Cities and Climate Change
Low carbon cities will be better positioned to face the shifting patterns brought by climate change. Investments in green infrastructure and urban renewable energy projects will be critical to building these climate-resilient cities.
By GreenPortfolio Team
December 30, 2021
With more than half of emissions in the US created by urban infrastructure, including buildings and transportation, cities will have an important role in addressing the impacts of climate change by adopting cleaner energy sources and energy efficiency.
The pressure that local governments face to act is acute. Cities designed and built for past generations may no longer withstand future weather patterns – many of which may already be starting to appear. Home to a growing share of the world’s population, cities may be vulnerable to more pronounced effects of climate change due to their concentration in coastal areas. As a result, they experience an outsized impact of warming temperatures, particularly where there is a low concentration of urban green spaces.
This year, subway systems and roads inundated by flooding on the US’s east coast and record heatwaves in the Pacific Northwest have city planners looking more closely at adapting transportation, power, and communication infrastructure. McKinsey Sustainability estimates that by 2050, the number of people globally affected by extreme heat could grow 8-fold to over 1.6 billion. The number affected by flooding will grow to 800 million due to the concentration of urban areas on the coasts. Meanwhile, water scarcity will affect 650 million people. Thus, building climate resilience as well as investing in clean energy infrastructure will be critical for cities.
The role of cities in addressing climate change
Cities can achieve a majority of their emissions reductions goals in the next decade according to C40, a network of megacity governments looking at how to respond to climate change by focusing on cleaner energy sources and energy efficiency for electricity generation, buildings, transportation, and waste management.
Decarbonization of the grid can come from a combination of investing where infrastructure is feasible in the development of renewable power – wind, solar, and other renewable energy sources – as well as in distributed renewables that allow for on-site generation such as rooftop solar panels.
While centralized energy sources offer scale and cost-effectiveness, decentralized sources and storage can help in times of higher energy demand and require a lower level of investment in infrastructure, according to an analysis by C40. Think tank Overseas Development Institute adds digitalization as an additional component to accessing real-time information to optimize energy usage and forecast energy demand in a decentralized system. Close collaboration with national and state governments with utilities will be critical in transitioning to a low carbon grid.
In its roadmap to decarbonization by 2040, New York City focuses on building renewable energy capacity and storage. The city is investing in battery storage and low carbon gas to provide grid reliability, which will require investment and planning into new technology and safety. The city is also taking energy efficiency and demand management into account with higher peak demand due to widespread electrification. Fossil fuel usage will no longer be part of the grid by 2040, thanks to new solar, wind, and hydropower sources. The city is also promoting on-site solar installations by requiring the installation of solar or green roofs on new buildings and buildings that have major roof renovations.
The largest consumers of energy in cities are buildings. Therefore, increasing building energy efficiency will significantly help lower carbon emissions. C40 cites positive returns from energy savings from implementing higher energy efficiency standards for new buildings and retrofitting existing buildings. Implementing stronger standards for new buildings will be critical to optimizing the impact and cost of emissions reduction plans, given the long life of building and the relatively higher costs of retrofitting existing buildings. For example, the Passive Housing design standard, a ‘low energy use design and construction standard’, implemented by the New York City Department of Housing Preservation and Development for affordable housing has shown between 28% and 68% reduction in energy costs.. Overall, C40 estimates by 2030, new buildings with high efficiency standards will reduce energy usage by 50% to 70% compared with their existing counterparts.
Promoting reduced gas-powered transportation will require investment in infrastructure to support electric vehicles, extend mass transit options, and facilitate biking and walking through urban planning. Amongst the factors for cities to consider are vehicle miles traveled, biking and walking community, transit ridership, population density, and circuity in what C40 calls ‘next generation mobility.’
Financing climate adaption and infrastructure
Beyond the challenges and debates that cities will face to finance a clean energy transition is a conflict between the short-term costs and the long-term benefits of climate adaption, public expenditure that benefits private property owners, and equitable investment in poorer neighborhoods.
As cities invest in climate adaptation and clean energy growth, many question who should finance the needed infrastructure. NPR, for example, recently reported that billions of dollars in infrastructure are required to protect coastlines in the San Francisco Bay Area in anticipation of flooding. A number of those properties belong to some of the largest global technology companies, in addition to low-income communities. Whether based on property risk, wealth, or other factors, cities will need to determine who will pay for improvements like flood prevention. And those decisions will have ethical implications.
Equitable investments will be critical to any investment plan. On average, poorer neighborhoods have had hotter temperatures putting residents at greater risks of heat and flooding due to less green space and redlined neighborhoods. Cities like Cleveland have put climate equity at the center of its plans to address climate change prioritizing:
- Energy-efficient home renovation in poorer neighborhoods because they face higher energy costs
- Green mass transit options in underserved communities to reduce the need of fossil fuel-powered transportation
- Green spaces, which are important sources of cooling.
Private Sector Investment
Ultimately, infrastructure and climate adaptation projects will require public and private capital, which C40 estimates to be $700 billion annually for US cities. The Federal Reserve Board of San Francisco cites four areas where private capital can be leveraged, including the issuance of green bonds, private sector expertise, green loan programs for property owners, and development incentives.
Green municipal bonds in the US have grown over the past three years from $4 billion in 2017 to $15 billion in 2020, representing about 25% of all green bond issuances in the US, but still a small portion of the total municipal bond market which totaled nearly $500 billion issued in 2020. Due diligence on the quality of reporting and verification remains critical for investors in green bonds. WRI notes the rise in innovative structures to fund green projects, including climate bonds and resilience bonds, for which Climate Resilience Principles issued in 2019.
Overall, municipal bonds have traditionally been held as long-term investments and have seen low default rates with the federal government often supporting post disaster recovery efforts. With recent studies showing that one-quarter of all US infrastructure at risk for flooding and the potential for stretched federal budgets, climate change is likely to become a larger factor in assessing the creditworthiness of municipal borrowers due to cost of damage, lower property values, and loss of revenue streams from infrastructure projects. The impact of climate change is, in fact, already being considered by the major ratings agencies.
Investors and citizens will play an important role in advocating for their local governments to accelerate the movement towards clean energy, energy efficiency, and climate adaptation.
Disclaimer: GreenPortfolio aims to keep all information on the site current and accurate. However, you may find differences between information listed here and information listed on a financial product provider’s website. Opinions expressed here are not those of any bank, credit card issuer or financial institution, and have not been reviewed, approved, or otherwise endorsed by any of these entities. Please complete your own due diligence before making any financial decisions.
Advertising Disclosure: This article/post may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services but this compensation does not influence our reviews or opinions. Read about our methodology to learn how we choose financial products to include on our platform.