Case Study: The City Climate Finance Gap Fund

 Program Rationale

The global urban population will grow by 2.5 billion between 2018 and 2050. Nearly 90% of this growth is concentrated in Asia and Africa, increasing the share of the world’s population living in urban areas to 75%.^[iii] However, poorly managed and sustained rapid urbanization, along with the growth of cities in LMICs, results in an increasingly high proportion of the world’s population being vulnerable to extreme weather events.

A high proportion of the world’s population most affected by extreme weather events is concentrated in urban areas.^[iv] The increased frequency and intensity of weather events is expected to constrain cities’ ability to provide basic services, maintain infrastructure, provide adequate housing, and ensure resident’s livelihoods and health. These impacts are expected to be exacerbated in the following decades, given that urban land expansion is likely to occur in geographical regions of increasing vulnerability to extreme climate events. ^[[v]]

Pristina, Kosovo’s capital city, has grown from approximately 204,725 people in 2015 to approximately 218,700. Despite this growth, two-thirds of the city’s people do not live near shops, health clinics, markets, nurseries, sports facilities, or public spaces, and only 6% are connected to the heating network. Air pollution, partly due to two coal-fired power plants, individual coal heating systems, an increase in automotive use rather than public transport, and congestion and flooding, presents problems.

Efforts to successfully limit global warming hinge on cities like Pristina, and their capacity to innovate and take the lead on local actions, especially creating more efficient systems to reduce emissions. Cities account for more than 70% of global energy-related GHG emissions, with transport, waste, and buildings being the most significant contributors. Scaling up investment in sustainable urban infrastructure will be essential to limit global temperatures and to strengthen climate change adaptation and resilience. This is particularly the case due to a general lack of pre-development funding for these projects, which can impede their execution.

Program Development

To fight against the effects of climate change, the Gap Fund was established in 2020 to help cities in LMICs, like Pristina, transition toward low-carbon and climate-resilient pathways to limit the temperature increase to 1.5 degrees Celsius. The Gap Fund provides a range of technical assistance and capacity building to support climate-smart planning and investment in cities in developing and emerging countries. Gap Fund offerings include:

• providing city planners with upstream technical assistance and tailor-made tools to enhance cities’ low-carbon planning and resilience efforts to address urban sprawling growth;
• helping city leaders build a pipeline of high-quality, climate-smart urban investments, with a focus on early and often underfunded stages of project preparation;
• facilitating the connection between cities and prospective financing partners, such as World Bank or EIB lending, or third-party financiers; and
• leveraging international collaboration and partnerships with the Global Covenant of Mayors and city networks to learn from each other and standardize approaches.

The Gap Fund supports cities through two implementing agencies: the World Bank and European Investment Bank (EIB), in partnership with GIZ. The World Bank and EIB bring a unique mix of long-standing expertise in sustainable development, climate finance projects, and urban renewal. Each implementing agency administers a multi-donor trust fund with strong coordination between the separate World Bank and EIB Secretariats under the ‘One Gap Fund.’ This unique collaboration is the backbone of the Gap Fund’s success in supporting cities, assuring the cities are getting the most effective and efficient support in their journey to realize their climate ambitions. Early donors were government entities in Germany and Luxembourg.

The Gap Fund developed clear governance and operations procedures, especially as they relate to project selection. Donor committees provide informal guidance for the fund throughout the year and hold a formal meeting annually. The fund also coordinates with network partners using working groups and partnership forums. Standardized coordination and established governance principles allow the fund to streamline the project selection process, which occurs on a rolling basis.

A project is eligible if it is presented from a developing and emerging country, has climate action potential, is a clear ownership from the local government, is situated in an urban area and is in the early stages of development (strategic planning or pre-feasibility studies).^[vi] The fund first evaluates a project on a set of criteria. If successful, the project is assigned to either the World Bank or EIB secretariats. The secretariats meet with their regional teams to collect additional data to prioritize the remaining projects. The regional team engages with selected projects following this prioritization. The fund monitors and publishes selection criteria and selection results to enhance transparency and inform potential applicants of some potential pitfalls.

Program Implementation

By the end of 2021, the first batch of the Gap Fund approved technical assistance activities to support 44 cities in 26 countries. Among these activities was a project in Pristina supported by the World Bank. The approved activities supported cities in identifying sources of urban GHGs, designing scenarios to notice how urban growth and form will affect future GHG emissions, and prioritizing critical policies and infrastructure investments. The grants also facilitated coordination between local and national climate change action planning to help build low carbon, resilient, and livable cities.

