Paris, 19 April 2011
Cities are using two-thirds of world energy and producing 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 today at a conference on Cities and Carbon Markets. The event co-organised by the OECD and CDC Climat Recherche, a French think tank, brought together city officials from across France, including from Lyon and Aquitaine.
“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 “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). The French version of the report is "
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.
For a free copy of the full report, in English: “Cities and Carbon Market Finance: Taking Stock of Cities’ Experience with CDM and JI”. Executive Summary.
For more information on the OECD work on carbon markets, please visit www.oecd.org/env/cc/carbonmarkets.
For more information on the OECD work on cities, please visit