Report: Financing Urban Adaptation to Climate Change

City leaders and urban researchers have put together a report and five-step roadmap to finance the investments needed for cities to adapt to changes wrought by climate change. Financing Urban Adaptation to Address Climate Change was created based on a workshop addressing gaps in investment in urban adaptation. Jointly convened by Penn IUR, Perry World House, and the Kleinman Center for Energy Policy, the workshop brought together three dozen urban policy and finance leaders to find ways to spur investment in urban adaptation to climate change.

Despite changes already occurring in terms of increased drought and flooding, worsening storm and fire damage, and increasing heat indexes, most cities do not have a comprehensive inventory of their adaptation needs. They lack climate projections and risk assessment related to water (flooding and drought), public health, air pollution, extreme temperatures, storms, fires, and so forth. The World Bank recently reported that of $75 billion of tracked spending on urban climate finance, only $7 billion was dedicated to adaptation. So, what can be done?

The action-oriented roadmap outlined in the report has the following elements: 1. Map needs, 2. Coordinate adaptation and mitigation, 3. Determine appropriate policy instruments, 4. Support governmental subsidiarity, and 5. Design new financing approaches.

  1. Map Needs: Create geography-specific maps based on localized studies in order to identify the needed adaptation strategies in different areas. A suggested output is a handbook to guide city leadership as it sets investment priorities over time. An accompanying product is a scorecard that measures successful adaptation using cross-cutting indicators such as the resilience dividend (the difference in the outcomes between the scenario with a resilience approach and without) developed by the Rockefeller Foundation and the Rand Corporation.

  2. Coordinate Adaptation and Mitigation: Adapting large systems for the effects of climate change will work best when strategies combine synergistic adaptation and mitigation activities. These involve cities but often have a larger geographic footprint. They include: moving the supply of energy away from fossil fuels; strengthening ecosystems to protect water and food supplies; reducing use of industrial materials such as cement and steel; and dealing with locational decisions retreating from coasts and other vulnerable areas. Such coordination calls for purposeful action—that is, efforts that recognize and incentivize working across silos for the conception of projects or system improvements and employ the best-suited agencies to finance, operate, and maintain these improvements.

  3. Determine Appropriate Policy Instruments: Urban adaptation requires both finance and regulation. For example, efforts to deal with chronic or extreme event flooding can encompass a municipality constructing flood gates, dikes, massive berms, or big open spaces. These are public goods, paid for by government sources such as taxes, intergovernmental transfers, or loans supported by sovereign guarantees. Accompanying these efforts might be municipal restrictions on building in flood plains that devolve from zoning ordinances and land use rules.

  4. Support Governmental Subsidiarity: The principle of governmental subsidiarity holds that functions are best allocated to and funded by the level of government best suited to accomplish them. For example, a national government would do a poor job collecting garbage while a local government cannot set national property rights legislation. Some adaptation measures—such as ecosystem protection or large transportation projects—are beyond the capacity and mandates of local government and thus require good working multi-level partnerships.

  5. Design New Financing Approaches: Linking public, private, and philanthropic effort for mutual benefit can include making public investments that stimulate private investment in urban adaptation projects; using techniques to capture increased land values attributed to public investment; developing or improving formulae for blended finance. Transforming the current system involves fashioning new institutions such as green banks and developing legislation to allow direct borrowing by municipalities where not currently permitted.

Watch the eight panel discussions here: Five Steps for Financing Urban Adaptation to Climate Change.