Belt and Road Initiative & Green Urban Finance · 2020. 11. 23. · 4.1.3 (Green) commercial urban finance developments in China 19 4.1.4 Public Private Partnerships (PPP) 20 4.1.5

Christoph Nedopil, Ying Cui, Andreas Kress and Marie KleeschulteJune 2020

Belt and Road Initiative & Green Urban Finance

The content of this publication is the sole responsibility of the EC-Link Project team and can in no way be taken to reflect the views of the European Union.

Authors：

ChristophNedopil,DirectorofGreenBeltandRoadInitiativeCenter;YingCui,DirectorofClimateFinance

Authors：

AndreasKress,HeadofDepartmentClimateChangeMitigationandAdaptation;MarieKleeschulte,ProjectManager

Address:ShoutiSouthRoad9,InterwestBusinessBuilding7,Room1201HaidianDistrict,Beijing.

Website:http://www.eclink.org/

EC-LinkWechat EC-LinkPlatform

Preface

Announcedin2013,theBeltandRoadInitiativeaimstostrengthenChina’sconnectivitywiththeworld.Itcombinesnewandoldprojects,coversanexpansivegeographicscope,andincludeseffortstostrengthenhardinfrastructure,softinfrastructure,andculturalties.InFebruary2020,thePlantouched138countrieswithacombinedGrossDomesticProductofalmost$30trillionandaround4.5billionpeople.

SupportingadiversearrayofinitiativesthatenhanceconnectivitythroughoutEurasiaandbeyondcouldservetostrengthenChina’seconomicandsecurityinterestswhilebolsteringoverseasdevelopment.AtthefirstBeltandRoadForuminBeijinginMay2017,PresidentXiJinpingnotedthat,“InpursuingtheBeltandRoadInitiative,weshouldfocusonthefundamentalissueofdevelopment,releasethegrowthpotentialofvariouscountriesandachieveeconomicintegrationandinterconnecteddevelopmentanddeliverbenefitstoall.”*

TheessenceofagreenandsustainableBeltandRoadistointegrategreendevelopment,ecologicalandenvironmentalprotectionintoeveryaspectofthedevelopmentoftheBeltandRoadwiththeprincipleofenergyconservationandenvironmentalprotectionundertheguidanceofgreendevelopmentconceptsandofsustainabledevelopmentgoalssettledbyUnitedNations.

ThecommitmenttomonitorandimplementBRIinitiatives,bothbyChinaandbypartnercountries,isakeyprerequisitetoreducingtheenvironmentimpactsofBRIprojects.SettingtargetsthataimtoachieveanambitiousproportionofprojectsthatcombatclimatechangewouldhelporientBRIfundingtowardgreatersustainability.

Atfirstsight,China’sandtheEU’sdifferentapproachesseemtoleadtocompetition.Yet,China’sBRIandtheEU’snewconnectivitystrategyalsoentailcomplementaryaspectsthatmightencouragegreatercooperation.Withinthecurrentrisingtrendofprotectionismandtheraisingofindividualism,ChinaandtheEUprovidesalinkbetweentheworld'ssecondandthirdlargesteconomies,aswellaswiththewiderareaofEastAsia,indeedthemostdynamicregionintheworld.ChinaandtheEUcanalsousetheBRIas

aplatformtocontributetosolvingpresentregionalissuesandsecuritychallenges,thusfillingthegapofleadershipandofferingsolutionsinglobalgovernance.

Towardthisend,theEUhasdevelopeditsownstrategyforconnectivityinAsiatopromotethesustainableurbanization,constructionoftransport,digital,andenergyinfrastructurebetweenEuropeandAsia.ThestrategyaimstoprovideaframeworkofEuropeanstandardsforconnectivityprojectsandseekstoprovidehigh-qualityalternatives.TheEUisseekingtoprovidecrediblealternatives;giventhegrowingpushbackagainsttheBRIinsomerecipientcountries,theEUcertainlyhasanopportunitytopresentitselfasamoreattractivepartnerbyofferingconnectivityprojectsbasedonsustainablefinancing,avoidingdebttraps,andtakingintoaccountenvironmentalimpact.

EC-LinkProjecthasbeendevelopingaseriesofresearchpapersmeanttotriggerChineseandEUexperts’cooperationtodrivetheplanningofresilientcitiesandmoresustainableprojectsamongBRI:

• BeltandRoadInitiative&SustainableUrbanization• BeltandRoad&InitiativeSustainableTransport• BeltandRoadInitiative&Industry4.0• BeltandRoadInitiative&GreenFinance

Suchtopics,wherechosenbyEC-LinkTeambecauseseenasmostlyrelevantandpertinentinviewofthefuturedevelopmentoftheBeltandRoadInitiative;takingintoaccountseverallevelsonanalysis:national,regionalandinternational,wetrytoofferrecommendationsfortheimprovementofon-goingdynamicsinviewofabetterandmoresustainablerelationsinEurasiamarket.Witheachresearchpaper,EC-LinkProjectwantstocontributenotonlyinprovidingadditionalusefulinformationforabetterunderstandingofBRIbutalsotosupportanopendialogueonsuchrelevantsubjectprovidingafruitfulbaselineforfurtherdiscussion.

* English Translation of http://cpc.people.com.cn/n1/2019/0320/c64094-30984416.html

Email:[email protected]:www.green-bri.org

Email:[email protected]:www.climatealliance.org

BELT AND ROAD INITIATIVE & GREEN FINANCE

1. Executive Summary 1

2. Introduction 2

3. Understanding the challenge of green urban development and green urban finance in the BRI 53.1 TheBeltandRoadInitiativeanditsimpactonurbanization 53.2 InvestmentsintheBeltandRoadInitiative 73.3 Thechallengesforgreenurbandevelopment 83.4 TheimpactsonemissionsoftheBeltandRoadInitiative 93.5 Greenurbanfinanceasasolution 13

4. Green urban finance in China 144.1 RecentdevelopmentsinChinesegreenurbanfinance 14

4.1.1 SupportingpoliciesacceleratinggreenurbanfinanceinChina 144.1.2 Developmentofpublicgreenurbanfinance 164.1.3 (Green)commercialurbanfinancedevelopmentsinChina 194.1.4 PublicPrivatePartnerships(PPP) 204.1.5 GreenFunds 214.1.6 Internationalfinanceinstitutions 22

4.2 CasestudiesforgreenurbanfinanceinChina 234.3 ChallengesforgreenurbanfinanceinChina 28

4.3.1 Supportingpolicyandcapacity 284.3.2 Publicfinance 284.3.3 Privatefinanceissues 29

5. Green urban finance in Europe 315.1 RecentdevelopmentsingreenurbanfinanceinEurope 31

5.1.1 TheEuropeanpolicycontextforgreenurbanfinance 315.1.2 FinancialInstrumentsintheGreenUrbanSectorsinEurope 325.1.3 Thepublicsector 365.1.4 Theprivatesector 375.1.5 Investments 37

5.2 CasestudiesforgreenurbanfinanceinEurope 405.2.1 Co-ownershipPlansinLitoměřice(CZ)andEssen(DE) 405.2.2 ParisGreenFund 42

5.3 ChallengesforgreenurbanfinanceinEurope 43

6. Green urban finance in the BRI 446.1 Greenurbanfinancethroughoverseasinvestments 44

6.1.1 GreenFinanceInitiativesintheBRI 446.1.2 GreenFinanceintheBRIinPractice 46

6.2 GreenurbanfinanceinBRIcountries 486.3 ThegapandchallengesofgreenfinanceintheBRI 49

Table of contents


7. Recommendations to unlock green urban finance for the BRI through Sino-European cooperation 527.1 ProvideGreenUrbanProjectPreparationFacilities 527.2 HarmonizeGreenFinanceStandards 527.3 Improvecapacityofintegratedplanningforgreenurbandevelopmenttolowerfinancingcost 537.4 BuildaSino-Europeangreencityfund 537.5 IncreaseuseofBlendedFinance 547.6 Establishopenplatformforgreenurbanprojects 547.7 ApplydigitaltechnologiesforMRV 547.8 EstablishbetterplatformforMRVdatasharing 557.9 Createandapplystandardsforreporting 557.10Provideopenlearningplatformforbestpracticeexchangesofpolicyand projectdesignandimplementation 557.11ImprovegreeninvestmentincentivesinChinaandtheEUforgreenoverseasinvestmentinBRIcities 55

8. Conclusion 57

9. Appendices 59Appendix1:SelectChinesepoliciestosupportgreenurbandevelopment 59

10. References 61

2DS TwoDegreesScenario

ABN AMRO AlgemeneBankNederland-AmsterdamRoterdamBank

ADB AsianDevelopmentBank

AFD AgenceFrancaisedeDeveloppement

AI ArtificialIntelligence

AIIB AsianInfrastructureandInvestmentBank

BAU BusinessasUsual

BRF BeltandRoadForum

BRI BeltandRoadInitiative

BRIGC BeltandRoadInitiativeGreenCoalition

BRT BusRapidTransit

CBI ClimateBondInitiative

CBIRC ChinaBankingandInsuranceRegulatoryCommission

CBRC ChinaBankingRegulatoryCommission(predecessorofCBIRC)

CDB ChinaDevelopmentBank

CIDCA ChinaInternationalDevelopmentCooperationAgency

CIRC ChinaInsuranceRegulatoryCommission(predecessorofCBIRC)

COCZ OverseasEconomicandTradeCooperationZones

CSOP ConsumerStockOwnershipPlan

CSR CorporateSocialResponsibility

CSRC ChinaSecuritiesRegulatoryCommission

CZ CzechRepublic

DE Germany

DFID DepartmentforInternationalDevelopmentoftheBritishGovernment

DNSH Do-no-significant-harm

DRC localDevelopmentandReformCommissioninthePeople’sRepublicofChina

DUCI LonggangDistrictUrbanConstructionandInvestmentCo.,Ltd.

EBRD EuropeanBankforReconstructionandDevelopment

EC EuropeanCommission

ECB EuropeanCentralBank

EIB EuropeanInvestmentBank

ELENA EuropeanLocalEnergyAssistance

EP EuropeanParliament

EPCs Engineering,procurementandConstructionCompanies

ESC Energy-savingContracting

ESCO Energyservicecompany

Terms and Abbreviations


ESG Environment,Social,Governance

ETS EmissionTradingSystem

EU EuropeanUnion

EUR Euro

EV ElectricVehicle

EWS ElektrizitätswerkeSchönauGmbH

EximBank ChinaExport-ImportBank

FALCO FinancingAmbitiousLocalClimateObjectives

FIZ FreeIndustrialZone

FSC ShanghaiGreenUrbanFinancingandServicesCo.,Ltd

FTZ FreeTradeZone

GB/T GB:GuóbiāoTuījiàn(Nationalstandardrecommended);T:Tuījiàn(Recommended)

GBA GreenBondAssessment

GBIF GlobalBiodiversityInformationFacility

GCF GreenClimateFund

GDP GrossDomesticProduct

GHG GreenhouseGas

GIP GreenInvestmentPrinciples

GIZ GermanCorporationforInternationalCooperation

ICBC IndustrialCommercialBankofChina

IFC InternationalFinanceCorporation

IFI InternationalFinancialIstitution

ILCC ShenzhenInternationalLow-CarbonCity

IoT InternetofThings

IT InformationTechnology

KfW KreditanstaltfürWiederaufbau(GermanDevelopmentBank)

LGFV LocalGovernmentFinanceVehicle

LTER NetworkInformationSystemDataPortal

LTS Long-TermStrategy

MEE MinistryofEcologyandEnvironmentofthePRC

MEP MinistryofEnvironmentalProtection(predecessoroftheMEE)

MFF MultiannualFinancialFramework

MoF MinistryofFinanceofthePRC

MoFCOM TheMinistryofCommerceofthePRC

MoHURD China'sMinistryofHousingandUrban-RuralDevelopmentofPRC

MRV Monitoring,ReportingandValidation

NDC NationallyDeterminedContribution

NDCR NationalDevelopmentandReformCommissionofthePRC

NEV NewEnergyVehicle

NGO Non-governmentalorganization

ODI OverseasDirectInvestment

OECD OrganisationforEconomicCo-operationandDevelopment

OECD DAC OECDDevelopmentAssistanceCommittee

PAM ProjectAdministrationManual

PBoC People'sBankofChina

PIC Private,Institutional,andCommercial

PPP PublicPrivatePartnerships

PRC People'sRepublicofChina

PV Photovoltaic

REIT RealEstateInvestmentTrust

RE RenewableEnergie

RMB Renminbi,ChineseYuan(0.13EUR/RMB,0.14USD/RMB)

SCORE SupportingConsumerCo-OwnershipinRenewableEnergies

SDGs SustainableDevelopmentGoals

SDIHG ShandongDevelopment&InvestmentHoldingGroup

SEPA StateEnvironmentalProtectionAdministration

SEZ SpecialEconomicZone

SGDF ShangongGreenDevelopmentFund

SME SmallandMediumEnterprise

SMG ShanghaiMunicipalGovernment

TCFD TaskforceforClimate-RelatedFinancialReporting

TEEC TransitionÉnergiqueetÉcologiquepourleClimat

UNDP UnitedNationsDevelopmentProgramme

USD UnitedStatesDollars

WRI WorldResourcesInstitute


Figure 1: 17SustainableDevelopmentGoals(SDGs)..................................................................................................3

Figure 2: CountriesoftheBeltandRoadInitiativeasofMarch2020(Source:www.green-bri.org).........................5

Figure 3: EconomicCorridorsoftheBeltandRoadInitiative.....................................................................................6

Figure 4: CitynetworksintheBRI.................................................................................................................................6

Figure 5: InvestmentsintheBRI2013-2019(Data:AmericanEnterpriseInstitute,owndepiction).........................7

Figure 6: DifferentemissionanddevelopmentscenariosoftheBeltandRoadInitiativecountries......................10

Figure 7: EnergyandtransportinparticularcontributetoGHGemissionsintheBRI............................................11

Figure 8: SelectedHistoricalMeanUnsubsidizedLevelizedCostofEnergyValues(Source:Lazard).....................12

Figure 9: Investmentinurbantransport(Source:NedopilWang,2020,basedonWagner2018)...........................13

Figure 10: 2013-2017greencreditallocationby13CBIRCsectors(100millionRMB( 亿元 ))...................................20

Figure 11: UrbanClimate-relatedPPPProjects,byDevelopmentPhaseandsector(asofDecember2018)...........21

Figure 12: NumberofnewgreenfundsinChina(Source:ChinaSecuritiesInvestmentFund Association,WindDatabase).......................................................................................................................22

Figure 13: Exampleofblendedfinance(Source:IIGF).................................................................................................23

Figure 14: ShandongGreenDevelopmentFunddistribution(Source:ADB).............................................................24

Figure 15: ShandongGreenDevelopmentFund(SGDF)fundingstructure...............................................................25

Figure 16: ChineseTaxRevenues2010-2019(Source:CEIT).......................................................................................29

Figure 17: FinancingEU’sGreenDeal(Source:EUwebsite).......................................................................................38

Figure 18: InclusionandDo-no-significantharm(DNSH)processbasedonEUTaxonomy......................................39

Figure 19: ConsumerStockOwnershipPlanstructure................................................................................................41

Figure 20: ExcerptofEBRDGreenCityTrafficLightSystem(Source:EBRD)..............................................................47

Figure 21: GreenfinancedevelopmentintheBRI(Source:owndepiction;Data:GreenFinancePlatform)............48

Figure 22: GreenbondissuanceintheBRI(exChina,untilMarch2020)(Source:owndepiction,Data;CBI)..........49

Figure 23: GreenFinanceChallengesandConstraints................................................................................................50

Figure 24: GreenFundasComplimenttoGreeningtheFinancialSystem.................................................................61

List of figures

Table 1: RelevantBRIcitiesalongdifferenteconomiccorridors.................................................................................6

Table 2: TypesofChinesemunicipalbonds................................................................................................................17

Table 3: Centralandlocalclimate-relatedexpenditures,2015-2017(billionRMB)..................................................18

Table 4. ProjectsconstructedbyCDGandtotalinvestment......................................................................................27

Table 5: ExamplesofGreenUrbanFinanceinEurope................................................................................................33

Table 6: MainfinancialinstrumentsinthemaingreenurbansectorsFinancingGreen UrbanInfrastructure(Source:OECD)............................................................................................................35

List of boxes

Box 1: Definitions.......................................................................................................................................................... 4

Box 2: ShanghaiDistrictFinancingVehicle................................................................................................................ 16

Box 3: ShenzhenMunicipalSpecialSubwayBond2017........................................................................................... 19

Box 4: GreenBusSysteminQingdao......................................................................................................................... 22

Box 5: Blendedfinance(Source:IIGF)........................................................................................................................ 23

List of tables

1

InternationalcooperationinframeworksliketheBeltandRoadInitiative(BRI)provideampleopportunitiesforeconomicgrowth,highreturnsoninvestmentsandsocialdevelopment.Atthesametime,investmentsfordevelopmentwillleadtoanaccelerationofpollution,greenhousegas(GHG)emissionsandlossofbiodiversityifwefollowcurrenttrajectories.Simplysaid,currentpoliciesandinvestmentactivitiesareinsufficienttotacklethegoalofhavingazero-carbonsocietyby2050inEurope,inChinaandintheBRI.

Inurbanareas,itinparticulartheinvestmentinthetransportsector,industrializationandsustainableurbanizationthathaveagreatinfluenceonfuturegreengrowthtrajectories.Therefore,inadditiontopoliciesonrenewableenergy,energyefficiency,cleantransport,greenurbanization(suchasbuildings)onthedemand-side,policymakershavetoimprovepoliciesforgreendomesticandcross-borderfinance.

Tounderstandthecurrentsituationandpotentialfuturetrajectories,thisreportanalyzesgreenurbanfinancedevelopmentsinChina,EuropeandtheBRI.Weprovideanoverviewofthegreenfinancepolicyperspective,analyzedevelopmentsofpublicandprivatefinanceandproviderelevant5greenurbanfinancecasestudiesfromEurope(Paris(FR),Litoměřice(CZ)andEssen(DE))andChina(Shandong,Shenzhen)amongmanyothersmallerexamples.

Basedonourfindings,wedraw11recommendationsonhowtoaccelerategreenurbanfinanceintheBRI.Therecommendationsare:

1. ProvideGreenUrbanProjectPreparationFacilities

2. HarmonizeGreenFinanceStandardsacrossinterna-tionalmarkets

3. Improvecapacityforintegratedplanningforgreenurbandevelopmentforlowerfinancingcosts

4. BuildaSino-EuropeangreencityfundfortheBRI

5. Increaseuseofblendedfinanceinstruments

6. Establishanopenplatformforgreenurbanprojectstoimprovetheinvestmentpipeline

7. Applydigitaltechnologiesformonitoring,reportingandvalidation(MRV)

8. EstablishastrongplatformforMRVdatasharing

9. Createandapplystandardsforintegratedreporting

10.Provideopenlearningplatformforbestpracticeexchangesofpolicy,projectdesignandimplementa-tion

11.ImprovegreeninvestmentincentivesinChinaandtheEUforgreenoverseasinvestmentsinBRIcities

Inconclusion:Climatechangemitigation,climatechangeadaptationandgreenurbangrowthintheBeltandRoadInitiative(BRI)isallbutcertain.Thereis,however,agoodopportunitytodrivegreenurbangrowthwheninvestors,cityplannersandpolicymakersinEurope,ChinaandinthecountriesoftheBRIstepupeffortstosteerinvestmentssmartlyintogreenprojects.

1 Executive Summary


2 3

Theyear2020marksthe5thanniversaryoftheParisAgreement;theinternationalagreementsignedby189countriestotackleclimatechangeandtokeepglobalwarmingbelowthe1.5° Cthreshold.Yet,despitethesciencebeingclearthattheplanetiswarmingtodan-gerouslevelsandaglobalagreementlimitingglobalwarmingbeingreached,yearsofunderinvestmentingreendevelopment,climatechangemitigationandadaptationhaveledtothesituationwheretrillionsineconomicproductandbillionsofpeoplearevulnera-bletotheconsequencesofclimatechangeandlossofbiodiversity.GreeninvestmentneedsfarexceedwhatpublicresourcescanprovideinEurope,inChina,intheBRIcountriesandglobally.Attractingmorecommercialfinanceandprivateexpertiseingreendevelopmentisthusacriticalchallengeforthefuturedevelopment.Meaningfulincreasesinprivategreeninvestmentwillrequireremovingkeyconstraintsonprivatesectorpar-ticipationinclimateinfrastructureandbuildingeffectiveinstitutionalstructurestomobilise,steerandmanagesuchfinance.

Toachievethegoalofgreendevelopment,citieswillplayanoutsizedrole:intheyear2030,citiesareexpect-edtoberesponsiblefor60to80%ofglobalemissions1.Morethan60%oftheglobalpopulationwillliveincitiesby2050and600mega-citiesareexpectedtogenerate60%oftheworld’sGDP2by2025,accordingtoMcKinsey.Consequently,therangeofchallengesposedbyclimatechange,economicanddemographictransformationsintheregionishuge,withgovernmentsandcitymayorsfacingincreasingpressuretofindsustainablesolutions,e.g.forsustainabletransport3,sustainableurbanization4orthefourthindustrialrevolutionmoresimplyputindustry4.05foreconomicactivity.Ensuringthatcitiesaresus-tainableiscriticalforthefutureofourplanetandourpopulation.

Bysupportinggreenurbandevelopment,citiessupporttheglobalframeworkofthesustainabledevelopment-

2 Introduction

goals(SDGs)onmanyaccounts(seeFigure1).Particular-lyimpactedSDGsbygreeningurbandevelopmentare:

• SDG11‒SustainableCitiesandCommunities:“Thereneedstobeafutureinwhichcitiesprovideoppor-tunitiesforall,withaccesstobasicservices,energy,housing,transportationandmore”.

• SDG13‒ClimateAction:“Climatechangeisaglobalchallengethataffectseveryone,everywhere”.

• SDG5‒GenderEquality:“Genderequalityisnotonlyafundamentalhumanright,butanecessaryfoun-dationforapeaceful,prosperousandsustainableworld”.

• SDG6-CleanWaterandSanitation:“Clean,accessi-blewaterforallisanessentialpartoftheworldwewanttolivein”.

• SDG7‒Affordableandcleanenergy:“Energyiscen-traltonearlyeverymajorchallengeandopportunity”.

• SDG8‒Decentworkandeconomicgrowth:“Sustain-ableeconomicgrowthwillrequiresocietiestocreatetheconditionsthatallowpeopletohavequalityjobs”.

• SDG9‒Industry,innovationandinfrastructure:“In-vestmentsininfrastructurearecrucialtoachievingsustainabledevelopment”.

• SDG10‒Reducedinequalities:“Toreduceinequali-ties,policiesshouldbeuniversalinprinciple,payingattentiontotheneedsofdisadvantagedandmargin-alizedpopulations”.

• SDG15‒Lifeonland:“Sustainablymanageforests,combatdesertification,haltandreverselanddegra-dation,haltbiodiversityloss”.

• SDG17‒Partnerships:“Revitalizetheglobalpartner-shipforsustainabledevelopment”.

1 OECD, “Competitive Cities and Climate Change.”2 Dobbs et al.,“Urban World: Mapping the Economic Power of Cities.”3 Nedopil Wang,“Belt and Road Initiative & Sustainable Transport.”4 Kraubitz, “Belt and Road Initiative & Sustainable Urbanization.”5 Kress and Deacon, “Belt and Road Initiative & Industry 4.0.”

Figure 1: 17SustainableDevelopmentGoals(SDGs)

Therefore,mobilizingandsteeringfinanceintogreenandlow-carbonurbaninfrastructureandtechnologyismoreimportantthanever.

ManyEuropeancities,ChinesecitiesandtherapidlydevelopingcitiesoftheBeltandRoadInitiative(BRI)arewillingtotakeonaleadershiproleandidentifypos-sibilitiestocooperate,learnandinvestingreenurbandevelopment.Withurbantransportation,industry4.0andurbanizationbeingthesectorsmostcloselylinkedtoCO2emissionsincities,thispaperanalyzestheap-proachesandpathwaystoaccelerategreenfinanceinthem.

Accordingly,thispaperoutlinesrecentapproachestofi-nancegreenurbandevelopmentinChinaandinEuropeincludingsupportinggovernmentpolicies,identifyinggapsofurbanfinanceparticularlyinlightofdifferentfinancingneedsforpublicandprivateinvestments.ItstudiesdifferentsuccessfulcasesofmobilizingfinanceforcooperativegreenurbandevelopmentinChinaand

theEUandfinisheswithconcreterecommendationsforfutureimprovedSino-Europeancooperationonurbangreenfinance.ThepaperfocusesonChinaandEuropeasthelargestgreenfinancemarketstodrawconclu-sionsforgreenurbanfinancecooperationintheBeltandRoadInitiative.

