Accelerating low-carbon investments in cities

The IKI project FELICITY accelerates urban climate investments, for example in Ecuador and Brazil.

Cities are responsible for 75% of greenhouse gas (GHG) emissions worldwide. Urbanization in the coming decades will exacerbate the role of cities in the transition to low-carbon development. Therefore, ambitious action and targeted investments in climate-relevant urban sectors are needed. The local and national budgets, however, do commonly not suffice to finance the necessary projects. The pandemic has intensified the need for attractive financing models, as cities are facing decreasing revenues and increased public spending. International or private financing, though theoretically available, does not reach the cities for manifold reasons, such as lack of capacities at local and national level as well as limited coordination amongst them, weak regulatory settings, and financing architecture. 

FELICITY - Cities Advisory Facility

This is where FELICITY steps in. IKI project FELICITY - Cities Advisory Facility is a global initiative commissioned by the International Climate Initiative and implemented by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH in cooperation with European Investment Bank (EIB). FELICITY is currently active in Mexico, Brazil, Ecuador, and Indonesia focusing on low-carbon investments in cities. Its supported infrastructure projects have an estimated investment volume of 322 million Euro. 

The projects have an emission reduction potential of up to 1.98 million tCO2eq over 15 years. This equals annual GHG emissions of about 430,000 passenger cars. About 5,000 professionals have benefitted from FELICITY’s capacity development measures so far. FELICITY’s multi-level approach has proven to leverage public and private climate finance and accelerates urban climate investment, as the selected cases of Ecuador and Brazil show.

Scaling collaborative climate action in Ecuador 

EIB is the world’s main financier of climate action. Since beginning of 2022 it has established its new branch “EIB Global” focusing on development lending and financial partnerships outside of the European Union. To finance smaller investment projects, EIB is applying framework loans with financial intermediaries. In January 2022, EIB and the Ecuadorian Development Bank BDE signed a USD 100 million water and sanitation framework loan. BDE has matched this investment with additional USD 103 million to take climate action in Ecuador to the next level. The investment program is expected to cut GHG emissions by more than 60.000t CO2 each year, mainly through the reduction of methane emissions generated in deficient wastewater treatment. FELICITY played a pivotal role in facilitating the loan through its close cooperation with EIB and BDE. FELICITY supported BDE in identifying eligible projects for a solid investment pipeline. Through targeted training and institutional capacity development by secondments, BDE is strengthened in its role as link between local project promoters and international financiers and to ensure compliance with the EIB’s financing standards.  

The signature of the loan was an important milestone for FELICITY as it enables cities’ access to EIB climate finance in a structured and scalable way. At local level, FELICITY works with three municipalities to enhance their project preparation capacities. Antonio Ante, Atacames and Jipijapa are part of BDE’s pipeline. FELICITY assessed the existing project documentation, advises on necessary steps regarding technical, financial, and economic feasibility, procurement and climate, environmental and social risk mitigation, as well as implementation structures. As a result, Antonio Ante has presented its project for financing to BDE. Jipijapa and Atacames are currently finalizing relevant studies.
FELICITY facilitates collaborative climate action: the interplay between attractive international climate finance by EIB, a capable national intermediary BDE as well as committed cities put subnational climate finance into practice. FELICITY is also sharing the know-how regionally, e.g. by facilitating exchange between BDE and Mexican development bank Banobras. 

Solar PVs on the Public Schools of Porto Alegre, Brazil

But financial efforts to tackle climate change cannot be borne by public funding only – private investments must be crowded in to scale up efforts. In Brazil, FELICITY works with the city of Porto Alegre to develop the "Projeto Luz do Saber” (Light of Knowledge Project). The project aims to install photovoltaic (PV) panels and improve energy efficiency (EE) in Porto Alegre’s public schools. Since 2018 FELICITY enhances municipal capacities, e.g. through training public servants, school directors and teachers. FELICITY also provided technical advice on the feasibility, facilitated energy audits as well as developed management models. 

The project started out supporting one pilot school with energy efficiency measures and solar panels and extended to 98 schools across Porto Alegre. In a next phase EE measures and PV panels shall be applied in 556 public buildings all over the city. Through a Public-Private-Partnership (PPP), the city prepares the scale up of the intervention while FELICITY is supporting the procurement process. The first offers from companies interested to develop the necessary studies - and thus possibly investments - have already been received. The investment under preparation is going to save the municipality ~25 million Brazil reais (ca. 4.2m Euro) in energy costs.

FELICITY demonstrates that multi-level cooperation as well as a smart combination of public and private finance is an important success factor to accelerate climate investments at the local level, create joint action for change and contribute to the implementation of National Determined Contributions.