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

Abstract

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