ThereportaimstodrawonexperiencesofgreenurbanfinancefromChina,EuropeandselectedBRIcountriestofindacooperativedevelopmentmodeltoaccelerategreenfinanceapplicationforsustainableurbandevel-opment.Thepaperisstructuredasfollows:itfirstpro-videsabackgroundonchallengesofgreenurbandevel-opmentintheBRIandtheconsequencesforsustainableinvestmentrequirements.Wethenanalyzegreenurbanfinancepractices,challengesandcasesinChina(chapter3),inEurope(chapter4)andtheBRIcountries(chapter5).Chapter6providesrecommendationstostrengthencooperationandchapter7drawsconclusionsfromtheoverallanalysis.


4 5

Box 1: Definitions

Theprimarytopicofthispaperisgreenurbanfinanceforbothpublicandprivateinvestments.

Greenfinancecanbeunderstoodaseffortstoincreaselevelsoffinancialflows(frombanking,micro-credit,insuranceandinvestment)fromthepublic,privateandnot-for-profitsectorstosustainabledevelopmentpriorities6.

Greenfinanceencompasseseffortstoincreaseinvestmentsinto7:

- Climatechangemitigation- Climatechangeadaptation- Sustainableandprotectionofwaterandmarineresources- Transitiontoacirculareconomy- Pollutionpreventionandcontrol- Protectionandrestorationofbiodiversityandecosystems

Greenfinancecanbepromotedthroughchangingcountries’regulatoryframeworks,harmonizingpublicfinancialincentives,increasinggreenfinancingfromvarioussectors,increasinginvestmentincleanandgreentechnologies,andaligningpublicsectordecisionswiththeenvironmentaldimensionoftheUnitedNationsSustainableDevelopmentGoals.

InChina,manypoliciesrelatetolowcarboninvestment,urbaninfrastructure,orgreenfinancethroughitsbroadandsystemat-icgreenfinancepolicyframeworkthatincludesmultipleministriesandregulators.Itcoversgreensecurities(includingbonds),greencredit,greeninsuranceandgreenfunds,withagreenindustrycatalogueandagreenbondcataloguethatsetsoutdefini-tionsforindustriesandprojectsthatareconsideredgreen.

InEurope,greenfinancehasgrownconsistentlyoverthepastdecades,withinstitutionsliketheGermanKfWbeginningtoinvestin‘protectingtheenvironment’inthe1960s8.In2019,theEuropeanUnionintroducedthelandmarkguidance“EUTax-onomy”withpurpose-basedinclusionanddo-no-significant-harm(DNSH)frameworksthathavebecomethelatestandmoststringentadditionofgreeninvestmentframeworks9.

Urbantransport:Inthispaper,urbantransportreferstophysicalassetsinpublictransport,privatetransportandfreighttrans-port.Physicaltransportassetslocatedincitiestypicallyexhibittwofeatures:marketmonopoliesforpublictransportandtransportinfrastructurewithlonglifetimesof20to30years,comparedtothehighfragmentationofownershipofassetsforprivatetransportandfreighttransportwithrapidlyevolvingtechnologies(e.g.electricmobility).

Industry4.0:Inthispaper,Industry4.0referstotheintelligentnetworkingofmachinesandprocessesinindustrywiththeaidofinformationandcommunicationtechnology.Industry4.0isthecomprehensivedigitizationofindustrialproductioninordertoequipitbetterforthefuture,muchofithappeningincitiesasthehubforindustrialactivity.PhysicalassetstypicallyexhibitdifferentownershipstructuresinChinathaninEurope,whereChina’sstate-driveninvestmentallowsforfocusareasofdigitali-zationofindustries,comparedtoEurope’smarket-drivenandthereforedisbursedinvestmentapproach.

SustainableUrbanization:Inthispaper,sustainableurbanizationreferstotheplanningandimplementationofurbandevel-opmentofphysicalspacesandprocessesthatcontributetothelong-termviabilityofcitieswithlowemissions,pollutionandprotectionofbiodiversity,whilethewell-beingofpeopleandeconomicdevelopment.

BeltandRoadInitiative(BRI):TheBeltandRoadInitiativeisaChinese-ledinvestmentandcooperationstrategyforincreasedeconomicandculturalexchangebetweenChinaandthecountriesoftheBRI.ItwasannouncedbytheChinesePresidentXiJinpingin2013andasofMarch2020includedmorethan130countries.

6 UN Environment, “Green Financing.” 7 EU Technical Expert Group on Sustainable Finance, “EU Taxonomy.”8 KfW Development Finance, “Environmental and Climate Protection Has Always Been a Priority at KfW.”9 EU Technical Expert Group on Sustainable Finance, “EU Taxonomy.”

Withinthenext30years,citiesaroundtheworldareexpectedtogrowby2.5billionpeople;inotherwords,in205068%oftheglobalpopulationwillliveincities10.ParticularlycitiesinthecountriesoftheBeltandRoadInitiative(BRI)areexpectedtoexperienceremarkablepopulationgrowth,astheBRIencompassesmostemergingeconomieswithyoungerpopulationsandthepossibilityforfasteconomicdevelopment.

3.1 The Belt and Road Initiative and its impact on urbanization

TheBeltandRoadInitiative(BRI)aimstoincreaseeco-nomicactivitybyimprovingconnectivityofeconomicareasthroughinfrastructureinvestment;itisaChineseledinitiativethathasseenannualinvestmentsofEUR100-200billioninthe131-138BRIcountries11.

10　United Nations, “68% of the World Population Projected to Live in Urban Areas by 2050, Says UN.”

11　green-bri.org, “Countries of the Belt and Road Initiative (BRI) ‒ Green Belt and Road Initiative Center.”

3 Understanding the challenge of green urban development and green urban finance in the BRI

AsofMarch2020,about131-138countrieswerepartoftheBRIonallcontinentsbutNorthAmerica.ManycountriesoftheBRIareemergingeconomieswithlowerincomes,whileItalyistheonlyG7countryhavingsignedaMemorandumofUnderstandingtojointheBRIinApril2019.

Withthegoaltoincreaseconnectivityandeconomicactivity,citiesalongtheBRI,bothwithinChinaandout-sideChinaareexpectedtoseeincreasinginvestmentwhileevennewcities,suchasKhorgosinKazakhstan12,aredevelopingasnewcentersfortrade.

12　Mauk, “Can China Turn the Middle of Nowhere Into the Center of the World Economy?”

Figure 2: CountriesoftheBeltandRoadInitiativeasofMarch2020(Source:www.green-bri.org)


6 7

Table 1: RelevantBRIcitiesalongdifferenteconomiccorridors15

Continentalanalysis

China-Mongo-lia-Russia

EurasianLandBridge

China-CentralAsia-WesternAsia

China-Indochi-na ChinaPakistan

Bangla-desh-China-In-dia-Myanmar

Beijing Beijing Shanghai Istanbul Guangzhou Xian ChengduShanghai Shenyang Zhengzhou Tehran Shenzhen Chengdu NanningGuangzhou Harbin Xian Ankara Shanghai Lanzhou KunmingNanjing Tianjin Nanjing Urumqi Nanning Urumqi ChongqingShenzhen Changchun Hefei Antalya Hangzhou Chongqing GuiyangHangzhou Dalian Wuhan Lanzhou Changsha Xining LiuzhouWuhan Shijiazhuang Xuzhou Izmir Xiamen Baoji GuilinZhengzhou Jinan Suzhou Yekaterinburg Nanchang Taiyuan NeijiangXi’an Tangshan Jinan Almaty Kunming Karachi BeihaiChengdu Jinzhou Luoyang Zhangye Guilin Yinchuan MianyangHongKong Novosibirks Urumqi Xining HongKong Urumqi KolkataSingapore Yekaterinburg Almaty Adana Singapore Rawalpindi DhakaDubai Hohhot Krasnodar Konya Hanoi Bahawalpur YangonMumbai Tyumen Astana Bishkek Bangkok Hami PatnaIstanbul Baotou Yekaterinburg KualaLumpur DhanbadDelhi Qingdao Lanzhou Yangon GuiyangSeoul QujingJakarta DazhouBangkok Suining

Alongthesecorridors,manycitiesarebeingconnectedandcanthusbeunderstoodasbeingaffectedbytheBRI.Intheirstudy,Derudderetal.analyzedthenetworkexternalitiesandconnectivityofcitieswithinthesecor-ridors(intermsofdegreecentrality,andclosenesscen-trality).Theydiscoveredthatthefollowingcitiesarepar-ticularlyintegratedintothecurrentBRI‒thoughwithindifferentcommunities(seeFigure4,Table1):

Figure 4: CitynetworksintheBRI14

CitiesthataremostlyaffectedbytheBRIcanbefoundalongthesixeconomiccorridorsoftheBRI(seeFig-ure3):theChina-Mongolia-RussiaEconomicCorridor,theNewEurasiaLandBridgeEconomicCorridor,theChina-CentralAsia-WestAsiaEconomicCorridor,theChina-PakistanEconomicCorridor,theBangladesh-Chi-na-India-MyanmarEconomicCorridorandtheChina-In-dochinaEconomicCorridor.

Figure 3: EconomicCorridorsoftheBeltandRoadInitiative13

13　Derudder, Liu, and Kunaka, “Connectivity Along Overland Corridors of the Belt and Road Initiative.”

14　Derudder, Liu, and Kunaka. 15　 Derudder, Liu, and Kunaka.

3.2 Investments in the Belt and Road Initiative

Sinceitsestablishmentin2013,aboutUSD750billionhavebeeninvestedincountriesthathavejoinedtheBRI.About38%wentintoenergyinvestmentsandabout26%intotransportinvestments.Whilesomeinvest-mentshaveindeedbeenresourcedealstosupportthedomesticeconomyinChina,mostoftheinvestmentsarelocallyappliedinvestmentsforenergy,transport,orrealestatedevelopment.

Figure 5: InvestmentsintheBRI2013-2019(Data:AmericanEnterpriseInstitute17,owndepiction)

17 Derek, “China Global Investment Tracker 2019.”

ThreefactorswillplayaroleinhowtheBRIwillimpactthesecities’greenurbanization:

1. Supplyoffundstoinvestine.g.urbaninfrastructureandtheawarenessofinvestorstoinvestingreenassets;

2. Demandofservices,e.g.byattractingpeopleandnewcitizenstocitiesandurbanareas;

3. Capacityoflocalauthoritiestoplanandimplementgreenurbandevelopment,e.g.tocontrolgrowthandurbansprawl.

WithintheBRIandmorebroadly,Chinesecitiesandregionshaveestablishedpartnershipswith1023sistercitiesin61countriesbetween2013and201816.

16 China Development Bank and United Nations Development Pro-gramme, “Harmonizing Investment and Financing Standards towards Sustainable Development along the Belt and Road.”


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Inadditiontocapitalinvestments,Chinaalsoinvestsinspecialeconomiczones(SEZs)orfreetradezones(FTZs)tosupporteconomicdevelopmentaroundurbanareasofBRIcities.AsofApril2019,therewere82SEZs‒dubbedOverseasEconomicandTradeCooperationZones(COCZ)in24BRIcorridoreconomies18,upfrom75in201819,claimingtohavegenerated300,000jobs20.MoreCOCZareexpectedtobebuiltaspartoftheBRI21.Theseinclude,forexampletheAlatFTZnearAzerbai-jan’sCapitalCityandmajorCaspianSeaPortofBakuthatcomprisestheBakuInternationalSeaPortaswellasthesoontobeopenedFreeTradefacilities;italsoincludesthePotiFreeIndustrialZone(FIZ)inGeorgia,whichwasestablishedin2011.Thiszone,forinstancecovers3squarekilometersoflandthatallowstheestab-lishmentoffacilitiesintheindustrial,logistics,chemicalandmetallicprocessing22.Withinthesezones,Chinasupportsmanufacturingactivitiesandthesezonesarethereforeparticularlyimportantforthepotentialinte-grationofIndustry4.0technologiesinproductionpro-cesses.

3.3 The challenges for green urban development

Today’sinvestmentandtechnologicaladvancementsofthefourthindustrialrevolution,suchasintransportandindustry4.0,addsignificantdevelopmentchallengestocitiesinEurope,ChinaandtheBRIcountries.

Ingeneral,threatsforcitiesrelatedtothe‘fourthindus-trialrevolution’are:

18 CGTN, “Data Tells.” 19 Derudder, Liu, and Kunaka, “Connectivity Along Overland Corridors of

the Belt and Road Initiative.”20 Chinese Academy of International Trade and Economic Cooperation

and United Nations Development Programme, “Report on Fostering Sustainable Development through Chinese Overseas Economic and Trade Cooperation Zones along the Belt and Road.”

21 State Council, “Opinions of the State Council on Promoting Innovation and Upgrading of National Economic and Technological Development Zones to Create a New Heights for Reform and Opening (Guo Fa [2019] No. 11) Government Information Disclosure.”

22 Devonshire-Ellis, “Free Trade Zones on China’s Belt & Road Initiative”; Chatzky and McBride, “China’s Massive Belt and Road Initiative.”

• Intensiveurbangrowth(canleadtogreaterpoverty),withlocalgovernmentsunabletoprovideservicesforallpeople.

• Concentratedenergyuseleadstogreaterairpollu-tionwithsignificantimpactonhumanhealth.

• Automobileexhaustproduceselevatedleadlevelsinurbanair.

• Largevolumesofuncollectedwastecreatemultiplehealthhazards.

• Urbandevelopmentcanmagnifytheriskofenviron-mentalhazardssuchasflashflooding.

• Pollutionandphysicalbarrierstorootgrowthpro-motelossofurbantreecover.

• Animalpopulationsareinhibitedbytoxicsubstanc-es,vehicles,andthelossofhabitatandfoodsources.

Thefourthindustrialrevolutioncouldalsoexacerbateexistingthreatstoenvironmentalsecurityorcreateentirelynewrisksthatwillneedtobeconsideredandmanaged:

• DemographicShifts:Populationgrowthwillbeimpactedthemanufacturingfield;significantde-mographicshiftssuchastheincreasingnumberofpopulationgrowthindevelopingcountries,agrowingmiddleclass,consumermarketshiftsandanagingpopulationareinfluencingfutureindustrialactivities.

• Urbanisation:Urbaninfrastructureisrequiredtosupportthegrowingdemand;industry4.0facilitatesmoremixedurbandevelopmentbybringingbringingfactoriesbacktotowns,whichwillbeclosertohous-ingareastohousingareas.Thispromotestherealisa-tionofcompactcitiesandismadepossiblebecauseoftwofeaturesofIndustry4.0,diminishinglotsizesandenvironmentallyfriendlyintegratedurbanproduction.

• KnowledgeandTalentGap:Thedecreasingtalentpoolpossessarealchallengetoemployers.

• Deindustrialisation:Majorproductivitygainsinman-ufacturinghavetaperedoff;involvingadecrease

intherelativesizeandimportanceoftheindustrialsectorinaneconomy.Deindustrialisationwillinvari-ablyinvolvedevelopedeconomiesmovingtowardsservice-basedeconomies.

• MarketGlobalisationvsProtectionism:Differentapproachesdividethealreadyuncertainglobalman-ufacturingindustry;technologywillcontinuetobeabigenablerofglobalisation.Althoughmostecono-miesaremoreopentotradetoday,ascountriesseektoexpanddomesticmanufacturingemployment,asurgeinprotectionismandtheundoingoftradeagreementswillcreateaninstitutionalenvironmentlesssupportivetoopenness.

• Game-ChangingBusinessModels:Thechangingpaceofeveryindustrycausescontinuousdisruption;informationtechnology,operationaltechnology,andglobalmegatrendsareonacollisioncoursethatde-mandbusinessownerstoadoptnewwaysofthink-ingandexecution.

• ConvergenceofTechnologies:Technologyconver-genceisthekeytorealizingindustry4.0;Newtech-nologiesarealsoknownasdisruptivetechnologiesthatincludetheuseofautonomousrobots,InternetofThings(IoT),BigData,augmented-reality-basedsystems,cybersecurity,cloudcomputing,additivemanufacturingtohorizontalandverticalsysteminte-gration.

• RobotsontheRise:Smarttechnologycomplements;Advancementsininformationtechnology(IT),robot-ics,drones,self-drivingcars,machinelearningandartificialintelligence(AI)areincreasinglyallowingmachinestotakeovertasksonceperformedonlybyhumansandintheprocesscausingeconomicdisrup-tionsthatwillirreversiblychangetheworkforce.

• Cybersecurity;Cybersecurityisanintegralparttosupportthetransformation;CentraltotheIndustry4.0conceptisthefreedomofinformationexchangewithinthevaluechain,whichincludescollectingalldatageneratedforaproductthroughoutthephasesofitslifecyclefromconceptualisation,design,order-ing,customisation,manufacturing,operation,repairandeventorecycling.

• GlobalSustainability;Ensuringcommongoalsforthebettermentofall;Thereisalackofprogressonprod-uctdesignandmanufacturingprocesseswhichcanhelpfacilitatethebetteruseofmaterials.

• Privacy:IoTapplicationscollect,analyzeandrelaydatawithouttheknowledgeoragreementoftheuser,andthusrequireclearandenforceableprivacylawstopreventabuseandtheinfringementofpersonalrights.

• Infrastructure:stableinfrastructurerequired(recon-cilingoldwiththenew,suchaspowersupplyandbroadbandinternet).

• LocalIoTexpertise:foradjustments,implementationandmaintenanceofIoTapplicationstothespecialneedsoftheirdevelopingcounterparts.

3.4 The impacts on emissions of the Belt and Road Initiative

ThedevelopmentsandeconomicactivitiesoftheBeltandRoadInitiativeinthefourthindustrialrevolutioncanhavenegativeenvironmentalimpactsontheBRIcountries.

A2019studyontheimpactsontheBRIfound(seealsoFigure6)23:

• BRIcountriesaccountedforjust28%ofemissionsin2015.Iftheyfollowtheconventionalgrowthpath-ways(BAU)whiletherestoftheWorldadherestotheParisClimateAccord(limitglobalwarmingtolessthan2degreesCelsius),theBRIcountriescouldaccountfor66%ofglobalemissionsby2050.ThiswouldresultinglobalcarbonemissionsdoublethelevelnecessarytomeettheParisAgreement.

• IfBRIcountriesfollowhistoricalcarbon-intensegrowthpatterns(“WorstinClass”growth),itmaybeenoughtoresultina2.7degreespatheveniftherestoftheWorldadherestolevelsofemissionsnecessarytomeettheParisAgreement.

23　 Ma and Zadek, “Decarbonizing the Belt and Road - a Green Finance Roadmap.”


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• IfBRIcountriesfollowabestpracticegrowthandemissionscenario(i.e.effectivelydeployinglead-ing-edgegreentechnologiesalreadyinuse,atapacecommensuratewiththeirstageofdevelopmentmeasuredbyincomepercapita),theiremissionsin2050couldbe39%lowerin2050thaninthebusi-ness-as-usualscenario.

• However,evenwithabestinclassgrowthscenariotheBRIcountrieswouldstillfallshortofthereductionrequiredtoalignwiththeParisAgreement;accordingtothestudythewholeworldstillhave17%ofexcessGHGemissionsevenifnon-BRIcountriesadheretotheParisAccordwhiletheBRIcountriescontinueoncurrentbestpracticetrajectoriesofgrowth.

Figure 6: DifferentemissionanddevelopmentscenariosoftheBeltandRoadInitiativecountries24

24　 Ma and Zadek.

Figure 7:EnergyandtransportareparticularlycontributingtoGHGemissionsintheBRI(Source:Ma,Zadek2019)

ThemostrelevantsectorscontributingtoGHGemis-sionsintheBRIareenergyandtransport‒thetwosec-torsthatarealsoreceivingthelargestChineseinvest-mentsintheBRIcountries(seeFigure7).

Atthesametime,the“DigitalSilkRoad”couldpotential-lybringagreentransformationtobothinfrastructureandeconomicmodelsinemergingmarkets:

• addingnewtechnologies,theDigitalSilkRoadwillhelpmakethenewinfrastructurethemostcompeti-tive,efficientandsustainable.

• bringingadvancedITinfrastructuretotheBRIcoun-tries,suchasbroadbandnetworks,e-commercehubsandsmartcities.

• connectingmoreandmoremediumandsmallmer-chantstoglobaltradingviadigitalnetworks,theDig-italSilkRoadcanalsosupportasmartcross-borderlogisticssystem.

• andthroughtheharnessingandapplicationofbigdatatodirectlysolveenvironmentalchallenges(forexampletobetterrespondtowatersecurityissues,climatechangeandnaturaldisasters.)

Thisrequiresparticularlyinvestmentsinrenewableen-ergytoreduceenvironmentalimpactsofenergygener-ationnecessaryforurbanlifeandindustry4.0.Indeed,thisseemsincreasinglyviablewithdecreasinglevelizedcostofenergyfromrenewableenergysources(seeFig-ure8)25.

25 Lazard, “Levelized Cost of Energy Analysis - Version 12.0.”


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Figure 8: SelectedHistoricalMeanUnsubsidizedLevelizedCostofEnergyValues(Source:Lazard)

Moredifficultwillbegreendevelopmentinurbantrans-portandrelatedinvestments.Greenurbantransportwillonlybepossiblebymovingpeopleusinglow-energyandhigh-occupancyvehicles,suchaspublictransporta-tioninelectricbusesandsubwaysaswellasbynon-mo-torizedtransport,suchasbikesandwalking.Inadditiontoinvestmentinassetsandplanningcapacity,thisalsorequiresinvestmentinbehavioralchanges(seeFigure9).Accordingly,countriesneedtoinvestbetween0.2

and0.4%oftheirGDPforalow-carbonurbantransportdevelopment‒iftheyhaveproperinstitutionalcapacitywithintegratedurbanandtransportplanning.Theal-ternative,however,ismuchhigherinvestmentstodealwiththeconsequencesofclimatechangeandnon-greengrowth.

Figure 9: Investmentinurbantransport(Source:Nedopil

Wang,2020,basedonWagner201826)

WhatthischaptershowsisthatthegreendevelopmentpathforBRIcitiesisdifficult,yetpossible.Oneofthefoundationsisanunprecedentedaccelerationofgreenfinance.

3.5 Green urban finance as a solution

Greenurbanfinancecanbeunderstoodaseffortstoincreaselevelsoffinancialflows(frombanking,mi-cro-credit,insuranceandinvestment)fromthepublic,privateandnot-for-profitsectorstosustainabledevel-opmentprioritiesincities27.

Greenfinanceencompasseseffortstoincreaseinvest-mentsinto28:

• Climatechangemitigation

• Climatechangeadaptation

• Sustainableandprotectionofwaterandmarinere-sources

• Transitiontoacirculareconomy

26 Wagner, “The Billion Dollar Question - How Much Will It Cost to Decar-bonise Cities’ Transport Systems.”

27 UN Environment, “Green Financing.” 28 EU Technical Expert Group on Sustainable Finance, “EU Taxonomy.”

• Pollutionpreventionandcontrol

• Protectionandrestorationofbiodiversityandeco-systems

Greenfinancecanbepromotedthroughchangingcoun-tries’regulatoryframeworks,harmonizingpublicfinan-cialincentives,increasinggreenfinancingfromvarioussectors,increasinginvestmentincleanandgreentech-nologies,andaligningpublicsectordecisionswiththeenvironmentaldimensionoftheUnitedNationsSustain-ableDevelopmentGoals.

TounderstandhowgreenfinancecanbeacceleratedintheBRI,chapters3&4willanalyzethedevelopmentofthetwolargestgreenfinancemarketsintheWorld:Chi-naandtheEuropeanUnion,bothinregardtofinancialandregulatorydevelopments.Chapter5willanalyzecurrenteffortswithintheBRItoaccelerategreenurbanfinance.


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Overthepast40years,sincethestartofChina’seco-nomicReformandOpeningin1979,China’surbanpopulationincreasedfrom170millionto831millionin201829-withtheChineseurbanpopulationsurpassingitsruralpopulationin2011.Withincreasedurbanizationcameadverseenvironmentalconsequences,suchasairpollution,waterpollution,changingweatherpatternsaswellashighgreenhousegasemissions.Withurbanpop-ulationontherise,Chinahasbecomethesecondmostvulnerablecountrytoclimaticdisasters,incurringmorethanUSD490billionofeconomiclossesasaresultofclimaticdisastersintheperiodfrom1998-201730.