Pristina was the first city to conclude grant activities as of June 2022. The grant enabled the city to plan strategically for and invest in low-carbon and climate-resilient urban development. It focused on providing analytical advice and sharing knowledge to enable a low-carbon and climate-resilient urban development trajectory and technical assistance for early-stage preparation of low-carbon and climate-resilient investments and financing mechanisms. Before the city partnered with the Gap Fund, urban planning policies were falling behind in acknowledging the impacts of the climate and the benefits of planning for long-term sustainable development. Planning and investments in transport and energy needed to be updated to be climate smart.

The 18-month Gap Fund initiative helped city officials in Pristina’s urban planning, energy, and transport to work together to better plan, design, and invest in the city’s green development and achieve its climate goals. Experts from the Gap Fund trained city officials to review the urban planning, transport and energy investment, and the policy decisions outlined in Pristina’s draft Municipal Development Plan (MDP). This revision allowed the city to gauge whether it was climate-smart, driving sustainable urban development, and supporting the well-being of its people.

Local leaders also gained skills to place alternatives to urban planning, policies for energy and transport, and investments to help Pristina transition to a low-carbon, climate-resilient city by 2040. The initiative helped to refine a series of interlinked recommendations for local leaders, including:

• Urban growth: Promoting a denser city will curb Pristina’s environmental impact and protect the city’s investments in transport and energy while managing urban sprawl. Implementing the Local Green Building code to ensure building regulations promote sustainable urban growth.
• Transport: Robust and increased coordination during the planning and provision of different public transport services can translate into expanded walkways and cycle lanes, providing alternatives to using individual vehicles. Developing low-carbon public transport corridors and investing in bus/train/tram services linking the city with other urban areas encouraging the use of public transport.
• Land Use and Urban integration: Increased multi-purpose land use and structures to ease access to social infrastructure, planning new educational and health facilities, and facilitating access to existing ones linking to transport planning.
• Infrastructure: Expanding the district heating network and supporting a transition to clean, domestic energy while upgrading the city’s stormwater and sewage control to limit flood risk.

Lessons Learned

The shared vision between the Gap Fund team and the city of Pristina helped to harness the potential of integrated, climate-smart city planning to achieve climate and environmental goals. The recommendations will nurture human well-being and lay the foundation for Pristina’s cross-sectoral approach to urban development.

• Investing in planning is key to resilient infrastructure development. Planning and policymaking inform how projects are prioritized and which costs and benefits are included. Nonetheless, planning and policy development are often overlooked and underfunded. The Gap Fund’s work in Pristina enabled the city to develop policies that would encourage resilient infrastructure, which will have an impact on all projects in the future.

• Technical assistance is key to accelerate transition toward resilient urban infrastructure. Attention and funding for pre-development activities, along with policies and regulations, are not receiving sufficient attention from cities due to limited resources, or from investors, due to lack of returns or difficulty capturing benefits. Technical assistance can meet this gap, which will produce ripple effects down the project development chain.

[i] The Gap Fund has received initial contributions from the German Federal Ministry for Economic Affairs and Climate Action (BMWK) and Federal Ministry for Economic Cooperation and Development (BMZ) and the Luxembourg Ministry of the Environment, Climate and Sustainable Development.

[ii] Global Covenant of Mayors (GCOM), C40 Cities Climate Leadership Group (C40), Local Governments for Sustainability (ICLEI) and Cities Climate Finance Leadership Alliance (CCFLA).

[iii] United Nations Department of Economic and Social Affairs, 2018. “68% of the world population projected to live in urban areas by 2050, says UN.” UNDESA (Accessed September 2022).  https://www.un.org/development/desa/en/news/population/2018-revision-of-world-urbanization-prospects.html

[iv] IFRC. 2010. World Disasters Report 2010: Focus on Urban Risk. International Federation of Red Cross and Red Crescent Societies. Geneva, Switzerland. Denis McClean, 2010. World Disasters Report 2010: Focus on urban risk. International Federation of Red Cross and Red Crescent Societies (IFRC) (Accessed September 2022). https://www.preventionweb.net/publication/world-disasters-report-2010-focus-urban-risk

[v] IPCC, 2014. Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. IPCC (Accessed October 2022). https://www.ipcc.ch/site/assets/uploads/2018/05/SYR_AR5_FINAL_full_wcover.pdf

[vi] City Climate Finance, “Eligibility Criteria,” City Climate Gap Fund (Accessed September 2022). https://www.citygapfund.org/eligibility-criteria; OECD, n.d. “DAC List of ODA Recipients.” OECD (Accessed October 2022). https://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/daclist.htm