Climate Compass Blog

Two ways to help cities finance climate action

The world is increasingly looking to cities to deliver transformative change toward a low-carbon future. Recent studies point to the great carbon reduction potential resting within city limits by cutting building energy use and improving transportation systems. But very real barriers, especially finance, are hindering progress.

Cities need access to dollars to finance both tried-and-true and innovative pilot projects. Nearly 90 percent of local governments consider lack of funding a significant barrier to sustainability efforts in their community, according to a recent survey.

Initiatives are emerging to improve the financial environment. A C40 Cities Climate Leadership Group report released this month characterizes six ways local governments can access dollars: green bonds, city-backed funds, financial institutions/agency finance, equity capital, emissions trading programs, and climate funds.

The first two financing mechanisms are likely familiar to city leaders. Bonds are common tools to catalyze major projects and more local governments are establishing revolving loan funds to promote certain investments. Some of the others may be less understood, and here we take a closer look at two.

Climate Funds

Climate funds are buckets of money to finance clean energy and resilience action. Although commonly used in developing countries, there are a few examples in the United States. The most prominent type are state climate funds that use revenue from programs such as the Regional Greenhouse Gas Initiative (RGGI) in the Northeast and California’s cap-and-trade program to support programs like energy efficiency initiatives run by local governments.

A C2ES webinar on financing resilience featured another type of climate fund in the New Jersey Energy Resilience Bank (ERB). The ERB described its work to enhance distributed energy projects for critical facilities like hospitals and utilities by providing low-interest loans drawn from a $200 million federal disaster recovery fund made available after Hurricane Sandy. For example, the ERB is providing a $4.4 million grant and a $3.1 million loan to finance a 2 MW combined heat and power natural gas system at Saint Peter’s University Hospital. The investment will ensure the hospital maintains power – and continues providing life-saving services –  even if the surrounding electric grid shuts down in future storms.

Emissions Trading Programs

Emissions trading programs are typically created for major emitters and implemented by state and national governments. So how would a city participate here? Well, emissions trading programs accomplish a unique thing, which is to create new monetary value, in the form of credits, for clean energy projects. This would involve projects like solar installations; energy efficiency programs for neighborhoods, commercial buildings, and even water treatment facilities; methane capture projects at landfills; basically, the kinds of projects cities facilitate or even spearhead. The credits awarded to such projects can be sold to the polluters who have to meet certain quotas.

Outside of municipal utilities in California and RGGI states, there are currently no local governments participating in emissions trading programs in the United States. An interesting opportunity on the horizon is the Environmental Protection Agency’s (EPA) proposed Clean Energy Incentive Program (CEIP), which is nestled within the currently stayed Clean Power Plan.

The CEIP is meant to incentivize renewable energy projects and energy efficiency investments in low-income communities by offering tradable credits to project developers. This program could establish a financial incentive that local governments can benefit from directly or indirectly by drawing development dollars and jobs to cities, but whether that happens is up to each state (more on that process here).

Ultimately, for the CEIP to become a funding source that appeals to local governments, a number of challenges will have to addressed. There will need to be:

  • Certainty around Clean Power Plan and the value of credits to minimize the risk associated with the post-project financial incentive,
  • A clear definition of "low-income community,"
  • Certainty around available credits, and  
  • Guidance on attracting CEIP projects.

Besides the six types of finance discussed by the C40 report, there are other financing mechanisms available to cities that intrepid leaders have used to overcome this barrier to action. However, given the competition for government attention and resources, it is no surprise that lack of access to finance results in lower prioritizing of sustainability projects. This is an outcome we cannot afford.

Advancing toward an HFC phasedown

The latest round of negotiations under the Montreal Protocol concluded late Saturday night in Vienna with key elements of an amendment to phase down hydrofluorocarbons (HFCs) beginning to take shape. The progress in Vienna sets the stage for a final agreement at the Meeting of the Parties scheduled for October in Kigali, Rwanda.

Countries are now closer than ever to a historic breakthrough that can dramatically reduce the risks of global climate change.