Tobuildresilientandeco-friendlycities,Chinawouldhaveneededinvestmentsofaround7trillionRMBfortheyears2016-2031fortheconstructionofgreenerbuild-ings,large-scaleretrofitofexistinghousesandcom-mercialbuildings(about1.65trillionRMB),transportinfrastructure(about4.5trillionRMB)andenergyinfra-structuresuchasdistributedphotovoltaic(PV)(about500billionRMB).

TounderstandhowChinaisapproachingitsgreenurbanfinance,thefollowingparagraphswillprovideanover-viewofgreenfinancepoliciesandinstitutions,publicsectorfinance,privatesectorfinance,twocasesontheapplicationofgreenfinanceprinciplesforurbanfinance,aswellasasummaryofchallengesforthewayforward.

4.1 Recent developments in Chinese green urban finance

4.1.1 Supporting policies accelerating green urban finance in China

China’sworkongreenfinancestretchesbackalmost

29 National Bureau of Statistics of China, “ 城镇化水平显著提高城市面貌焕然一新——改革开放 40 年经济社会发展成就系列报告之十一 .”

30 UN SDR and Centre for Research on the Epidemiology of Disasters, “Economic Losses, Poverty & Disasters 1998-2017.”

31 Gu, Liu, and Ren, “1 Trillion USD Investment Needed in Five Years to Build Low-Carbon Cities in China.”authored by the Paulson Institute, Energy Foundation China and the Chinese Renewable Energy Indus-tries Association, estimates that 6.6 trillion RMB ($1 trillion

4 Green urban finance in China

twodecades;sincethenvariousgreenfinancepoli-ciesongreencredit,greensecuritiesandgreeninsur-ancewerereleased.China’sgreenfinancesystemwasstrengthenedin2016whensevenministerialagenciesincludingthePeople’sBankofChina(PBoC)andtheMinistryofFinancejointlyreleasedtheGuidelinesforEs-tablishingtheGreenFinancialSystem(the“Guidelines”),settingout,forthefirsttime,theofficialdefinitionofgreenfinance,incentives,disclosurerequirements,de-velopmentplanforgreenfinancialproducts,aswellasriskmitigation.

TounderstandwhatdrivesgreenurbanfinanceinChi-na,somerelevantpoliciesandpolicyframeworksarediscussed.Apartfromthedirectdevelopmentofagreenfinancesystemthatallowsfortheaccelerationofgreenurbanfinance,anumberofpoliciesandinitiativesthatindirectlysupportanaccelerationofinvestmentsingreenurbanization,greentransportationandgreenIn-dustry4.0havealsobeenintroducedondifferentlevelsoftheChineseregulatorysystem:

• Anationalcarbonmarket,ascalledforinChina’sNationallyDeterminedContribution(NDC),canpromotegreenfinanceforcitiesbyputtingapriceoncarbonemissions;accordingly,moneywouldbechanneledtoassetswithlowerclimateimpacts.Al-thoughChinadesignatedsevencarbonmarketpilotprovincesandcities(Hubei,Guangdong,Shenzhen,Beijing,Tianjin,Shanghai,andChongqing)in2011already,thedevelopmentofthenational(orsub-na-tional)carbonmarketshasnotseentheprogressnecessaryasofJanuary202032.

• Constructionofhundredsof“eco-cities”and“low-car-boncities”waspushed33tohighlightdevelopmentpotentialsandchannelmoneyintogreendevelop-mentatboththenationalandprovinciallevel.Fortheperiodfrom2016to2021,thetotalinvestmentinconstructinglow-carboncitiesinChinaisexpectedtoreachRMB6.6trillion.By2008,low-carboncitypi-lotprojectsalreadybeganinShanghaiandBaoding.In2011,30pilotcitiesforenergysavingsandemis-

32 Hong, “IIGF 观点 | 中国碳市场 2019 年度总结 [Annual Review of China’s Carbon Market].”

33 Shepard, “No Joke: China Is Building 285 Eco-Cities, Here’s Why.”

sionsreductionweredividedintothreegroupswithRMB600millionperyearprovidedforprovinciallevelcities,RMB500millionperyearforprovincialcapitals,andRMB400millionperyearforothercities.Citiesreceive50%ofthebudgeteachyearinadvanceandtheremaining50%accordingtotheresultsofthean-nualperformanceevaluation.Thefundingin2012and2013wasaboutRMB4billioneach,in2016wasRMB5.3billionandin2018wasaboutRMB3.8billion34.

• Nationalenergypolicyandenergysavingpoliciesforindustrial,commercialandprivateusershavebeenimplemented(seeAppendix1forselectedpolicies).

Accordingly,projectsthataresupportedbyinvestmentandfinancingofgreenurbanandruralconstructionin-clude:

• Newgreenbuildingprojects.Greenbuildingisalife-savingperiodthatsavesresources,protectstheenvironment,reducespollution,andprovidespeo-plewithhealth,fitness,andefficiency.Usesspacetomaximizethequalityofbuildingswherepeopleliveinharmonywithnature.Theprojectstobesupport-edshouldberesidentialbuildings,publicbuildingsandindustrialbuildings,andalignwiththe“GreenBuildingEvaluationStandard”GB/T50378two-starandabovestandards.

• Low-energybuildingsandnear-zeroenergybuild-ings.Low-energybuildingsandnear-zeroenergybuildingsarefocusedonachievinglowemissionsandenergyconsumption.Focusesincludeenclo-sures,energyandequipmentsystems,lighting,intel-ligentcontrol,andrenewableenergyutilization.

• Assembledconstructionprojects.Prefabricatedbuildingswherepartsorallofthebuildingarecom-pletedinafactoryandthentransportedtothecon-structionsite.Thebuildingisassembledbymeansofreliableinstallationandinstallationmachineryconstructionmethod.Itisestimatedthatby2025,thetotalinvestmentwillbeabout1.03trillionRMB,whichincludetheinvestmentinfullrefurbishment,

34 Sohu.com, “23 城冬季清洁取暖国家补贴 -3 年 303 亿 !” [The Second Batch of Winter Clean Heating Pilot Cities Added 23 New Ones, with a Three-Year Financial Subsidy of RMB 30.3 Billion].”

theinvestmentinfixedassetsofnewpartsandcom-ponents,andthedistributionofnewpartsandcom-ponents.

• Urbandrainagefloodcontrolproject.Theurbandrainagefloodcontrolprojectmainlyenhancesur-bancomprehensivedrainage,floodcontrolcapacityandwatersourceconservationthroughtheincreaseofdrainageandstoragespace,newrainwaterpipe-lines,largerainwaterdrainagecorridors,machinedrainagepumpingstations,andemergencydrainagefacilities.

• Urbanwaste-waterremediationproject.Thefocusofblackandodorwatermanagementincludes:Sourcepollutioncontrol,non-pointsourcepollutioncontrol,endogenouspollutioncontrolandotherpollution(excessivestandardsfortailwaterinurbansewageplants,accidentsfromindustrialenterprises,fallleaves,etc.).

• Urbansewagetreatmentqualityimprovementproj-ect.Theurbansewagetreatmentqualityimprove-mentprojectincludesnewsewagepipenetworks,oldsewagepipenetworkreconstruction,combinedpipenetworktransformation,newsewagetreatmentfacilities,andsewagetreatmentfacilityupgrades.

• Urbanwatersupplyfacilitiesrenovationandcon-structionprojects.Urbanwatersupplyfacilities’ren-ovationandconstructionprojectsincludethetrans-formationofurbansecondarywatersupplyfacilitiesandtheincreaseofcountywateruserates.

• Urbanrailtransitprojects&Urbanroadfacilitiescon-structionandrenovationprojects.Constructionandrenovationprojectsofurbanrailandroadfacilitiesincludetheadditionofurbanroads,newbridges,aswellasaddressingtheproblemsofpartialdamage,insufficientsupply,andinsufficientauxiliaryfacilitiesinthecountyroadsystem.

• Constructionprojectsforurbangarbagedisposalfacilities.Theconstructionofurbangarbagedisposalfacilitiesincludestheconstructionofurbandomesticgarbagedisposalfacilitiesandcountygarbagedis-posalfacilities.


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4.1.2 Development of public green urban finance

Asof2017,about80%offinanceforurbaninfrastructurewasprovidedbyorthroughmunicipalgovernments.Thethreepillarsofmunicipalfinanceweretaxrevenue(29%),landleasereceipts(28%),andfinancingcompaniessetupbylocalgovernments(26%),withtheremaindercom-ingfrominvestmentsbypublicandprivateenterprises35.

4.2.1.1 Phase 1: From land lease to government debt

Overthepast40years,fundingforurbandevelopmenthasundergonethreedifferentphases,wherethegov-ernmentsdecreasedtheirshareofurbanfinancefrom95%beforethe1990stoabout80%in2017.InthefirstyearsofChina’sopeningup,China’scitiesraisedfundsbysellingland(leases),whichcoveredaround50%ofcitygovernmentbudgets36.Thisnotonlyallowedcitiestoquicklybuildnecessaryinfrastructure(oftenasignofsuccessandreasonforpromotionforlocalgovernmentofficials),butalsoledtotherapiduseofsurroundingfarmlandforurbandevelopment‒resultinginurbancrawl37.Afterthefinancialcrisisof2008,morestringentcentralgovernmentpolicieswereputinplacetolimitthesaleofland.Thismadelocalgovernmentsmorereliantonothersourcesoffunding.Apartfromraisingfundsbygeneratingrevenuesthroughtaxation,citiesincreasinglyreliedonlendingfromstate-ownedbanks,suchasChinaDevelopmentBank(CDB);CDBprovidessoftloansforlo-calgovernmentsinlinewithnationalstrategicinitiatives.

4.1.2.2 Phase 2: From Public Private Partnerships to local government finance vehicles (LGFVs)

Whendebtlevelsreachedunsustainablelevels,China’scitiesturnedtopublic-privatepartnerships(PPPs).Inthismodel“private”vehicleswithgovernmentguaranteeswouldgetloansoftenfromgovernment-ownedfinancialinstitutionsforprojectsdevelopedasPPPswithlocal

35 Shusong, “ 城市基础设施融资路在何方？巴曙松访谈纪要 (Pathways for Urban Infrastructure Finance in China, an Interview with Ba Shusong.”

36 Xie, “‘ 从各地财政看土地依赖的困局 ,’ [The Dilemma of Land Depen-dence from Local Finances].”

37 China’s major cities are still much more densely populated than for ex-ample cities in North America. However, the suburban areas of major cities and lower-tier cities continue to be suburban.

governmentsandstate-ownedenterprises.ThismodelwasalsodrivenbythefactthatChinesemunicipalgov-ernmentscannotgodirectlytocommercialbankstotakeoutloans(seealsoparagraph3.1.4).Tocircumventthis,municipalgovernmentssetuplocalgovernmentfinancevehicles(LGFVs)thatcouldborrowfromcommercialbanks.Theseplatformshavemushroomedfromabout6.500in2010to10,000in201738.Asof2015,theChinesegovernmentrestrictedthispracticeandfrommid-2018,LGFVswereonlyallowedtoissuebondsfortheirownsake,thereforethispracticehasbeenonthedecline.

Box 2: Shanghai District Financing Vehicle39

TheShanghaiMunicipalGovernment(SMG)haslaunchedapilotDistrictFinancingVehicle(DFV)toleveragemoneyfromtheprivatesectortofinanceinfrastructureinvestmentsforsuburbandistricts.Then,“buildingontheexperienceoftheDFV,theproposedfinancialintermediary(ShanghaiGreenUrbanFinancingandServicesCo.,Ltd,orFSC)willraisemedium-tolong-termfundsinthecapitalmarketsandon-lendtospecificsubprojectsbasedonprojectappraisalandfiduciaryoversightcapacity.”IfthepilotprojectresultsaresuccessfulintheareaofShanghai,itcouldbeimplementedinotherprovincesofChina.

4.1.2.3 Phase 3: Municipal bonds

WhenthePPPmodelwasprovedtobepartlyunsustain-able,China’scentralgovernmentfurtherencouragedtheissuanceofprovincialandmunicipalbondsforthefi-nancingofurbandevelopmentstartingin2009.MunicipalbondsinChinaareissuedattheprovinciallevel,partiallybecausethecountrylacksthecapacityforacity-levelmu-nicipalbondmarket.Whenaprovinceissuesmunicipalbondsonbehalfofacity,thecitycanchoosetoattachitsnametothebondanddisclosewhichproject(s)thebond

38 Hu, “ 中国地方政府投融资平台转型发展评价报告 .2017” [China Local Government Investment and Financing Platform Transformation De-velopment Evaluation Report. 2017].

39 The World Bank, “The World Bank - Urban Financing and Innovation Project.”

approvedinthewakeofthenCovid-19pandemic45.Withtheaccelerationoflocalgovernmentdebt,thesustain-abilityofthisdebtremainsasourceofworry:

• theriskofdefaultonlocalgovernmentfinancingvehiclesremainshigh46.Localdebtlevelsanddiffi-cultiesrefinancingexistingdebtcouldactasamajorconstraintonurbaninfrastructurefinanceintheyearsahead.

• themajorityofthiscapitalraiseddidnotgotogreendevelopment(China’sannualinvestmentinenergyefficiencyandenvironmentalprotectionisestimatedtobeaboutUSD100billion47(seeTable3)).

46 Weinland, “China Local Governments Sound Alarm on Debt Obliga-tions”; Wu and Shen, “PBOC to Become Bank of Jinzhou Biggest Share-holder in Latest Bailout - Caixin Global.”

47 中国领跑全球清洁能源发展 ” [China Leads Global Clean Energy Devel-opment].

isfinancing.Noteverycitydoesso,inwhichcaseonlytheprovince’snameislisted.Onecomplicationofthispro-vincial-levelissuancesystemisthatvirtuallyallmunicipalbondsinChinaareratedasAAAorAAA-.Thismeansthatregionaldifferencesincities’capacitiestorepaymunici-palbonds(basedontheirGDP,incomes,credithistories,etc.)arenotproperlyreflectedinthebondmarket.39

Table 2: TypesofChinesemunicipalbonds4041

Generalobligationbond( 一般政府债券 ) Revenuebond( 专项债券 )41

UseofProceeds Capitalprojectsonly

ProjectTypes Publicwelfareprojectswithnorevenuegeneration

Semi-publicwelfareprojectswithrevenuegeneration

SourceofRepayment Taxrevenue Rent,toll,fare,userfee

FromJanuarytoendofApril2020,Chineselocalgovern-mentsissuedRMB1.3trillioninbonds42,63%morethaninthesameperiodin201943(althoughoverthecourseoftheyear,restrictionsonlocalbondswereloosenedandtheyearendedupwithatotalofRMB3.05trillionofnewlocalgovernmentbondsissuedin201944withoutstand-inglocalgovernmentbondsexceedingRMB27trillion).InApril2020,another1trillionRMBofspecialloanswas

40 Adapted from the table on slide 17 of: Xu Nannan, “China’s Land Fi-nance and Urbanization: An Analysis of Political Economy” (PowerPoint,

June 28, 2019).　41 There are actually different types of revenue bonds for specific purpos-

es, such as land banking revenue bonds ( 土地收购储备债券 ). These pay for building infrastructure like roads that are directly related to land a government will lease out.

42 China Securities Journal, “ 地方专项债发行破万亿疏通项目堵点是关键 _ 中证网 [Breaking Trillions of Local Special Debt Issuance].” This investment volume in 2020 was also driven by an economic downturn due to the Coronavirus outbreak in January 2020.

43 Xinhua, “China Expedites Issuance of Govt Special Bonds to Fund Infra-structure Projects - Xinhua | English.News.Cn.”

44 China Banking News, “China Issues 4.36T Yuan in Local Government Bonds in 2019, Issuance Expected to Accelerate and Expand in 2020.”

45 Caixin News, “ 第三批专项债额度已下达 5 月发行量或创历史新高 - The Third Batch of Special Bonds Has Been Approved in May - a Record High”; Trivium China, “These Bonds Are Special - China Tip Sheet April 28, 2020 - Trivium China - Policy Monitoring, Government Engagement, Public Affairs.”


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Table 3: Centralandlocalclimate-relatedexpenditures,2015-2017(billionRMB)48

Centralgovernment Localgovernment

2015 2016 2017 2015 2016 2017

EnergyConservation&EnvironmentalProtection

40.0 29.5 35.1 440.2 443.9 526.7

TotalExpenditure 8064.0 8680.5 9490.9 17587.8 9503.94 10817.7

Growth 0.50% 0.30% 0.30% 2.50% 4.67% 4.87%

4.1.2.4 Phase 4: Special municipal bonds

Asmostoftheurbanfinancingstillcomesfrommunicipalgovernments,Chinesecitieshaveplayedwithdifferenttypesofbondstoaccelerategreenurbandevelopmentsuchasgreenmunicipalbonds.Whilegreenmunicipalbondshaveclearadvantages,onlyonelabelledgreenbondhasbeenissuedsofarinChinabyaprovincein2018:a300millionRMBgreenbondbyJiangxiProvinceforurbanundergroundpipelinewitha30yearmaturityandacouponrateof4.11%.

Forexample,in2019,a1.6billionRMBbondanda420millionRMBbond,bothissuedbyGansuProvinceforwaste-watertreatmentwith20yearmaturitiesandacou-ponrateofabout3.65%wereaimedtobegreenbondsbutwereeventuallyissuedasregularbonds.

Thescarcityofgreenmunicipalbondsisduetoavarietyofunresolvedchallenges:

1. Inability to label municipal bonds as green. WithChinesegreenbondregulationsissuedbytheNa-tionalDevelopmentandReformCommission(NDRC)andthePeople’sBankofChina(PBoC)eachcover-ingdifferenttypesofissuingorganizations,noneoftheregulationsspecificallycovermunicipalissuers

48 GIZ - german cooperation, “Climate Finance for Low-Carbon Urban Infrastructure in China.” ??

(whichwouldhavetobetheMinistryofFinance).

2. Local government debt levels. Withdebtlevelsincreasingsubstantiallyoverthelastdecade,localgovernmentshaveundergonesubstantialdebtre-structuringtodeleverage.TheMoFhasconsequentlyfocusedonreducingdebtratherthangreeningdebt.

3. Capacity and information gaps.Municipalities’FinancialBureausdonotalwayshavethenecessaryexperiencetoguidetheirgreenbondissuanceintheearlystagesofmarketdevelopment.Awareness,skills,andbestpracticescanproliferatebetweenmu-nicipalitiesoncealargernumberofgreenmunicipalbondshavebeenissued.

4. Inefficient green project design and planning. Inmostmunicipalities,plannersofthelocalDevelop-mentandReformCommission(DRC)andfinanciersoftheFinancialBureauworkseparately.Thisdivisionre-sultsinmanyplannedlow-carbonprojectsthatmaketechnicalsensebutdonotnecessarilyfinancialsense.

5. Lack of bankability of projects. Withmostinvestorsonlyinterestedinholdinggreenbondsthatfundhighlybankableprojects,municipalitiesneedwaystoseparatetheseprojectsfrompublicwelfareprojects.

6. Additional costs affiliated with monitoring, re-porting, and verification (MRV). Comparedtocon-ventionalbonds,labeledgreenbondsentailades-ignatedexternalverificationplusregularreportingonthegreenperformanceofthebond.Allelsebeingequal,MRVincreasesthetransactioncostsforgreenbondissuers.

Whilecitiesthemselvesstruggletoissuegreenmunicipalbonds,theirlocalgovernmentfinancingvehiclescananddoissuegreenbonds‒havingissuedaboutUSD5.9bil-lionin201849.Yet,withstricterregulationonLGFVs(seeabove),theissuancebyLGFVshasdroppedtoRMB23.35billion(oraboutUSD3.6billion)in2019.5051

Box 3: Shenzhen Municipal Special Subway Bond 2017

InDecember2017,theShenzhenmunicipalgovernmentissuedthefirstspecialsubwaybondontheShenzhenStockExchangeworth2RMBbilliontobeusedfortheShenzhenMetroTransitLine14project50.ThetotalinvestmentforLine14isexpectedtobeRMB39.4billion.About49.4%willbeprovidedbythegovernmentbudget,while50.6%ofthecapitaldemand(RMB20billion)willbefundedthroughaspecialbondissuance.Thebondswillberepaidbyincomefromcommercialassetdevelopment,ticketincomeandotherincomerelatedtotheMetroLine14project51.

4.1.2.5 Phase 5: Green taxes

Tofurtherraiserevenuesandaddressgreengrowth,Chi-naisexperimentingwithgreentaxes.TheEnvironmentalProtectionTaxLawcameintoeffecton1stJanuary2018.Itrequiresbusinessesandpublicinstitutionsthatdischargeair,water,solidwaste,andnoisepollutiontopaytaxesac-cordingly.Thelawreplaceslocalpollutantdischargefees,ofwhichthecentralgovernmenttooka10%cut.Now,allthetaxincomegoestocitygovernments.Theeffective-nessandrevenuesofthesetaxeshaveyettobestudied.

49 GIZ - german cooperation. 50 Chinabond.com, “Data on Shenzhen Municipal Subway Bond in 2017.”　51 Chinabond.com; GIZ - german cooperation, “Climate Finance for

Low-Carbon Urban Infrastructure in China.”

4.1.3 (Green) commercial urban finance developments in China

Toaddressthegreenurbandevelopmentfinancinggap,privatecapitalneedstobemobilized(estimatesshowthatatleast85%ofalltheannualgreeninvestmentneed-edinChinaby2020mustcomefromtheprivatesector52).Tothisend,Chinahasissuedanumberofgreenfinancepolicies.China’sfirstnationalgreenfinancepolicyap-pearedin2006whentheStateEnvironmentalProtectionAdministration(SEPA‒nowMEP)limitedtheabilityofbankstoextendorgiveloanstopollutingenterprises.In2012,theChinaBankingRegulatoryCommission(nowChinaBankingandInsuranceRegulatoryCommission)issuedguidelinesforgreencredit,andin2015theStateCouncilreleaseditseco-civilizationplan,whichcalledforthedevelopmentofagreenfinancesysteminChina.

InAugust2016,thelandmarkGuidingOpinionsonBuildingaGreenFinancialSystem(hereafter,“theGuidelines”)becametheworld’sfirstsystematicgreenfinancepolicyframe-work53.Itwasjointlyissuedbysevenbodies:thePeople’sBankofChina(PBoC),MinistryofFinance(MoF),NationalDevelopmentandReformCommission(NDRC),MinistryofEnvironmentalProtection(MEP),ChinaBankingRegulatoryCommission(CBRC),ChinaSecuritiesRegulatoryCommis-sion(CSRC),andtheChinaInsuranceRegulatoryCommission(CIRC).TheGuidelinesaresignificantforseveralreasons:

• Theyofficiallydefine“greenfinance”inChinaas“supportforenvironmentalimprovement,climatechangeandresourceconservation,andtheefficientuseofeconomicactivities.”

• Theyemphasizethatthemainpurposeofbuildingagreenfinancialsystemistomobilizeandmotivatemoresocial(non-government)capitaltoinvestingreenindustries.

• Theyprovideincentivestosupportandencouragegreencredit,greensecurities,greeninsurance,greenfunds,andgreenpublic-privatepartnerships(PPPs)54.

52 Ma, Sheren, and Zadek, “G20 Green Finance Synthesis Report.”53 People’s Bank of China (PBOC) et al., “Guidelines for Establishing the

Green Financial System.”54 Lindfield, “Green Municipal Finance.”


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ThisguidelinealsostrengthenedthedevelopmentofthegreenbondmarketinChina(basedonthe2015Guide-linesforGreenBondIssuance).Dependingonthedefi-nition,Chinawaseitherthefirst,second,orthirdlargestissuerofgreenbondsin2019.AccordingtotheClimateBondsInitiative(CBI),Chineseinstitutionsissuedabout23billionUSDworthofgreenbonds(withFranceandtheUSAhavinglargergreenbondmarkets).

Anothertoolisgreencredit(which,incontrasttogreenbonds,arenotaseasilytradedonpublicbondmarkets).Ac-cordingtotheGreenCreditGuidelinesandtheGreenCreditStatisticsSystem,China’sgreencredithastwoelements55:

• supportingloansforthreestrategicemergingindus-tries:(1)energyconservationandenvironmentalpro-tection,(2)newenergy,and(3)newenergyvehicles.

• supportingloansforenergy-conservationandenvi-ronmentalprotectionprojectsandservices.

Figure10providesanoverviewofgreencreditprovisionbygreensectorsoftheChineseeconomy,whichamount-edtoabout8trillionRMB.

