cities 7 LSE (2012)6 KPMG (2012),5 OECD p. 13 Re(2013);4 Munich (2012) IPCC (2014)3 IPCC (2012b)2 McKinsey (2009) Agency Energy 1International - 57

Investment in greener cities: Mind the gap 58 End notes Often the heat comes from a cogeneration or combined heat-and-power plant. heat-and-power or plant. combined acogeneration heat comes from the Often businesses. houses and local to location acentral in heat generated distributes heating 59 District Siemens58 (2012b) (2010) Research Bank 57 Deutsche (2013) Preqin 56 (2013). Initiative Policy Climate 55 &Lu (2013) Lin 54 (2013). of PensionFunds Association National 53 (2013a). Initiative Policy 52 Climate Center (2013) Research 51 Steinbeis (2010) KPMG in cited Suite”, Executive the from Gap: Views Infrastructure Global the on “Bridging survey KPMG 2009 50 (2012) Prakash 49 (2012b) The Economist 48 18 to months. tendering restrict to aims government (2012). the overhaul, 47 of aPFI Allen part As (2013) Edwards 46 (2010) EIB in Helm Dieter 45 (2013b)tive Initia Policy Climate of energy. users corporate and companies manufacturing as well as companies energy renewable and utilities energy were investors 2012. private in The biggest finance climate private in USD billion 224 out of atotal USDbillion 0.4 for only accounted investors Institutional 44 (2011a) OECD 43 USS(2013)42 41 (2013b) OECD (2013). AustralianSuper 40 (2012).39 Omers Debt”, 18th 2013. June Bloomberg, Infrastructure in $13.3 Invest to Billion “Axa38 Plans (2013c).37 OECD Re(2012) Swiss 36 (2013) Institute Point Bearing 35 (2013a) Initiative Policy Climate respectively. equity, debt and project energy renewable of one half and one quarter between cover could investors institutional circumstance, Under34 ideal for 2011, Estimate 33 (2013c) OECD (2013) Institute Point 32 Bearing 31 (2013a, OECD c) - 80 Siemens80 (2011c) 79 Siemens (2010b) 78 Siemens (2011a) (2011) München 77 Stadtwerke 76 http://klimaschutz.de (2012) of Stockholm 75 City (2010)74 of Helsinki City (2009) of Copenhagen 73 City buildings public and companies mid-size private in projects efficiency energy in investing is which Germany fonds in Zukunfts B.A.U.M. cooperative the and buildings; of existing retrofits efficiency energy in invest to capital in 100 million CHF and million €300 with 2013 June in Switzerland, launched in Fund, ficiency Ef SUSIEnergy the were Europe in funds efficiency energy pure privately-run, first the 72 Among (2013a) Commission 71 European 2012/27/EU, http://ec.europa.eu/energy/efficiency/eed/eed_en.htm 70 Directive 2014. in way (2013) EIB due get under to was program 2012 full in the and started phase Apilot communications. and energy transport, in finance infrastructure to investors institutional attract to features enhancement credit use –will EIB the and Commission European of the –ajoint project Bonds Project The Europe2020 69 fall. emissions total so that overtime reduced is CO2 limit The overall needed. as other each with trade then can they which or rights, sold emission allocated are companies limit, this Within emit. to allowed are industries of CO2 that amount total for the alimit sets EU the ETS, the Through 68 (2012) Research Bank Deutsche 67 (2013) McKinsey 66 p. 64 (2013) Treasury HM 65 (2012) OECD 64 pp. 32-33 (2010) Tindale 63 http://www.dena.de/ 62 (2011) Reform for European Centre in 61 Schiellerup investors. more byattracting million 800 EUR to fund the increase to is The aim Bank. Deutsche and ePrestiti Deposit Cassa EIB, Commission, European the from funds in million 265 2011 in EUR launched was Fund with Efficiency Energy The European 60 - - 59

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