Cities are under-served by carbon markets, says OECD
Cities are using two-thirds of world energy andproducing two-thirds of energy-related greenhouse gas emissions. So
actions to fight climate change should target cities. Carbon
markets could help finance some of the necessary low-carbon
investments, as highlighted in the Cancún climate conference.
But cities are under-served by the current carbon
markets.
“Carbon markets can be an important new source of finance for
urban low-carbon investments. In 2008, carbon markets were valued
at over EUR 5 billion, then came the financial crisis but 2009
still recorded a respectable sum of EUR 2 billion”, said Jan
Corfee-Morlot, the OECD’s senior climate policy advisor, speaking
at a conference on Cities and Carbon Markets.
“Businesses around the world have successfully tapped these
funds and reduced emissions, but the number of projects involving
city governments has been limited,” stressed Alexia Lesseur of CDC
Climat, a co-author of a recent OECD report
target=”_blank”>Cities and Carbon Market Finance.
Urban projects currently account for less than 10% of total. The
study reviews how cities can use financing from carbon markets (and
the challenges they face), with case studies of 10 urban emission
reduction projects in developed and developing countries (Brazil,
Colombia, France, Germany, Mexico, New Zealand, Romania, South
Africa, Vietnam).
Cities can reduce greenhouse gas emissions in several ways.
Regulating building energy-efficiency, improving public
transportation, funding “smart grids”, and improving waste
management are some examples.
But such low-carbon investments can have high up-front costs.
São Paolo, Brazil - working with industry and the national and
regional government - built facilities to capture methane from
landfills and generate electricity, using carbon markets to cover
100% of the up-front costs.
This project not only cuts methane emissions but also reduces
the risk of explosions and improves local air quality. The city
keeps half of the emissions reduction credits from this project and
sells them on carbon markets, generating EUR 27 million in 2007 and
2008.
The German State of North Rhine Westphalia receives cash from
carbon market credits that cover 5-20% of total costs for a group
of projects. The projects, covering 24 heating units in 8 cities,
reduce emissions from heating boilers through fuel switching and
energy efficiency improvements.
This innovative “bundling” of similar small projects
demonstrates that it is possible to replicate and scale up this
approach in other cities.
But the existing carbon market was not designed with urban
projects in mind. The OECD study concludes that for urban projects
to succeed, they need political will and good policy coordination
across city, state and national governments.
Partnering with businesses can also help to share project risks
and provide financial and technical support. Also important are
tangible local benefits-better waste management, odour reduction
and lower energy consumption- in addition to the global climate
benefits.
The study suggests continued development of methodologies for
grouping small urban projects together. This could boost the volume
of urban emission reductions, and simplify and accelerate the
project development and approval process - thereby cutting
costs.
To maximise city emission reductions in the future, national and
city governments should explore together how to better incorporate
cities into national climate policies.
Click here for a free copy of the full report, in English: “
target=”_blank”>Cities and Carbon Market Finance: Taking Stock of
Cities’ Experience with CDM and JI”.
target=”_blank”>Executive Summary.