Figure 10：2013-2017greencreditallocationby13CBIRCsectors(100millionRMB( 亿元 )56

55 China Banking and Insurance Regulatory Commission (CBIRC), “ 绿色信贷指引 ” [Green Credit Guidelines].”

56 China Banking and Insurance Regulatory Commission (CBIRC), 2019: "The Green credit data of 21 major banks from 2013 to June 2017", http://www.cbrc.gov.cn/EngdocView.do?docID=70AF0D4D2954480F831F37C43804DA1D

Anotherimportantdevelopmentforurbanfinanceintransport,urbanizationandindustry4.0hasbeentherecentexpansionofrealestateinvestmenttrusts(REITs)inChina.AttheendofApril2020,inthewakeoftheCovid-19pandemic,Chineseauthorities(NDRC,CSRC)announcedapilotprogramforREITSintheBeijing-Tianjin-HebeiregiontheYangtzeRiverDelta,theXionganeconomiczone,theHongKongZhuhaiMacaoareaandtheHainanProvince.ThroughREITs,publicparticipationininfrastructureproj-ectscanbeaccelerated,whereREITsbuyersownashareoftheinfrastructure.Inthepilot,REITscanbeissuedforprojectsincludinglogisticsandwarehouses,tollroadsandtransportationinfrastructure,urbanutilities,sewageandgarbageprocessing,informationnetworksandothersinstrategicandemergingindustries57.

4.1.4 Public Private Partnerships (PPP)

Inpublicprivatepartnerships,ideallyprivateandpublicmoneyandcapacityarecombinedtocontributetosustain-abledevelopment.PPPsareusedinChinatodevelopmu-nicipalutilities,transportationinfrastructure,supporturbandevelopment,etc.ByMarch2020,thenationalPPPProjectDatabasecompiledbyMoFlisted9.459projects,withtotalinvestmentsofRMB14.4trillion.Figure11showsthedistri-butionofPPPs,wherewater-relatedPPPsareparticularlypopular,whilepublictransportationandnewenergyPPPsarerelativelyirrelevant.

57 Yue and Wei, “China Launches Publicly Traded REITs to Spur Economy.”

Figure 11:UrbanClimate-relatedPPPProjects,byDevelopmentPhaseandsector(asofDecember2018)58

Since2017,theMinistryofFinanceandNDRChavereleasedarangeofdocumentstosupportandguidegreenPPPdevelopmenttosupportgreeninfrastructure,pollutioncontrol,resourceefficiency,etcinparticular.However,duetoimprovementsneededinChina’sover-allPPPregulatoryframework,progressofgreenPPPapplicationhasbeenslow59.

4.1.5 Green Funds

In2010,thefirstgreenfundappearedinChina,andthenumberofnewgreenfundshasincreasedsteadilyyearafteryear.InSeptember2015,theStateCouncilissuedthe“EcologicalCivilizationMasterPlan,”andproposedtheestablishmentofthegreenfinancialsystem’soverallplantosupporttheestablishmentofgreenfunds.

58 GIZ - german cooperation, “Climate Finance for Low-Carbon Urban Infrastructure in China.”

59 Wang and Zadek, “Establishing China’s Green Financial System: Progress Report 2017.”"publisher":"UNEP Finance Initiative","publish-er-place":"Beijing","title":"Establishing China's Green Financial System: Progress Report 2017","URL":"https://wedocs.unep.org/bitstream/handle/20.500.11822/22285/China_Green_Finance_ProgressRep_ES_EN.pdf?sequence=1","author":[{"family":"Wang","given":"Yao"},{"fami-ly":"Zadek","given":"Simon"}],"issued":{"date-parts":[["2018"]]}}}],"sche-ma":"https://github.com/citation-style-language/schema/raw/master/csl-citation.json"}

InAugust2016,theGreenFinanceCommitteepub-lishedthe“Guidanceonbuildinggreenfinancialsystem”proposingtosupporttheestablishmentofagreende-velopmentfund.In2017theStateCouncildecidedtosetupgreenfinancereformandinnovationpilotzonestopromotethedevelopmentoflocalgreenfundsinthefiveprovinces(autonomousregions)Zhejiang,Jiangxi,Guangdong,GuizhouandXinjiang.Drivenbythecon-tinuousimprovementofthegreenfinancialsystemandtherelatedfavorablepoliciesofthecountry,thenumberofgreenfundsinChinaincreasedrapidlyfrom2015(88funds)to2017(567funds).Tocountertheoverheatingofthesystemandcontrolfinancialrisks,thePeople’sBankofChinainits“GuidanceonRegulatingfinancialinstitu-tionalassetmanagementbusiness,”restrictedqualifiedinvestors,requiringclearerrequirementsfortheissuingof“funds”(thisbroughtdownthenumberofnewgreenfundsto137in2018).InJanuary2019,theMinistryofEcologyandEnvironmentissuedthe“OpinionsonSup-portingtheGreenDevelopmentofPrivateEnterprises,”whichproposedtoacceleratetheestablishmentofanationalgreendevelopmentfund,toencouragelocalgovernmentsandsocialcapitaltojointlyinitiateregion-algreendevelopmentfunds,andsupportprivateenter-prises,withconditions.

Figure 11:UrbanClimate-relatedPPPProjects,byDevelopmentPhaseandsector(asofDecember2018)58


22 23

In2019,therewere77greenfundsestablishednation-wideandfiledwiththeChinaSecuritiesInvestmentFundAssociation,including75privately-fundedand2publicly-fundedgreenfunds(seeFigure12).

Figure 12: NumberofnewgreenfundsinChina(Source:ChinaSecuritiesInvestmentFundAssociation,WindDatabase)

In2019,thefundswereusedfornewenergy(51%),bio-diversityconservation(45%),circulareconomy(2%)andenergysaving(2%).

4.1.6 International finance institutions

Internationalfinancialinstitutions,includingdevelop-mentfinanceinstitutions,havecontributedtofinancinggreenurbaninfrastructureinChina.In2018,theAsianDevelopmentBank(ADB),forexample,committedaround$1.8billionfor9sovereignloansand$22millionfor36technicalassistanceprojectstosupportChinavia“localgovernmentprogramsthatpromotedsustainableandinclusiveeconomicdevelopment60.”ADBiscurrent-lyfundingeffortstoreducepollutioninBeijing,Tianjin,andHebei,includinglow-carbonheatingandtransportinHebeiprovince.ADBisalsoleadingtheShandongGreenDevelopmentFund,asovereignfunddesignedtopromoteclimatefinanceinShandongprovince61.TheFrenchAFDcommittedaboutEUR1.3billionsince

60 Asian Development Bank (ADB), “Asian Development Bank and the People’s Republic of China.”

61 Asian Development Bank (ADB), “Shandong Green Development Fund Project.”

2004to28projectswith13milliontonsofCO2emissionsavoidedand450,000hectaresofbiodiversityareaspro-tected62;theGermanKfWhascommittedaboutEUR577millionin8projectswithafocusonprovincialsustain-ability63.64

Box 4: Green Bus System in Qingdao64

EC-LinkProjecthasbeencooperatingwiththeSGDFandADBtodevelopaGreenBusProjectinQingdao.Theprojectisexpectedtobefullycompletedin10yearsforaplannedcostofRMB1.69billionRMB(USD242million).AccordingtoADBstatistics,QingdaoMunicipalGovernmentwillprovide25.4%ofthetotalinvestmentamount,whiletheproposedfundwillbeaccountablefor61%ofit.Theestimatedrevenuesforthe10yearlongprojectisestimatedtobearoundRMB2.07billion,comingfromfares,batteryrecyclingandadvertisements.Thebenefitsoftheprojectincludetheimprovementoftransportservices,reducedcommutingtimeforcitizens,batteryrecyclingandCO2reduction.

AlthoughtotalfinancingthroughdevelopmentfinanceinstitutionstoChinarepresentsasmallportionoffi-nancingforurbaninfrastructure,theycanplayacatalyz-ingroletoprovideproofofconceptandbuildcapacityforgreenurbandevelopmentandfinance.Atthesametime,developmentfinanceinstitutionsoftenallowforblendedfinance,whichbothattractsprivatecapitalatmarketratesandconcessionaryfinancingatbelowmar-ketratestofinanceprojectsthatwouldotherwisenotreceivefunding.

62 Agence Française de Développement (AFD), “China | AFD - Agence Française de Développement.”

63 KfW Development Finance, “KfW Entwicklungsfinanzierung | Welt-weites Engagement.”

64 Jenny et al., “Catalyzing Climate Finance: Shandong Green Develop-ment Fund People’s Republic of China.”

Box 5: Blended finance (Source: IIGF)

Blendedfinanceisaformofstructuringfinancetoallowforlowerfinancingcost.AccordingtotheOECD,“blendedfinanceisthestrategicuseofdevelopmentfinanceforthemobilisationofadditionalfinancetowardssustainabledevelopmentindevelopingcountries.”Aproject’sfinancingcanthereforecombinedifferentinstruments(e.g.equity,debt)whichareprovidedbyfundsources(fromthosesuchasdevelopmentbanks,publicinstitutionsanddonors)withawillingnesstoprovideconcessionaryfinancing(thatisfinancingatratesbelowmarketreturnrates)withmoney(fromthosesuchascommercialinstitutionsorprivatesectors)thatrequiremarketreturns.

Figure13showsanexample:aprojectthatrequires100,000investmentsandhasanegativereturnof1%.Afteroneyearoftheprojectoperation,ithasthereforelost1,000andcanonlypayout99,000.Ifusingblendedfinance,thisprojectcouldattractprivateinvestors.Theprojectreceivesadonationof5,000,getsconcessionaryfinancingfromdevelopmentbanks(50,000withanexpectedreturnof2%)andattractsprivateinvestors(45,000withanexpectedreturnof6%).

Figure 13: Exampleofblendedfinance(Source:IIGF)

Assuch,blendedfinanceisaninstrumentthatallowsforthemobilizationofprivateinvestorsintoprojectswithlowerandevennegativereturns,whileavoidingcrowdingoutprivatecapitalthroughconcessionaryloansorgrants.Blendedfinancedoesnotwork,however,whenprojectsdon’tgeneraterevenuesatall.

4.2 Case studies for green urban finance in China

Inthissection,welookattwocasesofgreenurbanfinanceinChinathatcanserveasarolemodelforin-ternationalcooperationintheBeltandRoadInitiative.Thecaseswereselectedbasedontheirpotentialtobescaled-uptothecontextofcitiesoftheBeltandRoad

Initiative.Thereweremanymorecasesthatcouldhavebeenselected,butweaimedtoselectcasesthathaverelevanceforbothlargescaleandsmallscaleapplica-tion,theirpastandcurrentrelevancetotheChinesemarketandfortheirexampleofcombiningEUandChi-neseexperiencesinthegreenfinancesector.


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4.2.1.1 Shandong Green Development Fund (SDGF)

TheShandongGreenDevelopmentFund(SDGF)isa$1.5billionpublic-privatefinancingfacility,targetinghigherriskclimate-resilientinfrastructuresubprojects,greenandhightechnologymanufacturingbusinesses,andinvestmentinmunicipalandsectoralsub-fundsinChi-na’sShandongProvince.Withapopulationofabout100millionpeopleand10citieswithmorethan5millionpeople,thisprovinceisoneofthelargestenergyandcoalconsumersinChina.TheSDGFrespondstothekeychallengesofclimatefinanceinChina‒“beingalackofpipelinesofviableclimatepositiveprojects,particularlynewtechnologyprojects,inabilityofthecapitalmarkettoaddresshigherriskprofilesofclimateinvestmentsandtoattractPICfinanceintosuchinvestments,andinadequatesystemsfordefining,monitoringandevalu-atingclimateinvestments‒identifiedbytheMinistryofFinance(MoF)andtheADB.”

Overview of the SDGF

Thefundissetupfor20yearswiththegoalsof:

• mobilizeatbothfundandsubprojectleveladditionalcapitalfrompublicandprivatesources,and

• contributetocapacitydevelopmentinthePRCingeneralandinShandonginparticularforclimatefinanceandclimateresilience.

Figure 14: ShandongGreenDevelopmentFunddistribution(Source:ADB)

Toachievethis,thefundaimstoinvestamaximumof67%intotransformationalprojectsatdiscountinterestrates,wheretransformationalsignificantlycontributestopositiveclimateimpacts.Thefundconsidersprojects“goodpractice”iftheycomplywithcurrentenvironmen-talbestpracticesinChina(e.g.greenbuildingcodes)andprovideloansatlowerthanmarketrates(seeFigure14).

TheSGDFisapublic(56%)-private(44%)fundwithanoverallownershipstructureof56%and44%:

• 33%:Catalyticfunds(ADB,AFD,KfW‒andtheGCF)throughSDIHG(Public);

• 25%:ShandongProvincialGovernmentandLocalGovernments(Public);

• 41%:PICinvestorsmobilizedbySDIHG(undermulti-pleclosefundraising);and

• 1%:SGDFFundManagementCompanyasGeneralPartner(consistentwithmarketpractice).

Figure 15: ShandongGreenDevelopmentFund(SGDF)fundingstructure

Thefundwillaccommodatethetimingdifferencebe-tweenprivate,institutionalandcommercial(PIC)in-vestors’horizon(upto10years)andtheADBloan(20years).ThecapitalfromInternationalFinancialInstitu-tions(IFIs),publicfundingandPICwillbeblendedintoaseriesofshort-termfunds(upto10years)tofinancecli-mate-positiveprojects.Inordertoensurecrowdfundingfromtheprivatesector,PICinvestorswillbeguaranteedareturnthatiscommensuratewithmarketstandardsandhigherthanthereturnforthefundingfrompublicinvestors.

Thisstructureallowstheparticipationoftheprivatesec-toratboththeFacilityandprojectlevel.Itisanticipatedthatthefundachievesatleast2.5milliontCO2eofannualgreenhousegasemissionsreductionwhileatleast2mil-lionpeople(ofwhich50%arewomen)shouldbenefitfromstrengthenedclimateanddisasterresilienceintheregion.

Operation of the SDGF

Thefundwillconsiderprojects“thatcontributetocli-matechangemitigation(measuredthroughGHG/CO2eqemissionsreduction)orclimatechangeadaptation(measuredthroughimprovementofthebeneficiaries’resilience)thatmeeteligibilitycriteriaintheProjectAd-ministrationManual(PAM)65”Allthesubprojectswillbeconstantlymonitoredandevaluatedtoprioritizefinanc-ingtothosesubprojectsthatmeethighergoals.

SDTFwillbalanceitsfundsbetweenmitigation(75%)andadaptation(25%)sectors.Thekeyfieldsformitiga-tionprojectsarekeysectorsincludingbutnotlimitedtorenewableenergy,greenbuilding,andlowcarbontrans-portation,whilefortheadaptationsectorprioritywillbegiventoagriculturalinfrastructure,cityadaptationinfrastructure,andcoastalprotection.

65 ADB,“Report and Recommendation of the President to the Board of Directors.”


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Summary and scalability

TheSDGFisanambitiousprojectthatallowscitiesintheShandongprovincetoinvestintransformativegreenandclimate-friendlyurbantechnologiesandinfrastruc-ture.Byprovidingbothafacilityandafund,theSDGFensuresthatprojectscanbeinvestedin,eventhoughregularinvestorsmighttypicallyturnthemaway.Byincludingprivatesectorfinancialinstitutions,theSDGFalsomobilizesprivatemoneyandbyblendingfinance,itallowsforbothconcessionaryfinancingtermsandattractivereturnsforinvestors.TheSDGFisaprimeex-ampleofcooperationbetweenmultipledevelopmentfinanceinstitutions,privatelocalinvestors,aprovincialgovernment,cities,andthenationalgovernmenttodrivesustainabledevelopmentonasubnationallevel.

Currently,EC-LinkProjectiscooperatingwiththeSGDFinalsodevelopingagreenbuildingprojectinQingdao(alreadyinpipeline),andseriesofgreenprojectsinWei-haiwillbereadyandinthepipelineby2021.

4.2.1.2 Shenzhen International Low-Carbon City (ILCC)

TheShenzhenInternationalLow-CarbonCity(ILCC)66isaflagshipdemonstrationprojectonSustainableUrban-izationlocatedintheLonggangDistrictofShenzhen,attheborderofDongguanandHuizhouintheGuangdongprovince.ItaimstodisplayChina’sachievementsinlow-carbontechnologyandhasenjoyedconsiderablesuccesssinceitslaunchin201267.By2014,plannersinShenzhenhadbuiltacoupleofdemonstrationlow-en-ergypublicbuildings,includinganexhibitionhallthatservesasaneducationalcenterongreenbuildingsandgreendevelopment.Localresidentscannowenjoygreenoutdoorspacesina1km2start-upzonewhereconstruc-tionhasbeencompleted;a5km2expansionzonewillsoonfollow.Thetotalplannedareais53.4km2.68The

66 For more information on the design, planning, and environmental di-mensions of the ILCC, see the detailed 2017 case

study by C40 Cities Climate Leadership Group, Inc. on pages 140-163 of this online report.

67 Zhan, de Jong, and de Brujin, “Funding Sustainable Cities: A Compar-ative Study of Sino-Singapore Tianjin Eco-City and Shenzhen Interna-tional Low-Carbon City.”

68 Elliot, “The Best Part Is What Shenzhen Didn’t Do.”

ILCCupgradestheexistingbuiltenvironmentinLonggangDistrictbyretrofittingolderindustrialspaceswhichwilleventuallyprovidereplicableexamplesoflow-carbondevelopmentforfuturewavesofChineseurbanization69.

Green financing for the ILCC

TheShenzhenILCCarguablypioneeredtheuseofgreenbondstofinanceurbanlow-carboninfrastructureinChina.Twolocalgovernmentfinancingvehicles(LGFVs)involvedintheILCCissuedcorporatebondsthatwere,functionallyspeaking,greenbondsbecausethepro-ceedsfromthebondspaidforurbanclimatemitigationinfrastructure;asapioneerproject,theILCCwasmarkedonlyin2016followingthenewlydevelopedclassificationofbondsinChina70.

ShenzhenInternationalLowCarbonCity(ILCC)wasalsoademonstrationprojectunderC40Citiesthatservedasanintriguingexampleforunderstandinginnovativeformsoffundingwiththespecificaimofdoingitinenvironmentallyinenvironmentally,sociallyandeco-nomicallysustainablewayswhilstalsopursuingthenewconstructionofcutting-edge,low-carbonbuildingsandurbaninfrastructure(seenoten.66).

ThetwoLGFVsinvolvedinpartiallyfinancingtheILCCweretheShenzhenSpecialZoneConstructionandDevelopmentGroupCo.,Ltd.(CDG)andtheLonggangDistrictUrbanConstructionandInvestmentCo.,Ltd.(DUCI).CDGwasfoundedbytheShenzhenmunicipalgovernmentwhiletheDUCIwasfoundedbytheLong-gangDistrictgovernment,bothpriortothelaunchoftheILCC.Thecompaniesareresponsibleforactingonthebehalfoftheirrespectivegovernmentsforfinancingandinvestment,infrastructuredevelopment,investmentpromotion,operation,andmanagement — fortheILCC


70 Cheng Lin (Economist, Center for Finance and Development, Tsinghua National Institute of Financial Research), interview.

aswellasothermunicipalanddistrictprojectsinShen-zhen71.CDGwasresponsibleforsixmajorprojectsintheILCC’sstart-upareawithatotalinvestmentof3billionRMB.Thissumwasraisedthroughbankloans,regis-teredprivateplacementbonds,andshort-termfinanc-ingbonds72.

Table 4: ProjectsconstructedbyCDGandtotalinvestment73

ProjectTotalinvestment(inmillionRMB)

TemporaryconferenceandexhibitioncenteroftheILCC 189GreenreformationofHakaroundhouses 80Greenbuildingreformationofindustrialpremises 461Pilotblockconstructionprojects 2,030Constructionofroadsandinfrastructure 34.74DingshanRiverEco-parkandenvironmentalmanagementdemonstrationproject 150Total 2,944.74


Althoughstate-backedLGFVswouldfacemorecon-straintswhenissuingcorporatebondstoday(duetothe2014StateCouncil’sOpinionsonStrengtheningLocalGovernmentDebtManagement)andbecauseCDG’s2012-13corporatebondsissuancetofinancetheILCCisnolongerpossibleinChina,CDGcouldtodayissuebondslinkedtodifferentclimatemitigationprojectsintheILCC.

Initsset-up,Shenzhen’smunicipalityensuredthatthestate-backedCDGoperatedasacommercializedLGFVbytoday’sstandards.BypackingprimeassetsintoCDGduringitsfoundingin2011,thecitygaveCDGtheabilitytorepaydebtonitsown,therebyavoidingthescenario


72 Zhan and de Jong, “Financing Eco Cities and Low Carbon Cities: The Case of Shenzhen International Low Carbon City,” April 2018.

73 Zhan and de Jong, “Financing Eco Cities and Low Carbon Cities: The Case of Shenzhen International Low Carbon City,” April 2018.

ofShenzhenneedingtocoverCDGincaseofdefault.

OtherChinesecitiescouldfollowthemodelofCDGandDUCIbyusingtheirLGFVstoissuebondsandhelpfinancelow-carboninfrastructure.Infact,LGFVscouldbemorewidelyusedinChinaandelsewheretobecomededicatedgreeninvestmentplatforms.Accordingly,

citiesshouldcreateorre-purposeLGFVsdedicatedtofinancinggreenprojects74,andputLGFVsinchargeofretrofittingexistingurbanareastobecomegreener,par-ticularlybyfocusingonspecificgreenprojects(asLGFVswouldhavetoissueproject-specificgreenbonds).

AnexampleofthispracticeswasanLGFVoftheChinesecityofWuhan:TheWuhanMetroGroupCo.,Ltd.setamilestoneinNovember2018whenitsdebutoffshoregreenbondssoldfor400millionUSD75.Moody’sInvestorServiceassignedaGreenBondAssessment(GBA)ratingofGB1(Excellent)tothebonds,intheestimationthatallproceedswillbeallocatedtoexpandinglow-carbonpublictransportationinWuhanandalignwiththeLG-FV’ssustainabilitystrategy76.Insuchcases,LGFV-issuedgreenbondscouldsolvematuritymismatchesforinfra-

74 Here, it should be noted that the Ministry of Finance is working on the transformation of LGFVs. The MoF recently announced a work plan in March 2019 that will prevent the creation of any new “Financing Plat-form Companies” (another name for LGFVs). Therefore, point 1. about cities creating new LGFVs dedicated to financing green projects could soon be irrelevant, pushing cities toward repurposing LGFVs along the lines of points 2. and 3.

75 Davis, “Wuhan Metro Seals Landmark Green Deal for LGFVs.”76 “Moody’s Assigns Green Bond Assessment (GBA) of GB1 to Wuhan Met-

ro’s Proposed Green Senior Perpetual Securities.”


28 29

structureprojects,suchasmetrosystems,thatrequirelong-terminvestments(WuhanMetro’sbondshavetenorsof10yearsormore,abouttwiceaslongasmostbank-issuedChinesegreenbonds)77.

Asapioneerproject,ILCCcouldbeusedasanexampleformanydevelopingcitieswithinBRI;itrepresentsaclearexampleofhowcitiescoulddevelopurbanclimatemitigationprojectswithextensiveprivatesectorinvolve-mentinboththedesignandconstructionofindividualprojects.ILCCisenvironmentallysustainablebypromotingthelowcarbontransition,sociallysustainablethroughresidentandvillagerinvolvement,andfinanciallysus-tainablethroughthediversificationoffundingsources.ThefinancingexperiencegainedfromILCCprovidespracticallessonsforothercitiesandhassignificantim-plicationsinadaptinginstitutionalandorganizationalarrangementstocreateenablingconditionsforinnova-tivefinancingactivities.

4.3 Challenges for green urban finance in China

Chinesecitiesfaceanumberofchallengesinmeetingtheirfinancingneedsforgreenurbandevelopmentinregardtopolicyandcapacity,publicfinanceandprivatefinancemobilization.

4.3.1 Supporting policy and capacity

InregardtosupportingpolicyandcapacityforgreenurbanfinanceinChina,thefollowingchallengesneedtobeover-cometofurtheracceleratemobilizationofgreenfinance.

• Greenfinancepoliciesandresponsibilitiesliewithmultipleinstitutionsacrossdifferentregulatorybodiesandacomprehensiveandexplicitpolicyframeworkoflegislationaddressingforexampleclimatechangeislacking.