Because they are potent greenhouse gases rapidly expanding in their use in refrigeration and air conditioning, HFCs are a critical target in international efforts to achieve the goal established under the landmark Paris Agreement of keeping temperature increases well below 2 degrees Celsius. An ambitious HFC amendment could reduce global temperatures by an estimated 0.5 degrees by 2100 compared to business as usual growth. 

The highlight of the meeting was a call to action delivered by U.S. Secretary of State John Kerry. His appearance, along with several days of morning to late-night engagement by Environmental Protection Agency Administrator Gina McCarthy, underscored the critical importance the United States places on using the HFC amendment to build on the momentum achieved in Paris. 

Two key issues were the focus of the negotiations in Vienna: the baseline (the level of HFCs from which controls are based) and timetable for limiting HFC emissions, and the guidelines for providing financial support for developing countries in meeting these obligations. While more work remains to be done before the October meeting, real progress was made on both fronts.  

The proposal for developed countries centered around setting a baseline of 2011-2013 with a 10 percent reduction from there by 2019. Most of these countries have already begun limiting HFCs though domestic regulations.

For developing countries, where HFC use is only now ramping up, a wide range of proposals was put forward. A large number of countries (African Group, Pacific Island countries, a number of Latin America countries, the United States, Japan, Canada, Australia, New Zealand, and the European Union) supported a baseline of 2017-2019 with a freeze at 2021. India, China and Gulf Cooperation Countries offered less ambitious proposals. India’s proposal would allow the longest unrestricted use with a baseline of 2028-2030 and a freeze at 2031.

On funding issues, there was broad agreement on using the Protocol’s Multilateral Fund as the institution for administering financial support to developing countries. Secretary Kerry emphasized that over 75 percent of the fund’s donor base of developed countries has already publicly stated their intention to provide additional funding to implement an HFC amendment. The key points of contention relate to important details concerning what aspects of costs will be paid and over what period of years.

Despite the progress made last week, closing the deal on an HFC amendment in October will not be easy and is by no means assured. With continued U.S. leadership and a willingness among all nations to cooperate in confronting the clear and present danger of climate change, an HFC amendment in 2016 should be achievable.

Positive steps on the road to more EV charging

Last year, I spoke to a Slate reporter who asked why the Obama Administration had not invested more in electric vehicle (EV) charging infrastructure. Last night, the administration took steps to reduce transportation emissions by making charging easier and more affordable and by leading the way through a unified, national effort.

The administration announced several initiatives to promote EV adoption. Notably, $4.5 billion in funding has been designated to support guaranteed loans for the installation of new EV charging stations. The administration also plans to develop a guide for federal funding, financial, and technical assistance for EVs and EV charging infrastructure, as well as invest in research and partnerships that will expand EVs’ consumer appeal.

More funding

Range anxiety, or a simple lack of available charging options, continues to impede the growth of the EV market. The administration announced $4.5 billion in guaranteed loans through the U.S. Department of Energy’s (DOE) Loan Program Office to install EV charging stations. Expanding federal loans to include EV charging stations may help remove a major impediment to investing public charging by reducing the cost of capital.

A 2015 C2ES report recommended government loans in the short term to help stimulate the growth of public charging infrastructure and create a sustainable charging network. The report found that charging service providers face difficulties earning a return on investments for public charging projects, but could develop profitable business models with government financial support.

Federal standards

The administration is proposing to develop federal standards to assist with developing networks of DC fast charging stations, which can charge an EV in 30 minutes or less. The U.S. Departments of Energy and Transportation will produce a guide to federal funding programs, financing incentives, and technical assistance for EVs and charging stations. The intervention of the federal government may help create some more consistency between charging networks with varying standards and processes, and the guide may establish an authoritative and inclusive resource for all stakeholders to turn to for a better understanding of EVs.

The proposal leverages existing programs, such as the congressionally approved 2015 FAST Act designating travel corridors for alternative fueling stations, to help expand DC fast charging networks.

This figure illustrates the business challenge facing charging service providers.

This figure illustrates the business challenge facing charging service providers. Over the expected life of the charging equipment, the direct revenue for the provision of charging services is less than the cost of owning and operating the charging station.

