City Climate Finance Gap Fund

The City Climate Finance Gap Fund supports cities with early-stage technical assistance for low carbon and climate resilient projects and urbanization plans.

OVERVIEW

More than half the world’s population lives in cities. Accounting for more than 70 percent of global CO₂ emissions, cities are also where more than two-thirds of the world’s energy is consumed. By 2050, 2.5 billion people are expected to migrate from rural to urban areas. Much of that migration—an estimated 90 percent—will happen in Africa and Asia, where climate change will push tens of millions of people to move. Cities’ rapid and often haphazard growth, especially in developing countries, will drive greenhouse gas emissions and increase residents’ vulnerability to climate change and other shocks, such as heatwaves, flooding and health emergencies.

Clearly, cities are and will continue to be on the frontlines of the global push against climate change.

However, there is a large gap in urban climate finance—estimated in the trillions of dollars, especially in rapidly urbanizing cities in Africa and South Asia. There is an even larger gap in early-stage project preparation finance, estimated at about 3-5 percent of the total project investment costs, going up to 10 percent in emerging and developing country markets. Of the estimated $93 trillion of sustainable infrastructure investments needed globally by 2030, up to $4.5 trillion will be required for project preparation—$300 billion per year.

There is also a capacity and technical gap to developing robust and impactful City Climate Action Plans that can help reach a net zero and resilient world. While a growing number of cities are developing city climate action plans, there are still many that do not have detailed climate mitigation strategies, nor robust preliminary studies such as green-house gas inventories, or climate impact studies to prioritize climate investments. Especially in the global south, cities frequently lack the capacity, finance and support needed for the early stages of project preparation. This typically leads to impasses, and project ideas often fail to progress.

As the world strives to recover from COVID-19, infrastructure investments present a huge opportunity to rebuild our cities and societies for the future in a way that embeds low-carbon and climate-resilient considerations to improve air quality, human health, and sustainability.

STRATEGY

The City Climate Finance Gap Fund, operational since September 23, 2020, is a global partnership that supports cities in developing countries plan for, prioritize, and deliver climate change mitigation and adaptation projects, climate smart urban development plans and inform future city level and country level urban climate policy and action through:

• Supporting city climate strategy development and analytics to assess the climate potential of plans, strategies, and investment programs
• Providing capacity building for low-carbon and climate-resilient urban development
• Supporting the prioritization of investments as part of a climate strategy or investment program
• Defining project concepts and preparing pre-feasibility studies
• Supporting a strengthened approach to project financing
• Matchmaking with additional support sources for later stages of project preparation
• Offering potential support to fill in other project preparation gaps
• Delivering knowledge products and learning

The Gap Fund aims to close the urban climate financing gap for early-stage climate planning and project preparation, particularly in rapidly urbanizing cities in developing countries. It is currently capitalized at €55 million, with a target capitalization of at least €100 million and the potential to unlock an estimated €4 billion in investments. This funding supports three main goals:

1. Provide technical assistance and capacity building. Enhance cities’ and local authorities’ capacity to plan for low-carbon, climate-resilient development while also seeing high-quality project ideas through to later stage project preparation.
2. Build a high-quality urban investment pipeline for later-stage technical assistance. Put together a solid portfolio of projects that are ready to apply for funds from other project preparation facilities and potentially attract additional financing.
3. Share knowledge on project preparation with developers and financiers. Share global best practices and help to standardize project preparation.

Projects supported by the Gap Fund will also result in social and environmental co-benefits, like improvements in urban quality of life, clean air, health, social inclusion, circular economy and job creation.

The Gap Fund will step in during the early—and complex—stage of project preparation, when cities often lack the capacity and financial resources required to turn ideas into real projects. Intervening at the early stages is the most effective way to help shift urban investment towards climate-smart projects. Early-stage interventions also provide an opportunity to think holistically and to align COVID-19 recovery stimulus packages with low-carbon, climate-resilient urban development, favoring investments that will help build green, healthy, safe and competitive cities for the future.

The Gap Fund provides this support at the very early stages of city planning or project preparation and covers a wide range of sectors, including energy efficiency, green buildings, sustainable cooling, nature-based solutions, local renewable energy, sustainable mobility, the circular economy and water/wastewater management. It does not fund the implementation and construction of projects directly but complements the cities’ technical knowledge and capacity behind the projects, critical foundations required for projects to succeed. Funding proposals are submitted via the Expression of Interest form available on the website.

The Gap Fund is an initiative of the Federal Republic of Germany and the Global Covenant of Mayors for Climate & Energy (GCoM), along with other key partners in the urban and climate finance arena including C40 Cities, ICLEI, and the Cities Climate Finance Leadership Alliance (CCFLA). The initial donors are Germany's Federal Ministry for the Environment, Nature Conservation and Nuclear Safety and the Federal Ministry for Economic Cooperation and Development, as well as Luxembourg's Ministry of the Environment, Climate and Sustainable Development.

The Gap Fund demonstrates a unique collaborative model - with funding from Germany and Luxembourg, it is co-implemented by the World Bank and the European Investment Bank in partnership with the Deutsche Gesellschaft für Internationale Zusammenarbeit and works directly with city groups and networks such as GCOM, ICLEI, C40 and CCFLA Together, the collection of implementing and cooperation partners bring deep expertise in sustainable development, climate finance and urban renewal and have a global reach.

RESULTS

(Grants and knowledge work supported by the World Bank)

The Gap Fund is currently working with cities in India, Mexico, Ethiopia, Morocco, Democratic Republic of Congo, Panama, Senegal, Vietnam, Kosovo, Indonesia and Colombia. The strategic plans and projects supported by the Gap Fund can be a blueprint for scaled-up urban climate action through replication in other cities within and across countries.

For example, in the city of Dakar, Senegal the Gap Fund is providing technical assistance to integrate low-carbon and climate-resilient considerations into the planning, development and construction of affordable and green housing in the greater Dakar region, including piloting a green building certification incentive for building developers. This will be a first for the country, setting a blueprint for other cities and national policy in Senegal on green affordable buildings. In Mangalore and Kolar cities in India, the Gap Fund is providing technical assistance to prepare a climate diagnostic report for solid waste management and action plan for improving and financing low-carbon solid waste management services, including a pre-feasibility study. In Bogota, Colombia, the Gap Fund is providing technical assistance for greenhouse gas and air quality analytics, city-wide coordination and recommendations to incorporate low-carbon and climate-resilient considerations in the Low-Carbon Vital Neighbourhoods project—the first pilot in Latin America to implement the “15-minute” city model.

The Gap Fund also contributes cutting-edge knowledge, tools and recommendations. For example, the State of Cities Climate Finance Report Part 2: Enabling Conditions for Mobilizing Urban Climate Finance, authored by the World Bank, provides critical systems-level conceptual frameworks and recommendations for city, country and climate decision-makers. The World Bank  also developed or packaged user-friendly practical tools and notes for operational practitioners and project developers on the ground.

Please visit the Gap Fund’s website for more details: www.citygapfund.org