• Policycoordinationbetweendifferentregulators(e.g.forurbantransportationdifferentministriesareresponsible,particularlytheMinistryofTransportforsubwaysystemsandthecityplanningbureauforbus

77 Hornby, “Greener Tint to China Project Finance.”

transport)anddifferentadministrativelevels‒fromcentralgovernmenttoprovincialandmunicipalgov-ernments(e.g.forsubsidiesfore-mobility,differentlevelshavesetdifferenttargets)arecomplicated.

• Capacity,particularlyofplanningcapacityatlocallevelsisofteninsufficient,whileatthesametimecentralplanningmightbeinsufficienttodealwithlocalspecificities.Forexample,“Insomecases,citiesordevelopersmaywishtoadoptmorewalkablecom-munities,withmixedusagesanddifferentdensitiesthanisrequiredundertheregulations.Often,nation-alandlocalofficialsmaybereceptivetosuchchang-es,butexpertsanddesigninstituteslackexperienceandconfidenceinalternatives78.”

• Oftenchangingregulationsincreasepoliticalrisks,suchaschanginglevelsofsubsidiesthatincreaserisksforprivateinvestorsbymakingthepredictabilityofcashflowsforcurrentandpotentialfutureprojectslesscertain.Accordingly,greaterattentiontolong-termpolicystabilityisrequired.

• Projectpreparationintermsoftechnicalcapabilitiesandfinanceisofteninsufficient.Withlargebanksminimizingtheirrisks,theirwillingnesstofinancepilotsisoftenlimited.Accordingly,pilotsandprojectpreparationneedtobepaidforbygovernmentfunds(suchastheeco-cities),orbydevelopmentfinanceinstitutions,while,however,capacitiesforfinancialmodellingandevaluationareoftennotsufficientattheadministrativelevel.

4.3.2 Public finance

DespitemuchprogressinacceleratingpublicfinanceforurbangreendevelopmentinChina,anumberofchal-lengespersist,suchas:

• Chinesecitieshavehighlevelsofdebtsthatmakeanyfurtherborrowingfrombondmarketsmoredifficult.S&PGlobalRatingsestimatesthattheoff-balance-sheetborrowingsofChineselocalgovernmentscouldbeashighasRMB30-40trillion,mostofwhichis


earmarkedforinfrastructuredevelopment79.Whilecitieshaveresortedtonewformsoflegalstructurestoraisemorefundsthroughlocalgovernmentfi-nancingvehicles,localgovernmentsneverthelessguaranteetheseloans.Thus,moreborrowingmighteithermakegovernmentsorbanksdefault(whichhasactuallyhappenedinanumberofcasesrecently)80.Giventhisbackground,citieswithslowergrowthwillincreasinglyfacedifficultiesattractingfinancing.

• Otherpublicfinancinginstrumentsareofteninsuffi-cient.Taxrevenueshavestagnatedatbest(seeFigure16),whileaneconomicslowdownstartingin2019hasfurtherderailedtaxrevenues.TaxrevenuesinJanu-aryandFebruaryof2020wereaboutRMB3.5trillion,down9.9%fromthepreviousyearandthesteepestdropsinceFebruary2009.Duetothecoronavirusinducedeconomicdownturn,February2020fiscalincomesdroppedby21.4%comparedtothealreadyrelativelyweak2019comparisonperiod81.

• Thefurthersaleoflandbyre-purposingofmoreag-riculturaltoresidentiallandtoincreasemunicipalrevenuesforfurtherinvestmentwouldfurthercon-tributetonon-greenurbandevelopment.

Figure 16: ChineseTaxRevenues2010-2019(Source:CEIT)82

79 Reuters, “China Local Governments’Hidden Debt Could Total $5.8 Trillion.”80 Wu and Shen, “PBOC to Become Bank of Jinzhou Biggest Shareholder

in Latest Bailout - Caixin Global.”81 Cheng and Han, “Covid-19 Epidemic Slams China’s Government Revenues.”82 CEIT, “China Tax Revenue [1995 - 2020] [Data & Charts].”

4.3.3 Private finance issues

AlthoughthegreenfinancemarketinChinahasgrownsteadily,manyproblemshaveyettobeovercometodriveagreendevelopmentpathandtheyincludeinclude:

• Reluctanceofprivateinvestorstocommitcapitaltolong-termlocalinfrastructureprojects,especiallyafternewrulesforcross-borderpoolingwereinclud-edintightenedregulationsforpublicprivatepartner-ships(PPP)in201883.

• InconsistentgreenbondstandardswhereChinaandinternationalgreenbondstandardsarenothar-monized(e.g.throughtheinclusionofcleancoal,throughthenon-inclusionofinter-cityrailways).Thisleadstoapotentialdisconnectbetweenglobalcapi-talmarketsandChineseprojects84.

• Disconnectbetweeninvestors,projectownersand

83 Baker McKenzie, “SAFE Issues New Rules on Cross Border Pooling,” Baker McKenzie, 29 March 2019.”

84 Teer and Larsen, “Sustainable Finance in Asia: Helping Asian Green Bond Issuers to Access International Capital Markets.”


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beneficiaries,particularlyinlargeinfrastructureproj-ects:oftenhavinglonginvestmentcyclesinvestmentcycles,sustainableinfrastructureprojectsprovideben-efitsforurbanresidents,whoarepossiblynotwillingtopaydirectlyfortheinfrastructure’suse.Attheotherendofthespectrumaresmallscaleprojects(suchasdistributedenergy),whichlacktheinterestofbanksduetothecomparativelyhightransactioncostofpro-vidingfinance.

• Insufficientreportingcapabilitiesofcities,forexam-pleonESGdata.Asinvestorshavetoincreasinglyre-portontheESGperformanceoftheirportfolio,betterandconsistentmonitoring,reportingandvalidationofESGvariablesisrequiredforprivateinvestors.

• Insufficientdataandexperienceofsustainableproj-ectfinanceduetoitsrelativenovelty.Asinvestorsoftenrelyonstandardtemplatesandstandarddatatocalculaterisksandfinancingrates,financingin-novativeandsustainabletechnologiesisharderonalargescaleforcommercialbanksandpolicybanks.

ThelandscapeofgreenurbanfinanceinEuropeischar-acterizedbytheinterplayoftheseveraldifferentpolicylevelsintheEU:publicnationalfundingmeetingEUstructuralandinvestmentfundsandprivatefunding.MemberStates,privateactorsandtheEUallplayaroleinfinancinggreenurbandevelopment.TheEUhasagrowingregulatoryframeworkinplacetoincreasein-vestmentsinthegreenfinancesector.Thischaptergivesanoverviewofrecentdevelopments,mainactorsandservestocreateanunderstandingofhowthepolicyframeworkenablescitiestofostergreenurbandevelop-mentatthelocallevel.

5.1 Recent developments in green urban finance in Europe

5.1.1 The European policy context for green urban finance

InNovember2018,theEuropeanCommissionpublishedtheLong-TermStrategy(LTS)foraprosperous,mod-ern,competitiveandclimateneutraleconomy85.Thevision,named“ACleanPlanetforAll”,formulatesthegoalof“achievingnet-zerogreenhousegasemissionsby205086.”Theframeworkcontributestoregulatorystabil-ityasakeyelementforpublicauthoritiesandprivateactorstoachievetheEU’semissionreductiontargets.Tocompletethetransitiontowardsanet-zerogreenhousegaseconomy,theLTSstatesthat“privatebusinessandhouseholdswillberesponsibleforthevastmajorityoftheseinvestments.Tofostersuchinvestment,itiscrucialfortheEuropeanUnionandMemberStatestoofferclear,long-termsignalstoguideinvestors,toavoidstrandedassets,toraisesustainablefinanceandtodi-rectittocleaninnovationeffortsmostproductively87.”Atthesametime,theEUhasdesignedandputinplaceseveralpublicstructuralandinvestmentfundstoboostgreenfinance.TheyareadministeredbytheEuropeanCommissionincooperationwiththeMemberStates.

85 European Commission, “A Clean Planet for All - A European Strategic Long-Term Vision for a Prosperous, Modern, Competitive and Climate Neutral Economy.”

86 European Commission.87 European Commission.

5 Green urban finance in Europe

AmajordevelopmentforgreenfinancehasbeentheannouncementoftheEuropeanGreenDealinDecember201988.TheGreenDealistheEU’sstrategyforasustain-ableeconomy,inwhichtheEUformulatesinmoredetailhowtoachievethegoalofnetzeroemissionsofgreen-housegasesby2050.ItdescribestheEU’scommitmenttotackleclimate-relatedchallengesandtheneedforaneconomictransitiontowardsasustainablefuture.OneofthekeyelementsoftheroadmapputforwardintheEuropeanGreenDealisthefinancingofthemeasuresandpoliciesannounced.ThereisasignificantneedforgreenfinanceandinvestmentstoachievetheambitionsetbytheGreenDeal.Bothpublicandprivateinvest-mentwillhavetobemobilized.

TheEUbudget,where“a25%targetforclimatemain-streamingacrossallEUprograms89”couldbeputinplaceforthenextEUMultiannualFinancialFramework(2021-2027),willplayakeyrole.Furthermore,newrevenuestreamswillbeadopted:theCommissionhasproposedtoallocate20%oftherevenuefromtheauctioningofEUEmissionsTradingSystem(ETS)totheEUbudget.Fol-lowingthepublicationoftheEuropeanGreenDeal,inJanuary2020,theECpresentedtheSustainableEuropeInvestmentPlan(ortheEuropeanGreenDealInvest-mentPlan)whichservesastheinvestmentpillaroftheGreenDeal.ThePlanwillmobilizepublicinvestmentattheEUandMemberStateslevelandhelptounlockpri-vatefundsthroughabundleoffinancialinstruments.

ReactionsoftheMemberStatestowardstheambitiousnewGreenDealhavediffered,eventhoughthereisconsensusthataneedforunlockinginvestmentsexists.SeveralmembersoftheEuropeanParliamentraisedconcernthatthesocialandeconomicimpactofcarbonneutralityin2050couldbeveryhigh90.OneofthemoreskepticalcountriesisPoland,whichishighlydependentonitscoalindustryandhasrefusedtoendorsetheob-jectiveofbeingclimateneutraEUby2050.Recognizingthedifferentscalesofthechallengetoundergothenec-

88 European Commission, “A European Green Deal.”89 European Commission, 15.90 European Parliament, “Green Deal for Europe: First Reactions from MEPs.”


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essaryeconomicandsocialtransitioninsometerrito-ries,theGreenDealthereforeentailstheJustTransitionMechanism,whichwillprovide“targetedsupporttogen-eratethenecessaryinvestmentsintheseterritories91.”ThetoolshouldhelpbringonboardMemberStates,thatrefusetocommittocarbonneutralityfornow.Withafirstlistofregionseligibleforfunding,itremainstobeseenwhichregionsandterritorieswillfinallybeselect-edtobenefitfromthefunds.

WiththeEuropeanGreenDeal,theEUhasmadeastrongcommitmenttowardsitsclimategoals.InthelightofthecurrentCOVID-19pandemicthathasalsostrickentheEuropeancontinentanditspeopleandeconomies,itisallthemoreimportanttobringtogetherthefuturepandemicrecoveryplanandthegreentransition.Forinstance,supportingthecleanenergysectororboostingtherenovationwavecanhelpmoveforwardthegreentransitionandatthesametimerecoverimportantecon-omies.AsbeencalledforbytheEuropeBoardoftheCovenantofMayors‒anEUwidenetworkoflocalandregionalauthorities‒theEuropeanGreenDealshouldbeatthecoreoftheEUrecoveryeffortsandshouldmakecitiesbetterequippedtotackletheongoingcli-mateemergency.

5.1.2 Financial Instruments in the Green Urban Sectors in Europe

Thegreeningofmunicipalfinancialinstrumentsisanimportantfirststeptowardsachievinggreenerurbaninfrastructure.Ascitieshaverevenuesourcesthataretiedtomanyaspectsofallurbansectors,theirdesigncanstimulateordissuadethedevelopmentofgreenerandmoresustainablecities(OECD2012).AccordingtoOECD(2012)insomeEuropeancountries(e.g.France,Netherlands,NorwayandSweden),capitalexpenditureinenvironmentalprotectionisincurredalmostentirelybythelocalgovernment,inothercountries(e.g.UnitedKingdomandIceland),localgovernmentrepresents

91 European Commission, “A Clean Planet for All - A European Strategic Long-Term Vision for a Prosperous, Modern, Competitive and Climate Neutral Economy.”

lessthanathirdoftotalgovernmentexpendituresinthissector.Indecentralisedcountries,suchasSpainorBelgium,regionalgovernmentexpendituresinenvi-ronmentalprotectionaccountfornearlyathirdoftotalenvironmentalexpenditures.SomeexamplesofhowEu-ropeanlocalgovernmentsareputtinginplacefinancialinstrumentstoachievegreenurbaninfrastructureareshowninTable5:

Table 5: ExamplesofGreenUrbanFinanceinEurope

Instrument Application Details

FeesandCharges

Congestionchargetofundtransportinfrastructure

Transportfeesdiscouragecaruseandencouragepublictransitandnon-moto-risedtravel.London’scongestionchargeisasimplesystem:adailychargeforenteringthe13-milesquarecongestionchargingzoneonweekdays.Bylaw,allsurplusesraisedmustbereinvestedintoLondon’stransportinfrastructure92.

Milanimposedachargeonvehicleswithhigherpollutionlevelsasanincen-tiveformotoriststobuylesspollutantcars,andafewyearslaterthenumberofcarswithfreeaccesswerethemajority.Despitethefactthatthesevehicleshavelesspollutingengines,thefreeaccesshelpedlesswiththecongestionproblem93.

Allnetearningsfromtheschemeareinvestedtopromotesustainablemobilityandpoliciestoreduceairpollution,includingtheredevelopment,protectionanddevelopmentofpublictransport,“softmobility”(pedestrians,cycling,Zone30)andsystemstorationalizethedistributionofgoods.

Area-specificde-velopmentchargetofinancetrans-portinfrastructure

Aone-timelevyondeveloperstofinancethegrowth-relatedinfrastructurein-vestmentsneededtoservethenewdevelopment.Forexample,theextensionofthemetro-lineinCopenhagenwasfinancedthroughfeesfromdevelopmentoftheØrestadareaofCopenhagen(OECD2011.)

Grants

Grantswithen-vironmentalindi-catorsstimulatingprivateinvest-ments

Localgovernment’sgrantscantakeenvironmentalindicatorsintoaccount.Stimulatingprivateinvestments,theViennaDepartmentforEnvironmentalProtectionpromotesgreenroofsuptoamaximumamountof20,200euros94.

TheuniversitytownofMarburginGermanyhasitsownsupportprogrammeforthepurchaseofclimate-friendlybuildingservicesforthegenerationofthermalenergy.Solarthermalsystemsaresubsidisedwith500and1,000eu-rosrespectively.Undercertainconditionsotherheatingsystemsarealsosub-sidised,e.g.woodpelletsystemsorsystemswithcombinedheatandpowergeneration95.

PPPs

EnergyPerfor-mancecontracts

Inenergy-savingcontracting(ESC),abuildingownerandanenergyservicecompany(ESCO)concludeanenergy-savingcontract.Bothpartnersdividethesavingsprofitsaccordingtopreviouslynegotiatedterms.InBerlin,theBerlinEnergyAgencyhassuccessfullyintroducedandaccompanied27ESCprojectswithover500propertiesandapprox.1,400publicbuildingsunderthename“BerlinerEnergiespartnerschaften”(BerlinEnergyPartnerships)since1996onbehalfoftheSenate.Theaverageenergycostsavingsinthebuildingpoolsis26percent96.

CitizensSolarParks

ThecityofAacheninGermanyleavesroofstoprivateindividualswhowanttoinvestinPVsystems.ThesolaruseofAachen’smunicipalroofareashasbeenpromotedsince1996.TheCityofAachenprovidesitssuitableroofareasmain-lytocitizensofAachen;somecitizenparticipationsystemshavealsobeenestablished.Inautumn2010acooperationwiththelocalCityownedenergyproviderwascreatedwiththeaimofusinglargerroofareasasenergygenera-tionareas97.


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PPPs

Bioenergyvillage(Bioenergiedör-fer)

Privatesectorinvolvementingreeninfrastruc-ture

Abioenergyvillageisavillagethatcoversalargepartofitselectricityandheatrequirementsitselfbyusingbiomassthatispredominantlyprovidedregional-ly.IntheGermanVillageofJühnde,theJühndeEnergyCooperative,inwhichthemajorityofhouseholds,allJühndefarmers,thechurchandthecommuni-tyarerepresented,commissionedabiogasplant,awoodchipheatingplantandalocalheatingnetwork.Sincethen,thevillagehasnotonlybeensupply-ingitselfwithrenewableheatforthemostpart,butalsofeedingaroundfivemillionkilowatthoursofgreenelectricityintothepublicgrideveryyear98.

RenewableEner-gyCooperative

In1994,inthesmalltownofSchonauinGermany,theElectricityElektrizitäts-werkeSchönauGmbH(EWS),asmallcompanytopromotetheproductionofecologicalelectricity,wasfounded.ThesoleshareholderisNetzkaufSchönauGbR,inwhichmorethan650citizensparticipate.In1995,thecitycouncilawardedtheconcessionfortheelectricitynetworktoEWS.SinceDecember2009,ElectrizitätsWerkeSchönauhasbeenaregisteredcooperativeandto-dayisoneofthelargestrenewableenergysuppliersinGermanywitharound185,000users99.

GreenFinanceLabPrivatesectorinvolvementtocreateaforumofskillandexpertise

GreenFinanceLabinAmsterdam:TheGreenFinanceLabisaninitiativeoftheCityofAmsterdamandtheDutchbankABNAMRO,aspartoftheAmsterdamSustainabilityProgrammeandaGreenDealbetweentheCityofAmsterdamandtheDutchnationalgovernment.TheGreenFinanceLabaimstofindnewfinancingmechanismsforrealisingthetransitiontowardsasustainablemetropole(includingecosystemservices,energy,water,rawmaterialsandtransportation)(OECD2011)Thisprogrammecreatesaforumforstakeholdersfromthepublic,private,NGOandacademicsectorstodevelopfinancialsolu-tionsforsustainableprojects.Amsterdamhassuccessfullymanagedtonotonlysuccessfullyengageasmanystakeholdersaspossible,buttoalsocreateaforumofskillsandexpertisethatcanhelpthepublicauthorities.

Bonds GreenCityBonds

GothenburginSwedenwasthefirstcityintheworldtoworkwithgreenbondstofinanceclimate-friendlyexpansionandhasdonesosince2013.TheCityofGothenburghasestablishedaframeworkpertainingtowhichprojectswillbeallocatedfundsfromgreenbonds.AfewoftheprojectsfinancedbygreenbondsinGothenburgincludeNyaSolevi-Sweden´slargestsolarpark,SelmaTownhall,anultrafilterinwatertreatmentplant,theexpansionoftheGasfa-cility,treeplantinginthecitybytheParksandNatureAgency,GöteborgEner-gi’sCelsiusproject,thecity’selectricvehicles,andlocalgovernment’sprojectfocusingonsustainablebuildings100.

91 BBC London, “The Cost to You Where Has the Money Gone?” 93 Santucci, “Cede l’effetto-diga, 7 mila auto in più.”94 Stadt Wien, “Dachbegrünung - Förderungsantrag.” 95 Marburg Universitatsstadt, “Förderprogramme.”96 Berliner Energieagentur, “Energy Performance Contracting.”.

97 Soest, “Solarpark Camp Astrid.”98 Rolink, “Bioenergiedörfer: 10 Jahre Jühnde und über 100 Nachfolger.”99 Elektrizitätswerke Schönau, “Die Geschichte der EWS.”100 Swedish Cleantech, “Green Bonds ‒ Financing a Sustainable City.”.

Loans

Loansfortheim-provementoftheenergyefficiency

TheEuropeanInvestmentBankisprovidingtheMadridRegionwitha€ 49millionloantofinancetheconstructionofnewaffordablerentalhousingandimprovementoftheenergyefficiencyandaccessibilityoftheexistingsocialhousingstock.TheEIBisfinancingthisprojectundertheSmartFinanceforSmartBuildingsinitiative,whichitispromotingalongsidetheEuropeanCom-missiontoprovidethenecessaryfinancingtosupportinvestmentsinimprov-ingtheenergyefficiencyofbuildings101.

Energyrenovationloan

PrivatehouseholdsinFlanders,Belgium,receivetechnicalandfinancialsup-portinimprovingtheirhomes’energyperformancebysocalledEnergyHouses,grantingthem“FlemishEnergyLoans”.Inordertoincreasethisnumberofpri-vatehomerenovationsandaccelerateenergyrefurbishment,theH2020projectFALCOhasproposedanewEnergyRenovationLoan(ER2.0)withhighermaxi-mumamountstoborrow,alongermaturityandamodularapproachtoadvisoryandsupportservicestoalignassistancewithneeds.

101 European Investment Bank, “Spain: EIB Finances Expansion and Energy Efficiency Improvement of Madrid’s Social Housing Stock.”

InaccordancewiththeexamplesfromEuropeancitiesil-lustratedabove,thefollowingTable6givesanoverviewonfinacialinstrumentsinGreenUrbanSectors,whichhavecontributedtothegreeningoftheurbanfinanciallandscape.

Table 6: MainfinancialinstrumentsinthemaingreenurbansectorsFinancingGreenUrbanInfrastructure(Source:OECD)102

102 European Commission, “A European Green Deal.”.　

Transportation Buildings Water / waste Energy

Taxes Propertytax

Fees and charges CongestionchargesParkingfeesHighOccupancyTolllanes

Buildingpermits Tariffsandfees Electricityuserfees

Grants Generalgrantswithenvironmentalinindicators,specificgrantsforenvironmentalgoodsandservices,matchinggrants

PPPs ConcessionsandPrivateFinanceInitiatives(PFIs),energyperformancecontracts

Land-based income

Developmentcharges/impactfeesValuecapturetaxHigherdensitybuildingrightsTaxincrementfinancing

Loans and bonds Loansandgreenbonds

Carbon finance CleanDevelopmentMechanism/JointImplementation,voluntarycarbonoffsets


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5.1.3 The public sector9293949596979899100101102

AkeyactorofthepublicsectorattheEuropeanlevelistheEuropeanCommission(EC),supportedbyitsco-leg-islators,theEuropeanParliament(EP)andtheCouncilcomprisedoftheheadsofstatesoftheMemberStates.

All27EUMemberStateshaveadopteddifferentap-proachestopromotegreenurbanfinanceandtoenforcetheirfinancialstrategiesandguidelines.ThemaindriverforgreenfinanceinmanyoftheMemberStates,howev-er,istheEuropeanCommission.TherapidlydevelopingregulationforsustainableandgreenfinanceattheEUlevelthereforeisoneofthemaindriversforthetopicalsoatMemberStatelevel.Theexternalpressurewillhaveaneffectonnationalpolicymakerstocomeupwithsolutionsonhowtobringtogetherthefinancialsectorwithclimateandenvironmentalpolicies.

Additionalpublicfundingisavailableinandformunici-palitiesandcities.Theirroleinfinancinggreenprojectsmustnotbeunderestimatedasthemunicipallevelistheclosestpolicyleveltocitizenswhorepresentanimportanttargetgroupasconsumersandend-usersofproductsandinfrastructure.Municipalitiescantriggerprivatefundingbysettingincentives,applyingforfinan-cialsupportatthenationalandEUlevelorworkingwiththeirownbudget.

Inadditiontothoseactors,theEuropeanInvestmentBank(EIB),thepublicbankoftheEuropeanUnion,ad-opteditsownClimateStrategyin2015withthegoaltostrengthentheimpactoftheEIBonclimatefinancing,settingatargetof25%oftheirlendingtoclimateactionprojects103.AsanEUbodyitsmandateistosupportEUpolicyobjectives,whichresultedintheEIBdoublingitsclimatetargetto50%by2025104.Toattractfunding,theBankhasputinplaceseveraladvisoryprogramstosup-portprojectpreparationandimplementationaswellascapacity-building.OneofthemostessentialprogramsinthisareaisELENA(EuropeanLocalEnergyAssistance),

103　European Investment Bank (EIB), “EIB Climate Strategy - Mobilising Finance for the Transition to a Low-Carbon and Climate-Resilient Economy.”

104 European Commission, “A European Green Deal.”

　

　　　

　　　

usingECfundstoprovidetechnicalsupporttoregionsandmunicipalitiestoimplementenergyprojects.TheEIB’srepertoireoffinancialinstrumentsalsocomprisesinnovativetoolstoattractnecessaryprivateinvestment,suchasequityfundsandlayeredriskfunds.Greenbondswerefirstissuedin2007,makingtheEIBoneofthefirstentitiestoadoptthisrapidlygrowinginstru-ment105.