Consumer appeal

The White House’s announcement also includes new funding for research to cut EV charging time down to 10 minutes, which would appeal to consumers used to fueling gasoline-powered cars. Consumers may find charging easier with the inclusion of new companies in DOE’s workplace charging program and utility commitments to deploying new EV infrastructure.

There may be some criticism about why the federal government is investing this funding in EVs, and not other clean transportation technologies such as natural gas or hydrogen. EVs currently hit the sweet spot of offering greater carbon reduction potential than natural gas vehicles, with the capacity to get even cleaner as the electric grid decarbonizes, while attracting greater support from automakers and consumers than hydrogen fuel cell vehicles. Twenty-six EV models were sold in the United States last month, with automakers pledging many more models in the coming year.

Now that the transportation sector has become the largest U.S. greenhouse gas-producing sector, these initiatives will help bring clean transportation to consumers by making EV adoption easier and more enjoyable.

Energy innovation can help power the nation

Jay Premack/USPTO

Innovation to Power the Nation (and the World): Reinventing our Climate Future event held at the Carnegie Institute of Science Auditorium. Keynote remarks by Michelle Lee, Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office; and panelists including: Dr. Jayant Baliga, Dr. Kristina Johnson, Nathan Hurst, Bob Perciasepe and moderated by Amy Harder. 

Energy, business and policy experts agree: Current technologies aren’t enough to keep the world from warming more than 2 degrees Celsius by 2100, the ambitious goal of the Paris Agreement. We will need innovation to fill the gap.

Where do we need breakthroughs? What do we need do more, do differently or do faster to evolve our energy system to be efficient, dependable and low-carbon? What policies would help drive the innovation we need?

These are some of the questions that guided a recent discussion C2ES helped organize at the Carnegie Institution for Science.

U.S. Patent and Trademark Office Director Michelle K. Lee opened the conversation by  emphasizing the importance of innovation to face the challenges posed by climate change. “History has shown us there are few challenges that innovative minds cannot overcome,” she said.

Here are some of the highlights of the discussion, which you can watch here:

We can vastly improve energy efficiency

Dr. B. Jayant Baliga, an inventor with 120 patents and a professor at North Carolina State University, sees an enormous opportunity to improve energy efficiency, not necessarily through new inventions, but by more widely using some of the technologies we already have.

One of Baliga’s inventions, the insulated gate bipolar transistor (IGBT), dramatically improves efficiency in power flow in everything from appliances to cars to factories, saving an estimated 100 trillion pounds of carbon dioxide emissions.

Using variable speed motor drives that take advantage of IGBTs can improve efficiency by 40 percent, but only about half of U.S. motors run on these drives, compared with nearly 100 percent in Europe, Baliga said. With two thirds of U.S. electricity used to run motors, the energy savings could be enormous.

Lighting consumes about a fifth of electricity in the U.S. Going from incandescent bulbs to CFLs reduces energy use 75 percent. But in the U.S., only 2 billion out of the 5 billion light sockets have CFL bulbs in them, Baliga said. “We need some encouragement for people to use these kinds of lights,” he said.

Business plays a crucial role

Businesses understand the importance of climate change for both their operations and customers. Nate Hurst, Chief Sustainability & Social Impact Officer at HP, said companies should examine their operations and supply chains to drive energy efficiency, and also make products that are as energy efficient as possible.

HP, along other multinational companies, recently pledged to power global operations with 100 percent renewable energy, with the goal of 40 percent by 2020. The company also announced a new commitment to achieve zero deforestation also by 2020, which means all HP paper and paper-based packaging will be derived from certified recycled sources.

Companies need to diversify their energy sources, but the biggest challenge is price. Hurst suggested government incentives and tax credits can play a role in bringing alternative energy prices down.

Policy is needed at the federal, state and city level

C2ES President Bob Perciasepe said policies to recognize the costs of greenhouse gas emissions, such as a price on carbon, can stimulate innovation. Cities, states and businesses are pressing forward with policies and actions to save energy and expand clean energy. C2ES recently launched an alliance with the U.S. Conference of the Mayors to bring businesses and cities together to speed deployment of new technologies.

