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south pole group¡ October 8, 2016

Financing low-carbon cities - Challenges and solutions

Low Carbon City Forum, Medellin 11th October 2016 Martin Stadelmann

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South Pole Group

South Pole Group & Cities

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South Pole Group

South Pole Group: sustainable achievements 500 projects developed 80 million tonnes of CO2 reduced

Climate impact of USD 50+ billion measured

South Pole Group ¡ 08/10/16

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South Pole helps cities to reduce their footprint Mobile phone GHG tracking Carbon markets for cities

Bike sharing

Capacity for cities

New financing tools for cities Low-carbon city planning

South Pole Group · 2016

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Why are cities so relevant for climate change?

•  Cities: 70% of energy-related CO2 emissons (global, Latin America) •  Paris 2015: first climate agreement to acknowledge role of cities •  Cities: amomg most active players on climate change •  600+ cities pledge to reduce CO2 •  250+ city-related events at Paris conference

South Pole Group

Finance Challenges

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South Pole Group ¡ 2016

Challenges of cities in developing and emerging economies High CO2 Limited budgets (local/international) Low Creditworthiness Cities, 70%

Cities, 30%

+ Lack of bankable projects!

Yes, 20%

South Pole Group

Finance Solutions

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South Pole Group ¡ 2016

How South Pole helps cities on finance

Low cost capital

Increase revenues

Develop projects & find investors

Low cost capital: Green bonds

Can the city issue bonds?

•  Goal: improve access to green bond markets for cities


•  Means: guideline for cities, concrete tools, training sessions

Can a public utility issue bonds?

•  Pilot in Mexico City, 1st Latin American city to issue a green bond




South pole group · December 9, 2015

Low cost capital: Different options Can the city issue bonds?



No Can a public utility issue bonds? No

Is there IG credit rating?


Engage with private sector issuers and PPP options; pooled options Explore option for MDB to issue bonds Improve creditworthiness, i.e. World Bank Initiative


Issue Green City Bond

Jo’burg / Mexico City

Issue project bonds

US Wind

Explore option for MDB to purchase bonds

IFC and Yes Bank

Credit Enhancement Tools/Instruments • Structuring/Subordinate tranches • Guarantees

Abbreviations: IG – Investment Grade MDB – Multilateral Development Bank

Increase revenues: Result-based finance •  Goal: cash flows based on certified results •  Means: new city standard and pilots •  Ongoing assessment: •  Monorail, Balikpapan, Indonesia •  Decentralized Waste, Rajkot, India •  Green Corridor, Cali, Colombia •  Waste recycling, Nairobi, Kenya

Increase revenues: go beyond carbon credits to make projects attractive! CO2 credits: only minimal impact!

Monetized0Co2benefits 16% 14%


12% Benchmark0for0Indonesia:011%



10% 5.44%

8% 14%



4% 2% 0%




Job0 creation

Pollution0 reduction*


Carbon0 credits



South Pole Group · 2016

Project development: the case of small hydro power in Indonesia

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Match-making with investors •  Goal: Connect city projects with private and public investors •  Means: events where cities present their projects, speed-dating with investors (e.g. DC, Singapore) •  Next event: Amsterdam, December

South Pole Group · 2016

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Key take aways on financing low-carbon cities •  Cities = key actors (70% of CO2, climate plans) •  Challenge 1: Low creditworthiness / high capital cost -> access to green bond market & aggregation vehicles (+ financial planning / transparency) •  Challenge 2: Limited budgets -> increase revenues (Result-based finance) •  Challenge 3: Lack of bankable projects -> develop projects and match investors with cities Political solutions: access to international finance, authority to raise taxes, tax increase

South Pole Group

Thank you!

Martin Stadelmann Practice Leader Cities and Climate Finance

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Martin Stadelmann (The South Pole Group)