Meanwhile,theEuropeanCentralBank(ECB)isseeingachangeinpriorities,asitsnewdirectorChristineLagardeispushingforclimatechangetobepartofastrategicreviewoftheBank’spurpose,whichwouldmakeitacriticalissuewithinthemonetarypolicyframework106.

5.1.4 The private sector

AttractingprivatefundingisanessentialprerequisitetomeetingtheEuropeanUnion’s2030and2050climatetargets.Especiallyfortheenergy,buildingsandtrans-portsectors,anincreaseininvestmentsisneeded.TheEuropeanCommissionestimatesthatoverallinvestmentwillneedtogrowtobebetween€ 176billionand€ 290billionperyearhigherthanitwouldbeundercurrentpolicies(or€ 520to575billionperyearwithoutcalculat-ingwiththebaseline)107.Thistranslatestoaround2.8%ofGrossDomesticProduct(GDP)investedannually.Currentlyaround2%ofGDPisinvestedtodecarbonizetheEU’seconomy,ascalculatedbytheCommission108.Thisinvestmentopportunity‒orgap‒callsforasignif-icantincreaseingreenfinance,notablyfromtheprivatesector.Toenableprivatefunding,policycertaintyandde-riskingprivateinvestmentswillbekeyissuesindeliv-eringonagreedEUtargets.

105　European Investment Bank (EIB), “EIB Climate Strategy - Mobilising Finance for the Transition to a Low-Carbon and Climate-Resilient Economy.”

106 Arnold, “Christine Lagarde Wants Key Role for Climate Change in ECB Review.”

107 Carbon Disclosure Project, “Doubling down. Europe’s Low-Carbon Investment Opportunity.”

108 European Commission, “A Clean Planet for All - A European Strategic Long-Term Vision for a Prosperous, Modern, Competitive and Climate

Neutral Economy.”　

OntheMemberStatelevel,ithasbeenvisiblethatthetopicsofstandardizationofcriteriaandbenchmarkingarecrucialinincreasingtheshareofprivateinvestmentsinEUcountries.Furthermore,thereisaneedtodevelopanunderstandingbetweentheprivatefinancesectorandthepublicsector,asthelackofunderstandingofeconomic,socialandenvironmentalaspectsatstake,hasresultedinareluctancetoinvestintheenergyeffi-ciencysector,forinstance.Thisimpedesthenecessaryflowofinvestments.

TogiveanunderstandingofEuropeaneffortstoincreasegreenprivatefinance,afewselectedexamplesofprivatesectorfinancingarepresentedhere.Forinstance,theEuropeanBankingFederation(EBF),bringingtogethernationalbankingassociationsofEUcountries,supportstheregulatoryframeworkonsustainablefinancethattheEChasbroughtforwardandencouragestheuseoftheEUtaxonomy(seenextchapter)asacommonlan-guageinsidetheEU‒andalsoatalaterstageoutsidetheEU,whichwouldhaveanimpactonthefinancialsectorofmanyBRIcountriesaswell.However,fromtheviewofthebankingsector,thereisconcernthatEUfinancingtoolsandlabels,suchastheEcolabel‒avoluntaryschemeforproducts,couldcreatecomplexityregardingtheallocationofmoneyorentailcostlyopera-tionalchallenges109.

Thereareseveralbankswhichhaveincludedsustain-ablefinancingintheirmissiontopromotegreendevel-opment‒oneprominentexampleistheGLSBankfromGermanythatidentifiesasan‘ecologicalbank’.GLSBankfinancesprojectsthatfulfilsustainabilitycriteriaandtheirlendingactivitiesarestrictlyboundtosocialandecologicalcompanies.TheircriteriaareorientedtowardstheSDGswhichresultsinthebankinvestinginbusinesseslikeorganicfarms,nursinghomes,commu-nalhousingprojectsandothersustainablecompanies.Thebanksclientsmaychooseprojectstosupportwhenopeninganaccount,therebychoosingwhichsectortoinvestin.ThereplicationoftheGLSBankmodelcouldpromotesignificantlygreenurbanfinance,sincebank

109　European Banking Federation, “EBF Views on the Ecolabel Report.”

loansplayanimportantroleinfinancing.Thisbeingsaid,ifreliabletransparentregulatoryframeworksareinplace,bankswillbemorelikelytoexpandgreenfinanceasabusinesssegment.Inadditiontothepolicyframe-work,expandingknowledgeonclimate-relatedrisksthatbanksfacewillleadtoabetterunderstandingofhowincorporatethemindecision-makingwithinfinan-cialinstitutions110.

5.1.5 Investments

Currently2%oftheUnion’sGDPisinvestedintheener-gysystem,itsinfrastructureandenvironmentalprotec-tion.Thiswillneedtogrowto2.8%toachieveanet-zerogreenhousegasemissionseconomy.Whileprivatebusi-nessesandhouseholdswillberesponsibleformeetingtheseinvestmentneeds,theEU’sownbudgetactsasacatalysttoleveragegreenfinance,bothpublicandpri-vate.TheEuropeanGreenDealInvestmentPlanforeseesmobilizingatleast€ 1trillioninsustainableinvestmentoverthenextdecade.Around€ 503billionoftheEU’sownbudgetarereservedforClimateandEnvironment.CoupledwiththenewinvestmentinstrumentoftheupcomingMFF,InvestEU,andrevenuestreamsfromtheETS,publicandprivateinvestmentwillbetriggeredthatshallamounttoatleast€ 1trillion111.

110 Hakkarainen, “The Greening of the Financial Sector.” 　

111 European Commission, “The European Green Deal Investment Plan and Just Transition Mechanism Explained.”.　


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Figure 17: FinancingEU’sGreenDeal(Source:EUwebsite)112

FundsoftheEUbudgetwillbespentviaitsstructuralfundsandprogrammes,suchastheEuropeanRegion-alDevelopmentFund,HorizonEuropeandLifefunds.Manyofthesefundsbuildongrantschemes,whichaimattriggeringadditionalinvestmentoftheprivatesector.Citiesandregionsbelongtothebeneficiariesoftheseprogrammes,astheyareimportantmultipliersoflocalfinancingsolutionsforcleanenergy,renovationofbuild-ingsandcirculareconomyindustries.

TheEIBhasplayedacrucialroleingreenurbanfinanceinthepastandwillcontinuetodosooverthenextMFF.AccordingtotheBank,since2012,theEIBhas“provided€ 170billionoffinancesupportingover€ 600billionofinvestmentinprojectsthatreduceemissionsandhelpcountriesadapttotheimpactsofclimatechange113,”makingitoneoftheworld’slargestmultilateralprovid-ersoffinanceforprojectssupportingtheseobjectives.”In2019then,theBankdeclaredastoptofinancingfossilfuelsfromtheendof2021,therebysupportingitsclaimtobetheEU’sclimatebank.

112　European Commission.European Commission.113 European Investment Bank, “Climate Action.”EIB.org, “Climate Action”.

Furtherregulatorystabilitywillbeprovidedtothein-vestmentsectorbytheestablishmentoftheproposedEUTaxonomyforSustainableActivities(hereafter“EUTaxonomy”).Itisthemostadvancedandgranularframe-workfortheinclusionandexclusionofprojectsdepend-ingontheirenvironmentaloutcome.Itprovidesalistof67economicactivitieswithclearperformancecriteriafortheircontributiontosixenvironmentalobjectives,includingclimatechange,environmentalprotectionandbiodiversity.Technicalscreeningcriteriawassettodetermine“SubstantialContribution”toachievinggreendevelopmentandincludeintensesafeguardsthrough“DoNoSignificantHarm”toavoidviolationofanyotherecologicalaspects.Initsfirstphaseofimplementation,theTaxonomytechnicalsupportdocumentdesignsatwo-stepinclusionmethod(Figure18),withwhichitfirstprioritizesthepurpose-basedscreeningthataninvest-mentmustcontributesubstantiallytoaddressclimatechange,andthenfollowswithcontext-detailedcriteriatoguidein-depthexaminationofhowtheinvestmentdoesnosignificantharmtootherenvironmentalgoals.

Figure 18: InclusionandDo-no-significantharm(DNSH)processbasedonEUTaxonomy

Step 1 Purpose-based

Step 2 Context-detailed DNSH


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Source:BasedonEUTechnicalExpertGrouponSustain-ableFinance,“EUTaxonomy.”,2019114.

5.2 Case studies for green urban finance in Europe

Inthissection,welookattwocasesofgreenurbanfinanceinEuropethatcanserveasarolemodelforin-ternationalcooperationintheBeltandRoadInitiative.Thecaseswereselectedbasedontheirpotentialtobescaled-uptothecontextofcitiesoftheBeltandRoadInitiative.Wethereforeaimedtoselectcasesthathaverelevanceforbothlargeandsmallscaleapplications.

5.2.1 Co-ownership Plans in Litoměřice (CZ) and Essen (DE)

Withinitslong-termtransitiontoanecologicallysus-tainableandaclimate-neutraleconomy,theEUsetsaprioritytosecurethesupplyofclean,affordableandsecureenergytoallEUcitizensandhouseholds.How-ever,around50million115peopleintheEUarecurrentlyaffectingbyenergypoverty,meaningtheyarenotabletoaffordessentialenergyservices.Tothisend,the‘RenovationWave’isidentifiedasawin-winsolutiontofosterenergyefficiency,promotegreenurbanfinanceandensureaffordableenergytoconsumersaffectedbyenergypoverty.Furthermore,theEUisprovidinggrantstocitiesandmunicipalitiestotacklethiscomplexchal-lenge.TheexamplebelowdescribesthefinancialmodelthattwoEuropeancities,LitoměřiceandEssen,areim-plementingtotackleenergyviatheH2020grant.EnergypovertybeingachallengeinmanycountriesoftheBRIaswell,theexamplemayserveasinspirationforreplica-tion.

ThecityofLitoměřiceliesatthejunctionoftheriversElbeandOhřeinthenorthernpartoftheCzechRepub-lic,approximately64km(40mi)northwestofPrague.Thetownwithabout26,000inhabitantswasoneofthefirstCzechmunicipalitiestointroduceenergyefficiencymeasures.WithintheEUfundedHorizon2020project

114 EU Technical Expert Group on Sustainable Finance, “EU Taxonomy.”115 Eurostat, “European Union Statistics On Income and Living

Conditions (EU-SILC)”.

SCORE(SupportingConsumerCo-OwnershipinRenew-ableEnergies),LitoměřicesetupafinancingmodelforroofPVinstallationsonresidentialandpublicbuildings,withatotalof125householdsbenefittingfromtheelec-tricityproduced.

Thefinancingscheme,theConsumerStockOwnershipPlan(CSOP)enablesconsumers,especiallythosewith-outsavingsoraccesstocapitalcredit,toacquireanownershipstakeinautilitythatsuppliesthemandthustobecome“prosumers”116.Itisaninvestmentmodelthatputsconsumersatthecenter,providingthemwithparticipationbothfinanciallyandindecision-making.ACSOPisahighlyflexiblefinancingmodelandpermitsco-investmentsofmunicipalities,smallandmedi-um-sizedenterprisesandotherlocalstakeholders,suchasenergyproviders(seeFigure19).InLitoměřice,themu-nicipalityisanimportantpartoftheimplementedmodelandprovidespartoftheinitialinvestmentsum.Tothisend,themunicipalitywillusepartsofitsestablishedEnergySavingFundtosupportenergyrelatedprojects.

ThereareafewspecificfeaturestotheCSOPthatmakeitanattractiveinvestmentmodeltoincreasetheshareofrenewableenergies(RE)andtodemocratizetheac-cesstothefinancingmarketforprivateactors.WithinaCSOP,theinvestmentsandvotingrightsoftheconsum-ersarepooled.Thelatterarerepresentedbyatrustee,whoconsultsthemandactsintheirinterest.Theinter-mediarytrusteeensuresprofessionalityvis-à-vistheotherco-investorsandfacilitateseasiercommunication.InLitoměřice,thefigureofthetrusteeistakenoverbyarepresentativeofthetenantsforeachbuilding.Thepoolingofindividualinvestmentsanditsmatchingwithpublicfundingorfundingbyotherco-investors,makesitpossibletoaccesscapitalcreditandreachsignificantinvestmentsums.Investmentsbyco-investorsserveasleveragetoscaleuptheinvestmentandtoreceivebankloans.Theprojectsthereforebecomeprofitableaspro-ductioncostsdecrease.

OncetheREplantsinstallationissetup,itsuppliesthe

116 Gauthier et al., “CSOP-Financing Introducing Consumer Stock Ownership Plans.”

consumerstakeholderswithenergyandsellsallsurplusproduction.Thebankloanisrepaidwithrevenuesfromthesaleofsurplusenergyproducedbytheinstallation.Afteramortization,profitsfromthepowerplantarepaidouttotheshareholdersasdividends.InLitoměřicethisfinancingschemeisnotonlyusedtoincreasetheshareofRes,butalsotoinvolveatypicalgroupsasinvestorsoftheenergytransition.Forexample,low-incomehouse-holdsareespeciallytargetedtoparticipateintheCSOPmodelwithsmallmonthlycontributionsofabout20 €whileotherhouseholdsmayinvest100to250 € .Thisway,theCSOPalsocontributestoalleviatingenergypoverty.

Figure 19: ConsumerStockOwnershipPlanstructure117

TheConsumerStockOwnershipPlanisalsobeingimple-mentedinthecityofEssen,Germany.Essenhasapopu-lationofaroundhalfamillionandislocatedinthenorth-westofGermany,anareacharacterizedbyindustryandsteelproduction.BecomingtheEuropeanGreenCapitalin2017,thecityofEssenhasbegunitstransitiontowardsasustainablecity.WithinSCORE,thecityisalsoabeneficia-ryoftheEuropeanfundinglineHorizon2020.

117 Gauthier et al.Lowitzsch, “CSOP Financing”, H2020 SCORE website.

ThecityofEssenhasidentifiedtwopilotareaswheretheCSOPfinancingmethodwillplayakeyroleinattractingprivatefundingandincreasingtheshareofrenewableenergydeployment.TheFranz-Sales-Haus,acatholicinstitutionsupportingpeoplewithdisabilities,consistsofasmallcampuswithover40buildings,withdifferentloadandconsumptionprofiles.ItenvisagedbuildingaarenewableenergycommunitywithinhabitantsandworkersoftheFranz-Sales-Hausbecomingco-investorswithintheCSOPmodel.Moreover,thecityofEssenispre-paringafeasibilitystudy,lookingatthepossibilityofintro-ducingthefinancingmodelinthedistrictofVogelheim.Thedistricthasarelativelyhighnumberofresidentsfallingintothecategoryoflow-incomehouseholds.


Inconclusion,thefinancinginstrumentathandisnotonlyhighlyqualifiedtoattractprivateinvestmentfortheen-ergytransition;itisalsoatooltoalleviateenergypovertyandtoenableparticipationofvulnerableconsumersintheenergytransition.ForBRIcountriesandtheircities,theCSOPthereforeconstitutesamajoropportunityto


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tackleboththelackofprivateinvestmentforrenewableenergiesandthechallengeofenergypoverty,whichhasbeenidentifiedinseveralBRIcountriesandisbesttack-ledonalocallevel.Whatisimportanttounderline,isthatacceptanceforcooperativefinancingmodelssuchastheCSOPmaydifferfromcountrytocountryaccord-ingtohistoricaldevelopmentsandconnotationsoftheterm.

5.2.2 Paris Green Fund

Greenfunds,asawaytofinancesustainableprojects,havebeenestablishedbyseveralEuropeancities,suchasLondon,ParisandHannover,Germany.Thischap-terexploresoneofthemtogiveanunderstandingofhowgreenfundsareestablished,thekindoffinancingschemesthatareinplaceandhowtheycontributetogreenurbanfinancing.Sincegreenfundscanbeestab-lishedatthecitylevel,theyrepresentanopportunitytoshapegreeninfrastructureatthelocallevelandcouldthereforebeaninterestingtoolforlargercitiesoftheBRIcountries.

ThecityofParisestablisheditsGreenFundin2018,afterpreparatoryworkdonein2017.AfterhavingelaboratedafirstClimateandEnergyPlanin2007,andafterhavingissueditsfirstgreenbondin2015withanvolumeof€ 300million118,thecitydecidedtocommititselftothepromotionofgreenandsustainablefinancingbybring-ingtolifetheParisFondsVert,theParisGreenFund.ItistosupporttheGHGemissionreductiontargetsoftheFrenchcapital:50%reductionin2030andcarbon-neu-tralityuntil2050whichhasbeenformulatedinthere-newedClimatePlanin2018119.Theseambitioustargetsrequiredthemobilizationofbothpublicandprivatefinance.

Tothisend,alaw(Lawn° 2017-257)waspassedin2017thatallowedthecityofParistocreateaterritorialin-vestmentfund.Thefundisdedicatedtofinancinginno-vativecompaniesandtheirproductsandservices,whichcanbeusedonacity-scaletoenhanceitssustainability.Eligibilitycriteriahasbeenformulatedforcompanies

118 Paris.fr, “Investisseurs.”119 Mairie de Paris, “Plan Climat de Paris.”

whichreflectthecharacterofagreenfund:SMEsmayapplyiftheirworkisbeneficialtothepublicinterest,iftheycontributetotheaccelerationoftheecologicaltransitionandiftheyareplacedwithintheParisianterri-tory120.

ThefundsgivenoutbytheGreenFundhavebothprivateandpublicorigins:ThecityofParishasinvestedasumof€ 15million121.Furthermore,anumberofinstitutionalinvestorsandamajorityofprivateinvestorsaccumulat-edinvestmentsreachingatotalof€ 200millionfunds122.Theinvestedcompaniesareallconsideredinnovative,fastgrowingandprofitableSMEsandreceiveacontribu-tionofbetween€ 5millionand€ 15million.Investmentsmustrepresentaminoritystakeinthecompany’scapi-tal.Thefundcoversmultiplesectorsfrombuildings,mo-bility,energy,air,andwastetodigitaltransformation.Thefirstportfoliothereforetargetsabout15to20in-vestmentlineswithaninvestmentperiodof5years.ThefirstcompanytoreceivefundingwasHesus,acleantechcompany,with€ 10millionoffundingforinnovativewastemanagementsolutions123.

TheParisFondVertshasreceivedtheTEEClabel(Tran-sitionÉnergiqueetÉcologiquepourleClimat)issuedbytheFrenchMinistryofEcologyandInclusiveTransition124asaguaranteeforthesustainabilityoffinancialprod-ucts.ThefundismanagedbyDemeter,anindependentmanagementcompanyselectedafteraCallofInterestlaunchedbythecity.


GreenfundsareespeciallyinterestingforcitiesinBRIcountries,astheyrepresentawaytotakeoverenviron-mentalresponsibilityandtoprovidecatalyticfinancetogreenprojectsandinterventions.Somelocalgov-

120 Mairie de Paris. 121 Mairie de Paris, “L’exposé de Motifs Paris Fonds Vert.” 122 Mairie de Paris, Demeter, “Paris Fonds Vert: A Growth Fund for

Sustainable Cities.” 123 Dumas, “Avec Hesus, Paris Fonds Vert Investit Dans Sa Premiere

Cleantech.” 124 French Ministry of Ecologic and Inclusive Transition, “ ‘Energy and

Ecological Transition for the Climate’Label.”

ernmentsacrosstheEU,andalsoglobally,asseenwithToronto’sAtmosphericFund,haveoptedforthisfinanc-ingtoolasitprovidesthemeanstocombineurbande-velopmentwithclimatetargetsbyprovidingsubsidiesorlow-costfinancingforselectedprojects,oftenatanearlystage.Sincethereisalreadyavarietyofexistinggreenfundsavailableacrossmanycountriesandcit-ies,transferofbestpracticesisfacilitated.Localgreenfundsalsohavethepossibilitytobescaledupordown,dependingonthecities’sizeandresources.Therefore,itispossibletomatchaninvestmentfundtothesizeofcitiesoftheBeltandRoadInitiative.

Onthenationallevel,SouthAfricahasestablishedagreenfundtosupportthecountry’slow-carbontransi-tionincludingfiscalsupportforprojectsofsustainabletransport,renewableenergyandgreenbuildings125.Lessonslearntfromsettingupthisinvestmentfundwillbeimportantrecommendationsforfutureactivitiesinthefieldandmoreimportantlyformunicipalitiesactive-lyinvolvedinBRI.

5.3 Challenges for green urban finance in Europe

TheEU,andwithittheMemberStatesanditsmunic-ipalities,faceanumberofrestraintstounlockthein-vestmentpotentialofgreenurbanfinance.Whiletheachievementofenergyefficiencytargets,thereductionofGHGemissionsandthepromotionofsustainabletransportaretopprioritiesoftheEU,severalbarriersexisthinderingthefacilitationofsustainablefinanceinvestmentintheMemberStates.

Forrepresentativesoffinance,building,industryandSMEsectorsaswellasformunicipalities,theseconsti-tutethemaininvestmentbarriers:

• LackingstandardizationamongMemberStates,forexampleregardingbuildingscertification,energyperformanceorthesustainabilityofaneconomicactivity,hasledtoastateofmarketfragmentation,makingitcostlyanddifficultforinvestorstounder-

125 Department: Environment, Forestry and Fisheries, Republic of South Africa, “Green Fund.”

standinvestmentopportunities.ThisiswheretheEUTaxonomycomesintoplay.

• Formunicipalitiesandthecitiesoneofthemainchal-lengesintriggeringgreenurbanfinancestartswiththecomplexityofaccessingfundsatthenationalandEuropeanlevel.Increasingaccesswillcontributetomaximizingtheuseofavailablepublicfundingasleverageforprivateinvestmentingreenandsustain-ableprojects.

• Localauthoritiesinmunicipalitiesandcitiesoftenfacethecriticalbarrieroflimitedhumanresourcesandcapacitiesforproperenergymanagementandthedevelopmentof‘bankable’sustainableprojectsandinvestmentpackages.Veryoftenthereisamiss-inglinkbetweentheenergy,mobilityorbuildingandthefinancialdepartmentaswellasreluctancetoinvestinexpertiseandfeasibilitystudies.

• Greeninvestmentstillcontainsalargepercentageofperceivedriskfortheprivatesector:De-riskinggreeninvestmentbymakingavailablerealfinancialrisksandbenefitscancontributetoscalingupnecessaryprivatefinance.TheDe-riskingEnergyEfficiencyPlatform(DEEP)isanexemplaryEuropeaninitiativeaimedatprovidingdetailedanalysisontheperfor-manceofenergyefficiencyinvestmentstosupporttheassessmentofrisksandbenefits126.

• Forlargeinvestors,theprojectsizecanbeaproblem:Projectaggregationcanincreaselargescaleprojectsandleadtotheprovisionofpackagedsolutionsforclients.Thelackofexperiencewithprojectbundlingisalsoasignificantbarrierformunicipalities,astrans-actioncostsincreasewithseveralsmallerprojects.Forprojectdevelopers,municipalities,financiersorsmallandmedium-sizedenterprises,projectdevel-opmentassistancecanhelptoreducethisbarrier.

• Thelackofaccessibledataandadvisorytools,suchasone-stopshopsforconsumersandenergyservices,increasestransactioncostsforinvestors.

126 Fytrou-Moschopoulou, “De-Risking Energy Efficiency Platform (DEEP).” DEEP, “De-Risking Energy Efficiency Platform ”.


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ThischapteranalyzesgreenurbanfinancedevelopmentsintheBRIfromtwoperspectives.Thefirstperspectiveisaboutgreenfinanceforoverseasdirectinvestment(ODI),particularlyfromChineseandmultilateralinvestors.Thesecondperspectiveisaboutgreenfinancepolicieswith-inBRIcountries.

6.1 Green urban finance through overseas investments

ManyBRIcountries,asdiscussedinchapter2.1areemergingeconomies.Theynotonlyrelyonforeignpri-vateinvestmentstodriveeconomicgrowth,butalsoinvestmentsfromdevelopmentfinanceinstitutions,suchasmultilateralorbilateraldevelopmentbanks.Par-ticularlyforChineseoverseasinvestment,however,thedistinctionbetween“private”capitalanddevelopmentcapitalisunclear,asforexampleChinaDevelopmentBankdoesnotnecessarilyfollowinternationaldevelopmentfinancestandards(suchasOECDDAC),while“private”fi-nancialinstitutions,suchasICBCaregovernmentowned.

