How US cities are discovering creative ways to fund climate progress

21 Mar How US cities are discovering creative ways to fund climate progress

While the global community take a coordinated approach against climate change through the Paris Agreement and the US Government makes progress through significant changes such as the Inflation Reduction Act, there is considerable work that cities must do independently to clean their economies and built environments.

Recent studies suggest that while many larger established cities have taken steps towards reducing their emissions, plans typically lack the necessary details to achieve these goals. This is especially true for funding and finance challenges, determining how cities intend to pay for infrastructure improvement. With larger urban areas requiring significant investment to enhance buildings, develop new transport lines or modernise local electricity networks, being transparent on funding these measures is a critical step toward decarbonisation.

A report by Brookings Metro explored 50 large cities across the country and discovered a range of funding and financing measures that invest real money toward decarbonising local built environments, electricity systems and transport networks. The case studies highlighted in the report provide a starting point for other cities looking to take climate action and make the most of new climate investments.

The research identified two cities as leaders in creating long-term flexible funding to tackle climate change: Portland, Oregon and Denver. Both cities passed a ruling to dedicate climate funds by raising a large business and sales tax. The funds provide an effective sustainable funding source. 

A few years ago, Portland passed the Clean Energy Community Benefits Fund Initiative, which requires large retailers to pay a 1% clean energy surcharge on gross revenues from retail sales in Portland. The resulting funding is funnelled into the Portland Clean Energy Community Benefits Fund (PCEF) and specifically allocated towards climate action projects. The city of Portland is also subject to producing five-year climate investment plans, which will ensure funds contribute to the broader climate strategy of Portland. This movement toward investment-focused climate planning will enable Portland to continue its path towards a more strategic approach to combining climate planning with decarbonisation action.

Denver’s Climate Protection Fund followed a similar path to Portland. Local environmental representatives secured support to create an energy use tax. In response, the Denver City Council introduced the Climate Action TaskForce to focus on determining goals, solutions and investment opportunities. Members of the group recommended a sales tax increase that replaced the energy use tax for funding climate action. Not soon after, the city’s office delivered the first Climate Protection Fund Five-Year Plan. The fund has generated over 57 million dollars for projects from community solar installations to electric bikes.

Both examples show the strong potential of community development, combined with new policies as a critical way to deliver sustainable, flexible capital for climate action. The development of the Clean Energy Community Benefits Fund in Portland and the Climate Protection Fund in Denver have shown it is possible to fund their decarbonisation plans and create a new path of communication and transparency in local climate governance. 

Examples of other emerging plans for decarbonisation financing

Other cities are applying a range of financial strategies to cover decarbonisation activities. This includes:

• Boston: The 2019 City of Boston Climate Action Plan focuses on investing in energy efficiency and renewable energy generation in municipal buildings. The Trust has invested $10 million in energy savings performance contracting.
• New York: New York City’s 2019 “A Livable Climate” plan commits to growing the Green Housing Preservation Program for low- and no-interest energy efficiency loans. 
• Washington, D.C.: The 2018 Sustainable DC 2.0 Plan committed to establishing a green bank by 2020—a goal that was met in less than a year. The DC Green Bank now serves as a focus for several local climate finance programs. In 2022, the DC Green Bank committed over $26 million in the capital. 
• Los Angeles: The 2019 Green New Deal Sustainability City Plan proposes stormwater capture actions funded by the Safe Clean Water Program (Measure W, a 2018 ballot measure), which collects an estimated $300 million annually through a 2.5-cent tax per square foot of impervious surface on private parcels in the Los Angeles County Flood Control District.  
• San Diego: The 2022 City of San Diego Climate Action Plan celebrates the $4.8 million Climate Equity Fund, founded in 2021 and financed through the city’s energy franchise agreement with the electric utility SDG&E. 

Source: Brookings.edu

Funding and financing are typical barriers to progressing with local decarbonisation plans. The study by Brookings Metro suggests that the lack of detail and structure is the biggest challenge for decarbonisation plans in cities. Many cities are, however, creating new strategies to tackle common problems, such as the initial costs of retrofitting buildings. As we continue to face new climate challenges, new measures will be critical in securing the investment required to make our cities both resilient and sustainable for the future.