One area where more innovation is needed is carbon capture, use and storage. “We know how to do it, but we have to find cheaper ways to do it,” Perciasepe said. “And we have to find ways to use carbon, not just shove it all back into the earth.” For example, the Ford company is testing ways to capture carbon emissions from its manufacturing plants to make plastic for use in the interior of cars.

Hydropower can play a key role

Dr. Kristina Johnson, an electrical engineer and former Undersecretary for Energy at the Department of Energy, said it’s crucial to find new ways to use renewable energy. Her company, Cube Hydro Partners, acquires and modernizes hydroelectric facilities and develops power at unpowered dams.

“When we built our first little power plant in an existing dam, it cost less than $20 million, but it was the equivalent of having planted a million fully grown trees in the rainforest, which would have been a billion dollars,” she said. Hydropower can help provide constant energy to fill in for wind and solar power, she said.

Other areas where innovation would boost clean energy would be small modular nuclear reactors, although more work needs to be done on handling the waste, and an economic way to store or reuse emissions from fossil fuel plants, she said.

The last question asked by moderator Amy Harder of The Wall Street Journal was: What is the most important invention society needs to make and bring to scale to address the challenge of climate change?

What our panelists said:

  • A visionary new source of power,
  • Enhanced versions of the sources already known, such as ocean currents or solar power,
  • The right economic incentives to scale the solutions we already have, and
  • New materials that can be reused and recycled without compromising quality.

Preparing for more summer heat waves

Heat Wave PhotoClimate change is causing longer and hotter heat waves that take a toll on public health and on a community’s economy, prompting some local governments to take action.

Heat can be deadly. From 2006-2010, exposure to extreme heat resulted in 3,332 U.S. deaths. The elderly and the poor are among the most vulnerable due to pre-existing health issues and limited access to air conditioning. But young outdoor enthusiasts are also at risk. Five hikers died during a heat wave this summer in Arizona, where it got as hot as 120 degrees F.

Heat waves are not only dangerous, they’re also expensive. Extreme heat can damage crops and livestock, reduce worker productivity, drive up energy costs, and increase demand for water resources. A 2011 heat wave and associated drought in the Southwest and Southern Plains cost $12.7 billion.

A hotter, drier Southwest

While it’s hard to determine how climate change influences individual extreme weather events, we do know climate change exacerbates both their frequency and intensity.

In the Southwest, residents are expected to see an additional 13 to 28 extremely hot days (temperatures of 95F or hotter) by mid-century, and 33 to 70 additional days by the end of the century. Higher temperatures will also exacerbate droughts and fire cycles.

How to prepare

The Southwest region has already taken steps to prepare for the impacts of more extreme heat. This is especially critical for urban areas, where stretches of heat-absorbing concrete and asphalt create a heat island effect, increasing temperatures in some cities by up to 15 degrees above surrounding areas

In Southern California, the city government in Chula Vista is working to implement 11 strategies to help adapt to the impacts of climate change. They include using reflective or “cool” paving and roofing to reduce the urban heat island effect, and amending building codes to incentivize water reuse and lower demand for imported water.

In Arizona, the city of Phoenix’s Water Resource Plan includes short- and long-term strategies to deal with water shortage scenarios, including monitoring supplies and managing demand, developing increased well capacities for water storage, and coordinating with neighboring counties to secure additional water resources.

A council of local governments in Central New Mexico is working to determine the impacts of heat waves on infrastructure, including the role of extreme heat in degrading asphalt and pavement, and what types of pavement materials are most resilient to extreme heat.

Early efforts to improve climate resilience can help a community prepare for costly extreme weather events and more quickly bounce back from them. Local governments like the cities of Phoenix and Chula Vista and those in New Mexico are demonstrating strong leadership that can be an example for others. Coordinating with partners in state government and the business community, including through the C2ES Solutions Forum, can ensure local governments’ resilience plans provide maximum protection against the heat waves of the future.