Scaling up investment for sustainable urban infrastructure: A guide to national and subnational reform

By Ehtisham Ahmad, Dan Dowling, Denise Chan, Sarah Colenbrander and Nick Godfrey (2019)

This paper was prepared by the London School of Economics and PwC, in partnership with the Coalition for Urban Transitions, a global initiative to support national governments accelerate economic development and tackle climate change by transforming towns and cities. 

Towns and cities are growing at an unprecedented rate. By 2050, two-thirds of the global population will live in urban areas. Delivering on the Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change will require coordinated policy actions at the national and subnational levels. Creating clean, compact, and connected cities would play a major role in generating sustainable growth, improving air quality and public health, enhancing accessibility and safety, reducing poverty, and avoiding the costs of sprawl— all while reducing carbon emissions. Funding such a program is challenging, however, as the sustainable urban infrastructure financing gap exceeds US$1 trillion a year.

This paper makes the case for a coordinated or systems approach to urban finance. Traditional approaches to urban finance have often focused on actions that cities can take, such as issuing municipal bonds or securing a good credit rating. Much of the recent literature emphasizes mechanisms such as debt financing, public-private partnerships, and land value capture instruments. Financing the Urban Transition, a 2017 report by the Coalition for Urban Transitions, surveyed more than 70 financing instruments that national and subnational governments could deploy, identifying instruments with especially high potential to raise and steer new resources for sustainable urban infrastructure. These instruments can potentially catalyze increased investment—but they also add to local debt and to the overall liabilities and risks facing government.