Sofar,mostBRIinvestmentsfromChinaarederivedfromfromthesepolicybanks(ChinaEximBank,ChinaDe-velopmentBank)andselectedstate-ownedbanks(e.g.ICBC,BankofChina).Thefinancinginstrumentsusedvarywidely,fromsovereignloanstoprojectfinanceinfrastruc-tureinfrastructureprojectstomorecommercialloanstosupportlocalorChineseengineering,procurementandconstructioncompanies(EPCs)inthedevelopmentofinfrastructureandalsoequityinvestmentstotakeown-ershiporpartialownershipinlocalassets.BRIcountriesandcitiesalsobenefitfromabroadinternationalinvest-mentcommunity,bothfromprivatecommercialinsti-tutionsanddifferentdevelopmentfinanceinstitutions(e.g.EBRD,ADB,AIIB,IFC).

Asthereisnostandardorharmonizedwaytomeasuregreenfinanceflows,measuringexactlyhowChineseinvestorsapplygreenfinanceintheBRIisdifficult.Asamilestone,ICBCissueditsfirstmulti-currencygreenBRIbondworth2.2billionUSDinApril2019127,afterissuing

127 Xinhua, “ICBC Issues First Green BRI Inter-Bank Regular Cooperation Bonds - Xinhua | English.News.Cn.”

6 Green urban finance in the BRI

itsfirst2billionUSDmulti-currencyclimatebondfortheBRIontheLuxembourgStockExchangein2017128.

TofinancedevelopmentintheBRIcountries,aplethoraoffinancialinstrumentsareapplied.Theyincludesover-eignloans,debtfinancing,equityfinancing,guarantees,swaps,grantsandcapacitybuilding.

Thefollowingchapterswillelaborateonpoliciesandini-tiativesthatinfluencegreenoverseasinvestmentsintotheBRI.

6.1.1 Green Finance Initiatives in the BRI

6.1.1.1 Green BRI regulation emerging from China

TheBRIhasseveralguidelinesthatsupportgreendevel-opment.Asthereexistsnoministryorinternationalgover-nancesystemthatwouldbeabletosetrulesandenforcethemalongtheBRI,theimplementationofandadherencetoguidelinesisvoluntary.ImportantguidelinesthataffectgreenurbanfinanceintheBRIinclude:

• JointCommuniqueoftheSecondBeltandRoadForum(BRF),April2019.ThedocumentstressestheimportanceofgreendevelopmentandthenecessityofprotectingtheclimateandtheenvironmentandadheretotheParisAccord.

• GreenInvestmentPrinciples(GIP)forBeltandRoad,signedby26financialinstitutionsinvolvedintheBRI,April2019.ThePrinciplesemphasizetheneedforfinancialinstitutionstoevaluateandincorporateenvironmentalrisksintheirdecisionmakingandbetransparentaboutactivities.

• GuidanceonPromotingGreenBeltandRoad,May2017.ThedocumentpublishedbytheMinistryofEn-vironmentalProtection(nowMEE)elaboratesontheneedtobuildanecologicalcivilizationthatincludesinternationalcooperation,efficientuseofresourcesandthepromotionofgreentransport.

Onalegalandenforceablebasis,China’sBRIinvest-

128 Luxembourg Stock Exchange, “ICBC Lists Its Inaugural‘Belt and Road’Climate Bond in Luxembourg.”

mentsadheretothehost-countryprinciple.ThatmeansthatcurrentlyChineseinvestorsandEPCsareliableonlyforfollowinglocallawsandregulations,whileafailuretoadheretointernationalstandardsiswithoutconse-quences.

6.1.1.2 Green Investment Principles of the Belt and Road Initiative

TheGreenInvestmentPrinciplesoftheBeltandRoadInitiativeweredevelopedbytheGreenFinanceCommit-teeofChinaSocietyforFinanceandtheBankingandtheCityofLondonGreenFinanceInitiativeandpublishedattheendof2018.Duringthe2019BeltandRoadFo-rum27Chineseandinternationalfinancialinstitutionssignedthesevenprinciplesthataimto“ensurethaten-vironmentalfriendliness,climateresilience,andsocialinclusivenessarebuiltintonewinvestmentprojectsintheBeltandRoad,sothatthegoalsoftheUnitedNa-tions2030AgendaforSustainableDevelopmentandtheParisAgreementaremet,andallcountriesintheregionbuildasharedfutureforcommonprosperity”.The7principlesare:

1. Embeddingsustainabilityintocorporategovernance

2. Understandingenvironmental,socialandgover-nancerisks

3. Disclosingenvironmentalinformation

4. Enhancingcommunicationwithstakeholders

5. Utilizinggreenfinancialinstruments

5. Adoptinggreensupplychainmanagement

7. Buildingcapacitythroughcollectiveaction

TheGreenInvestmentPrincipleshavenobindingpow-erandareatthistimelessambitiousthanthesimilarEquatorPrincipleswithover100financialsignatories(however,asofMarch2020,norelevantChinesefinan-cialinstitutionwithinternationalprojectfinanceactivityhavesignedupfortheEquatorPrinciples)129.

129 Equator Principles Association and International Finance Corporation, “Equator Principles July 2020.”�publisher�:�International Finance Corporation (IFC

6.1.1.3 Belt and Road Initiative Green Coalition (BRIGC )

TheBRIInternationalGreenDevelopmentCoalition(BRIGC)oftheMinistryofEcologyandEnvironmentwaslaunchedafterthesecondBeltandRoadForuminApril2019with10workinggroups:

• BiodiversityandEcosystemManagement

• RenewableEnergyandEnergyEfficiency

• GreenFinanceandInvestment

• ImprovementofEnvironmentalQualityandGreenCities

• South-SouthEnvironmentalCooperationandCapac-itytowardstheSDGs

• GreenTechnologyInnovationandCSR

• EnvironmentalInformationSharingandBigData

• SustainableTransportation

• GlobalClimateChangeGovernanceandGreenTrans-formation

• Environmentallaws,regulationsandstandards

Withinthecoalition,ChineseandinternationalpartnershaveorganizedthemselvestoprovideguidelinesandresearchongreeningtheBeltandRoadInitiative.

TheGreenFinanceandInvestmentgroup,forexample,isledbyTsinghuaUniversityandtheWorldResourcesInstitute(WRI)withanumberoforganizationssupport-ingthework(e.g.InternationalInstituteofGreenFi-nance,ClientEarth,OxfordUniversity).OneofthetasksthatwasgiventotheBRIGC’sgreenfinanceandinvest-mentgroupinJanuary2020wastodevelopagreendevelopmentguidance,alsoknownasthe“GreenLight”System.Theexplicitgoalis“toprovideguidanceontheassessmentandclassificationofBRIprojectsfromtheperspectiveofpreventingecologicalandenvironmentalrisks,inordertosupportdecisionmakingongreende-velopment130.”

130 Secretariat of BRI International Green Development Coalition and BRIGC, “Joint Research on Green Development Guidance for Belt and Road Initiative (BRI) Projects Was Launched.”


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ThefirstbaselinestudyoftheGreenLightSystemwasin-troducedinApril2020totheinternationalandChinesepart-nersandnextstepsaretakenhowtoimplementthissystemintoinvestmentdecisionsfromapolicyperspective.

6.1.2 Green Finance in the BRI in Practice

AnumberoffinanceinstitutionsfromEuropeandChinahaveemergedasprovidersofgreenandsustainablefinanceintheBRI.AmongthemareseveralChinesebanks,theEuropeanBankforReconstructionandDevel-opment(EBRD)andtheAsianInfrastructureandInvest-mentBank(AIIB).

6.1.2.1 China’s policy banks and commercial banks engaged in the BRI

China’sdevelopmentandpolicybanksareChinaDevel-opmentBank(CDB)andChinaExportImportBank(Chi-naEximBank).WhileCDBisengagedbothinChinaandintheBRI,ChinaEximBankismostlyprovidingfinanceforoverseasexpansionofChina’seconomicinterests.Inaddition,theAgriculturalDevelopmentBankofChina,theBankofChina,ChinaConstructionBankandtheIndustrialCommercialBankofChina(ICBC)assomeofthelargest“private”banksintheworldarealsoinvolvedinBRIinvestmentscomingfromChina.

Particularlythedevelopmentbanks,butalsoICBC,havedevelopedframeworkstoimprovegreenfinanceinterna-tionally.TheCDBappliesareviewprocesstocategorizeenvironmentalimpactsofprojectsintofourcategoriesaccordingtonationalandifapplicableregionalpolicies:environmentallyfriendly,compliant,requiringrectifica-tionandhighrisk131.TheExport-ImportBankofChinahassetupaspecialdepartmentatitsheadofficetoprovidelow-carbontransitionsupportforforeigngovernmentsandinternationalinstitutions.AsofNovember2019,theysetupapreliminarystructureofnew-energylendingforenergysavingandenvironmentalprotection132.

131 China Development Bank and United Nations Development Programme, “Harmonizing Investment and Financing Standards towards Sustainable Development along the Belt and Road.”

132 China Development Bank and United Nations Development Programme.

Furthermore,theChinaExport-ImportBank(EximBank)signedamemorandumwiththeWorldBankGroup‘sInternationalFinanceCorporation(IFC)tojointlysup-portenvironmentallyandsociallysustainableChineseinvestmentsinemergingmarkets.ThismemorandumtargetstheshortfallofChina’sgreenfinancesystemthatispartlynotapplicabletooverseasinvestment.

TheChineseICBCalsohasinstalleda“greencreditveto”system.Underthissystem,noloansshouldbeissuedtoborrowersorprojectsthatdonotpassanenvironmentalimpacttestto“ensurecompliance,integrityandlegitimacyintermsofenergysavingandenvironmentalprotection133.”

6.1.2.2 European Bank for Reconstruction and Development (EBRD)

TheEuropeanBankforReconstructionandDevelop-mentisamultilateraldevelopmentbankwithitshead-quartersinLondon,UK.TheEBRDisworksinabout40countriesinSouth-EasternEurope,CentralEuropeandBalticStates,EasternEuropeandtheCaucasus,CentralAsiaSouthernandEasternMediterraneanaswellasinRussiaandTurkey.Almostallthecountries,EBRDworksinarecountriesoftheBeltandRoadInitiative.

TheEBRDisaleaderinsustainablefinanceandis“com-mittedtopromotingenvironmentallysoundandsus-tainabledevelopment’inthefullrangeofitsinvestmentandtechnicalcooperationactivities134.”Itworksonenvi-ronmentalinvestmentsinurbanareas,forexample:

GreenbuildingsandmortgagefinancinginNorthMacedonia135

• GreenpublictransportinSarajevo,Serbia136

• GreencommerceinUkraine137

133 ICBC, “ICBC Drives Green Growth with Nearly 1,000 Billion Financing － Home － ICBC China.”

134 European Bank for Reconstruction and Development (EBRD), “Environmental and Social Policy.”

135 European Bank for Reconstruction and Development (EBRD), “EBRD to Boost Green Buildings and Mortgage Finance in North Macedonia.”

136 Reiserer, “EBRD Green Cities to Transform Public Transport in Sarajevo.”137 Ahlemeyer, “EBRD, EU and GEF Help Novus’ Supermarkets to Invest in

Energy Savings.”

EBRDalsolaunchedtheEBRDGreenCitiesinitiativewithclearmethodologiesonhowtomeasurethe“greenness”ofacity138(seeFigure20).

Figure 20: ExcerptofEBRDGreenCityTrafficLightSystem(Source:EBRD)139

138 European Bank for Reconstruction and Development (EBRD), “EBRD Green Cities - Green City Action Plan Methodology.”

139 European Bank for Reconstruction and Development (EBRD).

EBRDalsoconsidersitself“deeplyengagedinmanyoftheeconomiesalongtheBeltandRoadcorridorswheretheinfrastructureneededtosupportmorerobust,sus-tainablegrowthremainsunderdeveloped”140.Itaimstosupport“qualityinvestment”alongsideChineseinves-torsinthecountriesoftheBRI141.

140 European Bank for Reconstruction and Development (EBRD), “The EBRD and the Belt and Road Initiative (BRI).”

141 Chakrabarti, “For Quality Investment across Continents - Opinion - Chinadaily.Com.Cn.”


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EBRDalsosupportsprojectfacilitiestoprepareprojectssince2014withEUR40million142tosupportthedevel-opmentofprojectsbeforetheycanbefullyinvestedin.

6.1.2.3 Asia Infrastructure and Investment Bank (AIIB)

TheAsiaInfrastructureandInvestmentBank(AIIB)isthemultilateraldevelopmentbankwithitsheadquartersinBeijing,China,thataimstosupportmanycountriesalongtheBeltandRoadInitiativethroughinfrastructureinvestmentsthatsupporturbantransportandthefourthindustrialrevolution.Amongtheseinvestments,arealsourbaninfrastructureinvestments,suchastheBusRapidTransit(BRT)projectinKarachi,Pakistan,thebypassroadinBatumi,Georgia,orthefiberopticcommunica-tionsnetworkinCambodia143.

Inordertoaccelerategreeninvestments,theAIIBissuedtheDirectiveonEnvironmentalandSocialFrameworkinFebruary2016(amendedinFebruary2019)144.Itsfocusison:

• Reducingenvironmentalandsocialrisks• Ensuringenvironmentalandsocialsoundnessand

sustainability• Supportingintegrationofenvironmentalandsocial

aspectsindecision-making• Providingmechanismforaddressingenvironmental

andsocialrisksandimpactalongtheprojectcycle

TheAIIBalsoapprovedaspecialfundforprojectprepa-rationthatprovidesgrantstosupportandfacilitatethepreparationofprojectstobefinancedbyAIIB.AsofMarch2020,USD11.31millionwasapprovedfor9proj-ects145.

142 European Bank for Reconstruction and Development (EBRD), “The EBRD’s Infrastructure Project Preparation Facility (IPPF).”

143　 Asian Infrastructure and Investment Bank (AIIB), “Approved Projects Overview - AIIB.”

144 Asian Infrastructure and Investment Bank (AIIB), “Environmental and Social Framework.”

145 Asian Infrastructure and Investment Bank (AIIB), “Introduction - Project Preparation Special Fund - AIIB.”

6.2 Green urban finance in BRI countries

Greenfinanceisplayinganever-increasingrolewithinthecountriesoftheBRI,asseenbythenumberofgreenfinancepoliciesandgreenbondissuances.

6.2.1.1 Green finance policies within the BRI countries

Sinceitsinceptionin2013,thenumberofgovern-ment-issuedcodesforgreenfinanceinBRIcountrieshasgrownfrom36to117in2019146.By2019,morethan30countriesintheBRIhaveissuedatleastonegreenfinanceregulation,e.g.inregardtoissuanceofgreenfinanceinstruments,reportingoruseofproceeds.TheleadingcountryinregardtogreenfinanceregulationsandinstrumentsintheBRIisChina,havingissuedabout30guidelinesoverthepastyears.

Figure 21: GreenfinancedevelopmentintheBRI(Source:owndepiction;Data:GreenFinancePlatform)147

146 Green Finance Platform, “Browse Policies and Regulations.”147 Green Finance Platform.

6.2.1.2 Green bond issuances within the BRI

Withthegrowthofgreenfinancialinstruments,thenumberofgreenfinancedealshasalsobeenincreasingintheBRI.Overthepastcoupleofyears,greenbondissuanceshavegrownto10billiondollars(asof2019).ParticularlyissuersfromChileinLatinAmericahavetakentothecapitalmarketstoraisegreenbonds,close-lyfollowedbyissuersfromEuropeanBRIcountries(e.g.Italy,Poland)(seeFigure22)148.

Figure 22: GreenbondissuanceintheBRI(exChina,untilMarch2020)(Source:owndepiction,Data;CBI)

Whencomparingthegreenbondmarketwiththeglobalgreenbondmarketdevelopments,BRIcountries(exclud-ingChina)accountedforabout20%ofglobalgreenbondissuances.Similarly,BRIcountriesalsoaccountedfor30%ofglobalgreenfinanceregulationsissuedin2019.

148 Climate Bonds Initiative, “Certified Bonds.”

Theuseofgreenbonds,accordingtotheprospects,ismostlyforgreentransport,greenbuildings,aswellasforsolarandwaterinfrastructure,whileparticularlyintheSouthernBRIcountriesimportantissuerstendtobesovereignissuers(suchasinthecaseofChile).

6.3 The gap and challenges of green finance in the BRI

GreenurbanfinanceintheBRIandcountriesinvestingintheBRI,suchasChinaandEuropeancountries,isgainingmomentumwithstakeholdersfromregulators,financialinstitutionsandnon-governmentalorganiza-

tionsacceleratingprovidingregulatoryguidance,toolsandapplicationexamples(seealsochapter5.2).

Yet,whenconsideringtheoverallneedofprovidinggreenfinancetotheBRIcountries,itbecomesobviousthatthecurrentlevelofgreenfinanceisinsufficienttoaddressthefinancinggapforsustainableurbandevel-opment.NeithercitiesnorprivateinvestorsintheBRI


50 51

arecurrentlystillabletosufficientlyissuegreenfinanceinstrumentsinmostBRIcountries.Whilesomeinterna-tionalprivateinvestorshavetriedtodealwiththisprob-lembyissuinggreenBRIbonds(e.g.theChineseICBCinApril2019issueditsfirstgreenBRIbondworthapproxi-mately2.2billionUSDinSingapore149),greenfinanceinpracticeintheBRIcountrieshasmorepotentialtode-velop.

WhilethecurrentstatusofurbanfinanceintheBRIisbothinsufficientintermsofprovidingsufficientliquidityandprovidingcapacitytofocusongreendevelopment,severalinitiatives(suchastheBRIGC)areenablingin-vestors,developersandlocalauthoritiestolearnhowto

149 Xinhua, “ICBC Issues First Green BRI Inter-Bank Regular Cooperation Bonds - Xinhua | English.News.Cn.”

applygreenurbanfinanceandideallyscaleittoothercitiesandsectorsaswell.Thecapacitiesthatparticular-lydevelopmentfinanceinstitutionsareapplying,shouldbeharnessedmoretoprovidelocalcapacity,while“green”regulatoryprocesses(e.g.forprojectplanningandapproval)inboththehostcountryandtheinvestorcountryshouldhelpsteerfinanceintogreenprojects.

Yet,challengesforgreenurbanfinancethatarerelevantforEuropeandChina,areequallyifnotmorerelevantintheBRI.Figure23illustratesmajorcategoriesofcon-straintsforgreenfinancethatarerelevantinEurope,ChinaandtheBRI.

Figure 23: GreenFinanceChallengesandConstraints150

150 Asian Development Bank (ADB), “Catalyzing Green Finance.”

Insummary,thechallengesare:

• InsufficientInstitutionalFramework,suchaspoliti-calinstabilityandtheriskofpolicyreversals(e.g.forsubsidies);

• Insufficientprojectfinancierswithshort-termfinan-cialgoalscomparedtolong-terminvestmentneedsandhightransactioncost;

• Insufficientmarketswithmissinglinksbetweenproj-ects,fundsanddevelopers;

• Insufficientproductdeveloperswithlackingknowl-edgeofgoodpracticesingreenfinance;

• Insufficientprojectdevelopmentcapacityandproj-ectbankability;

• Insufficientcapacityofprojectowners,forexampleforapplyingleveragedorblendedfinance.

Inadditiontogreenfinancemarketchallenges,thereareparticularchallengesthatcitiesarefacing:

• Developmentfinanceinstitutionsareoftenworkingwithnationalgovernmentsandnotwithcities.Thismakestheconnectionbetweenthecitiesandthedevelopmentfinanceinstitutionsmoredifficult;

• Citiesandnationalgovernmentsoftenspeak“differ-ent”technicallanguages,makingcommunicationmoredifficult(e.g.manycitiesdon’thavesufficientcapacity;regardingenvironmentalandgreendevel-opment).Atthesametime,citiesonlyhavealimitedbudgetforconsultantstopreparegreenprojectsinaccordancewithnationaloreveninternationalre-quirements;

• Citygovernmentsareoftenelected(orappointed)foraperiodof3-5years,whilegreeninvestmentsinurbaninfrastructurehavealongerpay-offtimeandthuswouldhaveadifferentsuccessperiod;

• Differenttimehorizonsfromdifferentinvestorsre-quiresparticularfinancialstructuringskillsandgoodtreasurymanagementskillstostructurefinancingaccordingtofinancingavailability,risksandreturns.

WhilemanyofthechallengesinregardtogreenurbanfinancethatarerelevantinChinaandEuropearealsorelevantintheBRI,additionalchallengesforgreenur-banfinanceneedtobedealtwithinmanyoftheBRIcountries.TheserisksaremorepronouncedinsmallerBRIcountries,butareapplicabletomostemergingeconomiesintheBRI:

• BRIcountriesoftenhavelessdevelopedfinancialmarketstoraisegreenfundsthroughthecapitalmar-kets.ThisisparticularlytrueforsmallerBRIcountries;

• BRIcountriesoftenhavelowercapacitytosupporttechnicalreportingongreenindicatorsrelevantforgreeninvestors(e.g.environmentaloutcomessuchasemissions);

• BRIcountriesoftenhaveinsufficienttaxbaseforthepublicfinancingoflargergreeninfrastructureproj-ects(e.g.publicurbantransport);

• SeveralBRIcountriesarealreadystrugglingtoser-vicecurrentdebtmakingfurtherfundraisingforgreenprojectsparticularlychallenging151;

• BRIcountriesoftenhaveinsufficientplanningandappraisalcapacitytodealwiththecomplexitiesofgreenurbanplanningfortransport,urbanizationandindustry4.0.152;

• TherearehighcurrencyrisksformanyBRIcountriesmakinginvestmentinlocalcurrenciesoftendifficultforinvestors,whileraisingfundsininternationalcurrenciesriskthatissuers/borrowers(eithergovern-mentsorprivateinstitutions)areexposedtocurren-cyrisks.

Insufficientliquidityinthesecondarymarkettoincreaseinvestmentpotentialintogreenprojectsorde-riskingofinvestorportfolios.

151　 Bandiera and Tsiropoulus, “A Framework to Assess Debt Sustainability and Financial Risks under the Belt and Road Initiative”; Chen, “Ethiopia and Kenya Are Struggling to Manage Debt for Their Chinese-Built Railways.”

152 Kress and Deacon, “Belt and Road Initiative & Industry 4.0”; Nedopil Wang, “Belt and Road Initiative & Sustainable Transport”; Kraubitz, “Belt and Road Initiative & Sustainable Urbanization.”


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Urbanizationissettocontinuewithmorepeoplemov-ingtocitiesparticularlyinthefast-emergingcountriesoftheBRI.Yet,buildinggreen(andlivable)citiestoaccom-modatemorepeopleisbynomeansguaranteed.Rath-er,thecurrentdevelopmentpathandthecurrentflowofinvestmentoftenseemstoexacerbateexistingproblemsofpollution,emissions,andfurtherlossofbiodiversity.Intheshortterm,thismightensureeconomicgrowth.Butinthemediumandlong-term,thisdevelopmentpathputspredictablyhighriskonpeopleandecono-miesduetoextremeweathers,climatechangeandoth-erenvironmentalimpacts.

Yet,whilesustainableandgreencitydevelopmenthasbeenonthepoliticalagendafordecades,anumberofbarriershavemadesustainabledevelopmentactionspiecemealratherthanthenorm.

Inthispaper,weparticularlylookatthepossibilitytouse“greenfinance”asatooltoinvestingreenurbandevel-opmentsuchasforgreentransport,greenurbanizationandindustry4.0.Yet,financeisbutonetoolofabroadtoolboxthatsocietiesshouldusetobuildgreencities.

Assuch,societiesinEuropeandChinaoverthepastyearshavebeenusing“greenfinance”toolstosteerin-vestmentsintogreenurbandevelopment.Whilebothregionsarestillexperimentingandlearninghowtobemuchmorecomprehensiveintheirgreenfinanceap-proaches,manyexperiencesarepointingintherightdirectionandcanbescaledup‒athome,andintheemergingcitiesoftheBRI.

Thefollowing11recommendationsshouldhelpdeci-sion-makersincities,decision-makersinfinanceanddecision-makersonotherpoliticallevelstoaddressoneofthebiggestchallengesofgreenurbandevelopment:howtofinancethem.Theyaddressthemainchallengesofavailabilityoffundingforgreenurbanprojects,steer-ingoffundingintotherightprojectsandtransparencytoavoidgreenwashing.Theyaretargetedatbothprivateandpublicfinancialinstitutions,aswellasregulators.

