Financing urban low-carbon transition: The catalytic role of a city-level special fund in shanghai

Abstract

Financing mitigation actions in cities is critical to achieving 1.5 °C emissions pathways. Direct funding, such as grants and subsidies, is a feasible financial instrument to enable local authorities to conduct climate mitigation projects. Current literature has largely focused on the cost-effectiveness of direct-funding instruments on carbon reduction, but little on how these instruments influence other aspects of the urban low-carbon transition. A comprehensive understanding of the role of direct funding in low-carbon transition is important, as this new understanding may potentially encourage more direct investments by cities into their low-carbon initiatives. Here we examine the direct and flow-on effects of a city-level direct-funding scheme on urban low-carbon initiatives, taking Shanghai as a case study. Our findings show that the direct results of Shanghai’s fund scheme include carbon reduction outcomes and a variety of policy outputs, such as a range of subsidy policies, data reporting systems, and demonstration projects. More importantly, over the 11 years of its implementation, the fund has become a catalyst for a series of institutional changes – by enabling and enhancing cooperation across numerous government departments in Shanghai. In addition, the funding scheme created avenues for the engagement of business stakeholders and raising public awareness on low-carbon and sustainability issues, through subsidizing technology adoption and low-carbon-themed campaigns. Collectively, these processes have improved the city’s capacity for achieving low-carbon transition. Our study shows that a well-designed, city-level direct-funding scheme can fill the “implementation” gap between the policy intentions (i.e., the low-carbon initiatives and implementation framework) and the policy outcomes (e.g., carbon reduction and the institutional formation in the transition). Such a scheme may also nurture and enable a pool of policy experiments and innovations for effective policy learning, identification of successful experiments, and upscaling. With these broader catalytic effects, a city-level direct fund could be a justifiable and attractive option in managing low-carbon transition.