Valuing co-benefits to make low-carbon investments in cities bankable: The case of waste and transportation projects

Kaveh Rashidi,Martin Stadelmann,Anthony Patt

doi:10.1016/j.scs.2017.06.003

Abstract

Urban areas account for 70% of carbon emissions, and are likely to be the locus of attention to reduce future emissions in developing countries. However, only a small share of Clean Development Mechanism (CDM) projects under the Kyoto Protocol and only 30% of public climate finance is invested in urban areas. One of the main reasons is that most urban climate change mitigation projects rather provide development than climate benefits, so the question is whether alternative mechanisms can mobilize urban mitigation projects. In this paper, we analyze a set of three case studies — representative urban waste and transportation projects in Indonesia, Kenya, Sri Lanka — to compare the market and economic value of climate and development co-benefits. For the projects, we monetize the co-benefits accruing to the local community. We find that under current market conditions, climate benefits have little effect on projects’ financial viability, and can be effectively ignored. By contrast, we find, the monetization of development co-benefits significantly improves financial viability, based on calculated net present values and internal rates of return. Our results highlight the importance of local, national and international financing and policies that monetize such development co-benefits.

Highlights

Since cities are responsible for more than 70% of global greenhouse gas (GHG) emissions and generate over 80% of global income, they are in a prime position to tackle increases in GHG emissions (World Bank, 2010)
A typical economic co-benefit of many GHG reduction measures is the creation of jobs (Cai, Wang, Chen, & Wang, 2011; Intergovernmental Panel on Climate Change (IPCC), 2014a, 2014b), while typical environmental co-benefit are the reduction of air-pollution (Friel et al, 2009), lower production of waste in a waste treatment project
We want to check if we look at typical projects covered by Clean Development Mechanism (CDM), does the value of other benefits overshadow the climate benefits? Can the monetization of co-benefits make the projects financially viable? The main difference between this study and the others that have assessed the social benefits of investment projects, such as the works of Djukic et al, 2016 and Wang et al (2016), is that this study focuses on city-level projects that have the primary goal of mitigating the emission of GHGs

Summary

Introduction

Since cities are responsible for more than 70% of global greenhouse gas (GHG) emissions and generate over 80% of global income, they are in a prime position to tackle increases in GHG emissions (World Bank, 2010). Besides traditional environmental problems, such as air pollution or improper waste management that cities must address, municipalities are required to address global challenges (e.g., climate change) and, at the same time, are responsible for local social and economic concerns regarding job creation, health benefits, education, and proper transportation (Hideo Doll & Oliveira, 2015; McCormick, Anderberg, Coenen, & Neij, 2013). Climate policies and their development benefits can address these challenges as well.

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