7 Recommendations to unlock green urban

finance for the BRI through Sino-European cooperation

7.1 Provide Green Urban Project Preparation Facilities

Expandexistinggreenurbanprojectpreparationfa-cilities,suchastheonesbyADB,AIIB,EBRDtoboostfinanceintoinnovativesolutionsinBRIcities.Differen-tiatedfacilitiesshouldbesetupfordifferentsectors,e.g.greenindustry4.0,greentransport,greenurbaniza-tion.Thefacilitiesshouldmobilizemoneyfrompublicinvestors(e.g.nationalandinternationaldevelopmentfinanceinstitutions)intheBRIcountriesaswellasprivateinvestorsintherespectivecountries,forexam-plethroughprivateequityparticipation.Thefacilitiesshouldinvestingreenearlystageprojectswiththepotentialtobetransformativeandthatcurrentlylackthedataorbankabilitytoattractlater-stageandbiggerinvestmentsoflargerfinancialinstitutions.

Themanagementofthefacilityshouldbegiventoanexperiencedfundmanagementcompany.Thefacilityshouldalsoprovidegrantsforcapacitybuilding.

7.2 Harmonize Green Finance Standards

AsChineseandWesternstandardsofgreenfinance(e.g.greenbondframeworks)continuetodifferandasoneglobalstandardofgreenfinanceisunlikelytoemerge,harmonizationofstandardsshouldbethegoal.Harmo-nizationwouldmeantobuilda“rosettastone”tooltoalignandcompareexistingstandardsforinvestors153.Aharmonizedgreenfinancestandardwillhavethreead-vantages:

1. Itallowsinvestorstopoolmoneymoreeasilyasac-cesstointernationalcapitalmarketsisharmonizedwithlowertransactionandcontrolcost;

2. Itwillallowinvestorstoinvestincountrieswithlowerlocalenvironmentallegalstandardsasproj-ectownersneedtoreportaccordingtoharmonizedstandards;

153 European Investment Bank (EIB) and Green Finance Committee of China Society for Finance and Banking, “The Need for A Common Language in Green Finance.”

3. Itwillprovideagreenprojectfinanceeligibilitylist(e.g.similartotheChinesegreenbondcatalogue)thatal-lowseasierselectionofprojectsforprojectdevelopers.

Alternatively,inresponsetointernationalclimatefinancerequirements,aspecialBRIgreenfinancesub-frameworkcouldbeestablished.

7.3 Improve capacity of integrated planning for green urban development to lower financing cost

Inordertoovercomeshortagesoflocalprojectplanningcapacity,e.g.forintegratedtransportplanning,integrat-edenergyplanningetc.,theSino-Europeancooperationshouldimprovecoordinationandcooperationforca-pacitybuildingactivitiesinBRIcities.ItshouldsupportBRIcities’differentagenciestoimprovetheirintegratedurbanplanningcapacity.

Oneframeworkcouldbethatthecapacitybuildingisimplementedbyexistingbilateralandmultilateralinsti-tutions(e.g.GIZ,DFID,CIDCA,IFC).Theycouldprovideastandardizedcapacitybuildingprogram,asmanyoftheseinstitutionshaveestablishedastrongpresenceinmanyBRIcountries.Yet,inorderfortheseinstitutionstocontributewithintheframeworkofSino-Europeancooperation,achallengethatneedstobeovercomeisthelackofacommonfundingmechanismforcapacitybuilding154.ApotentiallygoodandscalableexampleistheSino-GermanCenterforSustainableDevelopment155whichisconcernedwith“jointlyputtingintopracticethestrengthsofofficialdevelopmentassistant,south-southcooperationandbusinessinvolvementforsustainabledevelopmentworldwide”betweenChinaandGermany.

Anotherpossibilityistogivelocalinstitutionsbettercapacityframeworkbyinvitingthemtotrain-the-trainerprogramsatdifferenttrainingfacilities(e.g.inBeijing,

154 In addition, many bilateral cooperation institutions, such as GIZ or DFID also have administrative hurdles to work for funding other than their home-countries’.

155 GIZ, “Sino-German Center for Sustainable Development ‒ Sino-German Center for Sustainable Development.”

Brussels)withtheclearmandatetoinstalllocalcapacitybuildingprograms.

7.4 Build a Sino-European green city fund

Toaccelerateglobalinvestmentsintogreenurbande-velopment,aSino-Europeangreencityfundshouldbesetup.Thisfundshouldpoolprivateandpublicmoney,providetradeablesecuritiesandlocalizedexpertise(seeFigure24).ArolemodelcouldbetheGreenClimateFund(GCF)ortheShandongGreenDevelopmentFund(seecasestudyinchapter3.2.1.1).

AppreciatedtheconnectiontotheSGDF,stillitisriskyasSGDFisjuststartingtoworkonlyinShandongProvince.

Thegreenfundshouldtakeovertheworkofscoping,evaluating,managingandreportingonprojectsforlarg-erfinancialinstitutionsbyhavinglocalrepresentationandoffices,whileminimizingtransactioncostsfortheinvolvedinvestors.Furthermore,thefundshouldmakesurethatprojectsareimplementedunderconsiderationofsocialgoals(e.g.localemployment)andthroughin-ternationalcooperation.

TheFundcanactascatalystforexistinginstitutionstomoveintothespacebyde-riskingandchangingpercep-tionsofrisks.TheFundcanalsoaddressinvestmentsthatarenotcurrentlyabletobefundedbyexistinginsti-tutions,aswellaspilotapproachesthatcanprovidethebasisforregulatoryreforms.

Thefundwouldthereforehavetwomajoradvantages:

• Privatefunders,whohaveshort-termreturngoalsandarenotinterestedininvestinginprojectswithonlylong-termreturn,couldinvestinthefundduetothetrade-abilityofitssecurities;

• Multilateraldevelopmentbanksandbigfinancialin-stitutions,whoarenotinterestedinsmall-scaleproj-ectsduetothehightransactioncost,couldinvestinthefundduetothelocalizedexpertiseofthefund.


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Figure 23: GreenFundasComplimenttoGreeningtheFinancialSystem156

7.5 Increase use of Blended finance

Toallowthefundingofgreenurbanprojectsthathaveloworevennegativereturnsandtheinclusionofinclu-sionofprivatecapital,theSino-Europeancooperationshouldincreasetheuseofblendedfinance(seeFigure13)underagreedandstandardizedterms.

ThiscouldbedonewithintheSino-EuropeanGreenFund(seeabove)orwithinexistingdevelopmentfi-nanceinstitutions(e.g.AIIB,EIB).Existingfinancialinsti-tutionsshouldbegivenaclearmandatebytheirboardsthroughtherepresentationoftheboarddirectorsfromEUandChina.Thiswouldallowandencouragethesebankstousespecifictranchesoffinanceforconcession-aryfinancingand/orgrantsiftheprojectsthattheyareinvestinginarecontributingtotransformativegreenurbandevelopment.Thesetranchesofmoneyshouldbeusedinconjunctionwithprivatecapitaltoactuallyincreasetheapplicationofblendedfinance.

156 Jenny and Asian Development Bank (ADB), “Shandong Green Development Fund (SDGF).”

7.6 Establish open platform for green urban projects

Toovercometheproblemofashortageofasteadyproj-ectpipeline,anopenplatformforgreenurbanprojectsshouldbeestablishedforcitiestosharetheirdevelop-mentideasandforinvestorstobeabletoquicklyscopepossibleinvestmentsandcontributions.ApossiblerolemodelcouldbetheSDGImpactplatformbyUNDP.

Thetwoprerequisitesforitssuccessisthata)theplat-formmustbebuilttogetherwithcitiesandinvestors(ratherthanbytechnicaldevelopmentinstitutions)inordertoensureactualneedsoftherelevantstakehold-ersaremet,andb)thattheplatformispromotedbroad-lytoactuallygetbothinvestorsandcitiesonboardandhaveanactiveparticipation.

7.7 Apply digital technologies for MRV

Toovercometheproblemofmeasurabilityofenviron-mental(andsocial)impactsofinvestments,digitaltech-nologiesshouldbemorebroadlyappliedformonitoring,reportingandvalidation(MRV).Thiscouldincludetheuseofbettersensingtechnologiesforthemonitoringofemissions,bigdataforthemonitoringoftheuptakeoftechnologiesandinfrastructure(e.g.usernumbersofpublictransportatdifferentstops,routes).

AprerequisiteforabroadlyapplicableMRVplatformismonitoringandreportingstandards(theestablishmentofreportingstandardscontinuestobealegalandpart-lytechnicalchallenge).However,whiletheelaborateagreementsonreportingmightnot(yet)beinplace,monitoringandreportingofrawdatacanneverthelesshelptofindconsensusonstandardsandthepossibleidentificationofpathwaysforthereductionofenviron-mentalharm.

7.8 Establish better platform for MRV data sharing

Toincreasetransparencyofenvironmental(andsocial)impactstoabroaderandconcernedpublic,thecollect-eddatashouldbesharedandmadepublicaswidelyaspossible.Thiswouldprovideimprovementsinresearchandforurbanplanning‒whichinturnimprovestarget-edinvestmentimpacts.

GoodexamplesofglobaldatasharingincludetheGlobalBiodiversityInformationFacility(GBIF)ortheEnviron-mentalDataInitiative(formerlyknownasLTERNetworkInformationSystemDataPortal)

Aprerequisitefordatacollectionmustbeatminimumlocalized,yetbetteraninternationallyagreedframe-workofdataprivacyandprotection.

7.9 Create and apply standards for reporting

Tofurtherincreasetransparencyandcomparabilityofreportingonenvironmentalimpactsandoutcomesofinvestments,standardsforenvironmental-relatedfinan-cialreportingareaprerequisite.InvestorsandprojectdevelopersinBRIcitiesshouldatminimumapplyexist-ingstandards:

• Taskforceforclimate-relatedfinancialreporting(TCFD)157,whichhasprovidedagloballystandard-izedandacceptedreportingtoolforclimate-relatedimpactsoffinancialinvestments

• GlobalReportingInitiative’sframeworkonreportingthatalsoincludessomesocialaspectsofprojects158

However,currentlynosufficientfinancialreportingmechanismsontheimpactsonbiodiversityexists.ThiscouldbedevelopedincooperationbetweentheEUandChina,togetherwithglobalNGOs.

157 Task Force on Climate-Related Financial Disclosures (TCFD), “Recommendations of the Task Force on Climate-Related Financial Disclosure.”

158 GRI Index, “Global Reporting Initiative (GRI) Index.”

ForallSino-EUcooperationprojects,atleastexistingglobalreportingstandardsshouldbeapplied.

7.10 Provide open learning platform for best practice exchanges of policy and project design and implementation

ToincreaselearningandinformationsharingbetweenBRIcities,aBRIgreencityplatformshouldbesupportedbyEUandChina(e.g.withintheBRIGC)providingup-datesonprojects,lessonslearntofpoliciesandapossi-bilityforexchangebetweencitiesoftheBRIinregardtotheirgreenprojects.ThePlatformshouldhavedifferentsectionsfordifferentstakeholders(e.g.projectdevel-opers,policymakers,investors)tolearnandexchangeknowledge.ItshouldbeavailablenotonlyindifferentlanguagesbutshoulduseAItoprovideautomatictrans-lationofinformationinlocallanguagestoavoidunnec-essarylanguagebarrierswhileaccessinginformationfromdifferentcountries.

Thisplatformthusacceleratessharingofknowledgeandthereforereducesthelearningcostofdifferentcitiesandinvestors,whileimprovingimpactsofinvestments.

7.11 Improve green investment incentives in China and the EU for green overseas investment in BRI cities

Toaccelerategreeninvestmentsandreducebrownin-vestmentsinBRIcities,Chineseregulators(e.g.CBIRC,MEE,MoFCOM,MoF),Europeanregulators(e.g.ECB)aswellasrelevantothersemi-regulatoryinstitutions(e.g.OECD)shouldprovidebetterfinancialincentives.

AgoodframeworkmightbetheTrafficLightSystemthattheBRIGCisproposing.Itwillprovideaclearframeworkforalignedandnon-alignedprojects,aswellasfurtheradministrativeincentivesforgreen-mindedinves-tors.TheEUshouldsupportthisinitiativeandprovidealignedincentivesforitsoverseasinvestors.

Thegovernmentsshouldfurtherexplore“feebates”andotherincentivesforrevenue-neutrallow-carbonfinance.Feebatesarefeespaidbyactorsengaginginhigh-car-


56 57

bonactivitiestothoseengaginginlow-carbonactivities.Feebatesworkbestinsectorswhererevenuecollectionorotheradministrativemechanismsalreadyexisttoen-ableimplementationbycitiesorprovincialauthorities.Acommonlycitedexampleoffeebatesrelatestovehiclefuelefficiency:Citygovernmentscollectanannualorone-timefeefromownersofhigh-emissionsvehiclesandpayarebatetothosewhobuycleanervehiclesandthussupportboththereductionofhigh-pollutingve-hiclesandthepromotionoflow-carbontransport.Theadvantageoffeebatesisthattheyarerevenueneutralforgovernmentsandthatpaymentsscaledownauto-maticallyasthetechnologyinquestionbecomeswide-spread159.

TheestablishmentofaneffectiveinternationalcarbonmarketinlinewithArticle6oftheParisClimateAccordshouldbeafurthergoal.Establishingacarbontaxa-tionmechanismcansimultaneouslyincreasethegov-ernmentfundingavailableforaddressingparticularlylow-carbondevelopmentandincreasetheinvestmentcostfornon-alignedprojects.Theinternationalcarbonmarketwillfurtherincreaseincentivesforcitiestode-velopinalow-carbonfashionasitwouldallowthemtosellcarbon-creditsinternationally.


Theapplicationofgreenurbanfinanceinstrumentsandthedevelopmentofaccompanyingpoliciestoinvestingreentransport,greenurbanizationandgreenindustri-alizationhasbeendevelopingsignificantlyinEurope,inChinaandintheBRIcountries.

Inthispaper,weanalyzedthesedevelopmentsfromdifferentperspectivestodrawconclusionsonhowtoac-celerategreenurbanfinanceinacooperativeandinclu-sivewayforBRIcities.WelookedatChina’sgreen(urban)financedevelopmentandhowChinahasdevelopeditspublicfinance,commercialfinanceandmixedfinancetoallowforrapidurbanizationoverthepastdecades‒possiblythegreatestmigrationfromruraltourbanareasinhumanhistory.Thisdevelopmentbroughtrap-ideconomicgrowth,butalsomassiveenvironmentalpains,suchaspollutionofair,waterandsoilsandGHGemissions.Initsnextchapterof“high-quality”andgreengrowth,Chinaispushinggreeninvestmentsforgreenercitydevelopment.Itisapplyingamixoffiscal,regulato-ryandmonetarypoliciestomovetoalow-carbonandlow-pollutingdevelopment.Weusedremovecasestud-iestohighlightthatdevelopment‒theShandongGreenDevelopmentFundasaninternationalcooperationex-ampleandtheShenzhenInternationalLowCarbonCity.

WealsolookedatEuropeangreenurbanization.Com-paredtoChinesecitieswhicharenewlybuilt,muchofEurope’surbaninfrastructureisolderandrequiresup-dating.Overthepastyears,anambitiousgreenagendahasbeenpromoted‒withhighlightsin2018withtheLongTermStrategytitles“ACleanPlanetforall,”for-mulatesthegoalof“achievingnet-zerogreenhousegasemissionsby2050.”In2019,theEuropeanCommissionpushedthe“GreenNewDeal”whichfurtheroutlinedtheambitiontobuildaninnovativegreenEurope,whichwassupportedbythepublicationoftheambitiousandcomprehensiveEUTaxonomyongreenfinancein2020.WiththenCovid-19pandemic,Europeisevaluatinghowusethestimulustofurtheraccelerateanet-zerogreen-housegasemissioneconomy(e.g.movethe2030targetfromminus40%tominus55%)160.Europeancitiesarealsomovingonwithindividualizedprogramstoacceler-

160 Reuters, “EU Presses on with Tighter 2030 Climate Target despite Pandemic.”

8 Conclusion

ategreenfinanceforgreenurbandevelopment.Inthispaper,weanalyzethreecasestudiesfromCzechRepub-lic,GermanyandFrance.

GreenfinancealsoplaysanincreasinglyimportantroleintheBRIcities.Overthepastyears,30BRIcountrieshavepublishedgreenfinancecodesandregulation,whileChinaisofferinganumberofinitiativestoaccel-erategreenfinanceintheBRI.Amongthemostimport-antinitiativesaretheGreenInvestmentPrinciples,theBeltandRoadInitiativeGreenCoalition(BRIGC)anditsGreenLightSystemfortheEvaluationofBRIinvest-ments.AlsodevelopmentfinanceinstitutionsplayanimportantroleinacceleratingbothgreenfinanceandgreenfinancecapacityinBRIcountries.

Despitemuchprogressingreenurbanfinance,however,investmentsforurbandevelopmentcontinuetobebothinsufficientandtoooftenusedfornon-greendevelop-ment.Whilethislackoffundinghasbeennotedforyears,therecentnCovid-19pandemichasexacerbatedthatproblem.Toovercometheshortageandprovideanaccel-erateddeploymentofgreenfinanceforgreenurbaniza-tionintheBRI,wehavedeveloped11recommendations.

1. ProvideGreenUrbanProjectPreparationFacilities

2. HarmonizeGreenFinanceStandards

3. ImproveCapacityofintegratedplanningforgreenurbandevelopmenttolowerfinancingcost

4. BuildaSino-Europeangreencityfund

5. IncreaseuseofBlendedfinance

6. Establishopenplatformforgreenurbanprojects

7. ApplydigitaltechnologiesforMRV

8. EstablishbetterplatformforMRVdatasharing

9. Createandapplystandardsforreporting

10. Provideopenlearningplatformforbestpracticeexchangesofpolicyandprojectdesignandimple-mentation

11. ImprovegreeninvestmentincentivesinChinaandtheEUforgreenoverseasinvestmentinBRIcities


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CooperatingandpoliticalwillingnesstosupportgreenurbandevelopmentintheBRIandelsewherecontinuestobemajoracceleratorforsuccess.Withcurrenteconomicdevelopmentsatthetimeofthiswritinginthefirsthalfof2020beingchallenging,greendevelopmentcontinuestobenotonlyamajornecessity,butalsoasolidplatformfornegotiation,communicationandcooperation.

TheEuropeanUnionandChinaasstrongpartnerswithsharedinterestingreendevelopmentandthedevelop-mentoftheirgreenfinancesystems,cansupportthetran-sitiontoagreenBeltandRoadforcities.TheycanbuildonbothEU-ChinaagreementsonSouth-Southcoopera-tion,thirdpartycooperationagreementsoracceleratetheapplicationofthecommonframeworksandagreementsonsustainabledevelopmentanddevelopmentfinance(e.g.UNSDG,ParisAccord,AddisAbabaActionAgendaforFinancingDevelopment)tocoordinateandbuildamoremultilateralframeworktoaddressgreenurbandevelop-ment.

Appendix 1: Selected Chinese policies to support green urban development

Topic Issuer Content

Energyefficientbuilding

MinistryofHousingandUrban-RuralDe-velopment(MoHURD)

In2006,ChinaestablishedasystemofgreenbuildingstandardsknownasThreeStar.AnupdatedversionwasapprovedbyChi-na’sMinistryofHousingandUrban-RuralDevelopment(MoHURD)inMarch2019andbeimplementedfromAugust2019161.Differentgradesofbuildingshavedifferentenergyefficiencyrequirementsandreceivedifferentfinancialsubsidies.Inaddition,Chinahasdevelopedofficialstandardsfornear-zeroenergybuildings,whichcouldformthebasisforlow-carbonurbandistricts162.

Heatingandco-oling

MinistryofFinance In2007,theChinaMinistryofFinance(MoF)establishedafundforresidentialheatingmeteringandenergy-savingretrofit,offering55RMB/m2inseverecoldareasand45RMB/m2incoldareas163.In2012,afundwascreatedforenergy-savingretrofitforresidentialbuildingsinhotsummer/coldwinterregions,offering15-25RMB/m2dependingonregion164.SubsidyfundswereallocatedbyMoFtoprovincialfinancialdepartments,andprovincialandmunicipalgovernmentarrangedcorrespondingsupportingfunds.Morethan1.3billionm2ofexistingresidentialbuildingshavebeenretrofittedinurbanareas.Thesesubsidypoliciesceasedattheendof2015.

Cleanheatingpi-lots

MinistryofFinance,MinistryofHousingandUrban-RuralDe-velopment,MinistryofEcologyandEnviron-ment

Chinasubsequentlylaunchedcleanheatingpilotsinthenorthernregionstartingin2017.Fundinglevelsfromthecentralgovern-mentaredeterminedaccordingtothesizeofthecity:PilotsincentralmunicipalitiesreceiveRMB1billionannually,provin-cial-levelcitiesreceiveRMB700millionannually,andprefec-ture-levelpilotcitiesreceiveRMB500millionannually165.

Energysavingcom-panies(ESCOs)andenergymanage-mentcompanies(EMCOs)

Beginningin2010andendingin2015,thecentralgovernmentpaidESCOsRMB240pertcesavedandrequiredprovincialgo-vernmentstomatchthesepaymentswithatleastRMB60pertce.Manyprovincesadoptedpolicieswithhighermatchingamounts.TheShanghaimunicipalgovernment,forexample,providedRMB360pertceinadditiontothenationalsubsidy.

Preferentiallen-dingratesforenergysavingandrenewableenergy

People’sBankofChina Nationalpolicieshaveencouragedstate-ownedbankstopromoteenergysavingsprojectsvialowerloanrates.Chinahasalsopro-motedcleanenergy,particularlywindandsolar,andhasbecometheleadingcountryfortheinstallationofthesetechnologies.Whi-lemostrenewableenergyislocatedoutsideofcities,distributedenergysuchassolarandwindinurbanareasisthefocusofsomepolicies.

Provisionoflandbylocalgovern-mentsatreducedpricesforcleanenergyproduction

ThepolicyismostlydedicatedtosolarPVandwindturbinema-nufacturing,aswellaslowerlendingratesforPVandwindertur-binemanufacturers.

9 Appendices


60 61

Promotionofwindandsolarwithfi-xedfeed-intariffs

NDRC,MinistryofFi-nance,NationalEner-gyAdministration

Distributedsolarandrooftopsolarbenefitfromhigherfeed-intariffs.Inrecentyears,Chinahassoughttomoveawayfromsubsidizedfeed-intariffs,duetotheirhighcost,butrooftopsolarcontinuestobenefitfrompromotionpolicies.Asofmid-2019,theNDRCsetthefeed-intariffsubsidyforhouseholdrooftopsolarPVatRMB0.18/kWh166.

Increasingrelianceonmarketsandad-ministrativetargets

NDRC,NationalEnergyAdministration

In2019,Chinaadoptedarenewableconsumptionobligationthatwillrequireprovincestoobtainincreasingsharesofnon-hydrore-newableelectricity167.Marketingandtradingofrenewableenergyhasalsobeenpromotedaspartofelectricitymarketreforms.Thiscouldhelpimprovetheeconomicsofdistributedenergyincities.

Cleanairpoliciespromotingatran-sitionawayfromcoalheating

Cityandprovincialgovernments

NorthernChinesecitiessuchasinBeijingandTianjin,aswellasinHebeiProvincehaveconvertedcentralcoalheatingtonaturalgasandbannedcoalheatingacrosslargeareas.Suburbanareashaveshiftedawayfromusinglow-qualitycoalbriquettestootherdistributedheatingtechnologies,includingelectricheating,gasheating,andground-sourceheatpumps168.Fundingfortheseinitiativeshascomefromspecialgovernmentairpollutionfunds,directstate-ownedenergycompaniessuchastheStateGridCorporationofChina,andinternationalinstitutionssuchastheWorldBank.

Low-carbontrans-port

e.g.MinistryofTrans-port

Keypoliciesincludesubsidiesformanufacturingelectricvehicles(EVs),licenseplateandtrafficrestrictionsforconventional-fuelvehicles,andquotasforEVssales169.

161 China Ministry of Housing and Urban-Rural Development (MoHURD, “‘ 住房城乡建设部关于发布国家标准绿色建筑评价标准的公告 ’ [Announcement of the Ministry of Housing and Urban-Rural Development on the Issuance of the National Standard-Assessment Standard for Green Building].”

162 Ministry of Housing and Urban-Rural Development (MoHURD), “‘ 住房城乡建设部办公厅关于国家标准近零能耗建筑技术标准公开征求意见的通知 ’ [Notice of the General Office of the Ministry of Housing and Urban-Rural Development on the Public Consultation on the National Technical Standard for Nearly Zero Energy Building].”

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中欧低碳生态城市合作项目由欧盟资助与住房与城乡建设部合作德国国际合作机构等提供技术支持

Documents

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