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HVT addresses the challenges of finding climate finance for transport systems in low-income countries at COP28

COP 28 might have ended with a landmark agreement to ‘transition away from fossil fuels in energy systems’ but many low- and middle-income countries (LMICs) were left disappointed by a lack of new financial commitment to the transition, a subject which was echoed throughout HVT’s side events at the summit on 4th December.

The session, in collaboration with CCG, was entitled Aligning Climate Finance with the needs of greener transport development in low- and middle-income countries, and chaired by former World Bank country director Henry Kerali. A panel of global climate finance experts, joined by the Colombian Vice Minister of Transport, Carlos Eduardo Enrique Caicedo, outlined the current landscape and explored the challenges and possible solutions for increasing the flow of climate finance into LMICs.

L-R: Henry Kerali, Claudia Adriazola-Steil, Maruxa Cadama, Lucie Anderton, Nicolas Peltier, Gianpiero Nacci

Claudia Adriazola-Steil of WRI explained that the flows reached an annual average of almost USD 1.3 trillion in 2021/2022 with transport receiving 29%. But finance in low-income, climate-vulnerable countries has shown little progress in meeting their needs.

“We are giving capital that comes late, that is overpriced, that is under risk and that is short term,” she said. “So, we have to rethink that”.

The World Bank’s Nicholas Peltier concurred:

“The transport financing gap is enormous,” he said. “There is no silver bullet, but we can think about things that make sense, such as building cities that actually bring people closer to their jobs and reduce the demand for transportation.”

He stressed the importance of holistic planning, involving multimodal transport, and referred to interesting innovations in the sector which enable leveraging private capital in the Global South. India is now procuring thousands of electrical buses, for example, an initiative that could be copied in other parts of the world.

Maruxa Cardama of SLOCAT spoke about the need for plans and metrics in order to gain investment, saying:

“Often we hear that LMICs don’t have plans, and the investors want the plans. But that’s a lot to do with not having the metrics. We need LMICs to be able to assess what and where they need investment in more of a formal way with the evidence to back it.

“Are we supporting LMICs enough? Are they equipped with the metrics to go and seek investment?”

She went on to outline the latest HVT research working to produce a Transport Decarbonisation Index.

Gianpiero Nacci, of the European Bank for Reconstruction and Development (EBRD), argued that one of the main problems is finding bankable projects, not a lack of money. He agreed with Maruxa that data, analytics and planning are key, he said.

“Often when we look at investments in infrastructure projects, including transport, we face a big issue in terms of the data and information, the models, the analysis, that ultimately allows us to finance it. It’s very difficult to price risk,” he said.

There are trillions of dollars in capital out there looking for a ‘green home’, the challenge is finding the channels or models that allow this money to find its destination. The solution, he said, is investment in data and in planning.

A modal shift towards railways could save a lot of carbon emissions, said Lucie Anderton of the International Railways (UIC), since rail is the greenest form of motorised transport. But the modal share is going in the wrong directions as the growth in investment in roads increases.

Lucie spoke about the huge infrastructure gap between high-income and LMICs, the latter having 10 times less railways than richer countries, with rail having just a 2% share of mobility. This is a huge missed opportunity in climate terms:

“If we were able to bring low-income countries up to the average modal share which is about 80% around the world, then we could save 1.8 gigatons of CO2 by 2050,” she said.

Railways are a long-term investment, but if we stop spending on fossil fuels, we can do it, she said. There must be a better use of carbon markets, meaning having real grants to help de-risk investments and policy structures in place to incentivise people to use rail.

To the question: ‘how do we make Climate Finance accessible?’ Claudia answered that management of debt is crucial. Many countries have debt that can be crippling and block progress. She described the way different investment plans come together in developed countries to show where the finance is needed and to apply it, but said this isn’t the case in LMICs. It needs to be streamlined, so we can see what’s available, and help to connect people to the resources

Nicolas added that transport has recovered to pre-covid levels and the private sector is increasingly interested in investing in transport. And he was encouraging about the uptake of e-mobility in LICs, citing the Indian bus electrification initiative as “really transformational”.

Maruxa focused on risk- assessment and the importance of properly understanding a country’s needs. We need to see assessment as de-risking an investment, she said, because it shows how the investment is going to have impact, which is really the role of development institutions.

The Colombian Vice minister of Transport, Carlos Eduardo Enrique Caicedo, spoke then about the importance of the intermodality of transport. Ten years ago, Colombian investments were dominated by road construction, he said. Now they include bicycles, trains and other forms of transport and the government has redistributed investment to these other forms to drive change.

Questions from the audience addressed the issue of informal transport, so prevalent in LMICs, being unable to access small finance. Claudia responded that informal transport is an area that needs to be included and supported when thinking about finance. Maruxa added that metrics are needed for investment in informal transport, so that we can understand why it’s happening and learn from that.

The session closed with remarks from UN Under Secretary General Tatiana Molcean, who focused on two key points: the fact that small projects are more difficult to finance than larger project; and how to address the challenge of finding bankable projects, especially for LMICs. She welcomed HVT’s projects on Climate Finance and the Transport Decarbonisation Index, calling them ‘great examples of knowledge based initiatives’.

Watch the session below: