Traditional subsidies are not enough. So what can cities do?
The Prospect+ project has been working with cities on innovative financing instruments inviting them to explore options outside of traditional public funding. The special session at the Smart City Expo World Congress in Barcelona was yet another opportunity for the project to stress the importance of proactive, collaborative efforts between cities, private investors, and decision makers at the European and national levels.
Shifting away from subsidies: the reality at the local level
Marcin Gradzki, Director of the Air Protection and Climate Policy Department at the City of Warsaw, explained how his city still encounters many barriers to accessing alternative attractive financing options. For Gradzki the national and European levels should support cities, for example, with technical assistance tailored to local needs that address existing regulatory bottlenecks in respective countries. He also emphasised the need for addressing the municipal dept caps and regulations that prevent cities from taking loans and setting up certain financing instruments, such as bonds.
In an overview of preliminary results of the Prospect+ consultations on public authorities’ attitudes to innovative financing instruments, Sylwia Slomiak, Eurocities Senior Climate Finance Advisor for Prospect+, revealed major barriers for cities’ transition to less traditional financing stemming from restrictive national regulations and limited local capacity. Local authorities need better national regulations, clearer guidance and targeted capacity-building.
Many cities are interested in using alternative financing options to meet the funding gaps, yet face challenges due to insufficient expertise and resources, particularly with instruments like green bonds and guarantee funds. The heavy reliance on subsidies persists as cities navigate complex legal frameworks, which often restrict the options they actually have.
Existing support and how to make the most of it
Georg Houben, Policy Officer at the European Commission’s Directorate General for Energy, provided insights into EU programmes and initiatives that cities can tap into, such as the Covenant of Mayors and the Smart Cities Marketplace, which offers help with identifying investors and improving project bankability. However, cities stress the need to improve the accessibility to the information and promotion of the various support, for example, by providing it in the local languages, which has not been the case for many EU level initiatives.
Climate City Contracts are another useful tool for long-term planning, mentioned Gradzki. And Tommaso Buso, Associate at Bankers Without Boundaries, added that they bring considerable benefits to investors. Connected to these, the new Climate City Capital Hub will support cities in finding capital for the energy transition. Buso also encouraged cities to develop long-term investment plans that are transparent, detailed, and aligned with investor expectations. He stressed the need for cities to present clear, bankable projects that meet investors’ priorities and highlighted the importance of risk assessments in attracting investors’ interests. Public-private partnerships are mutually beneficial, including investors’ focus on Environmental, Social and Governance (ESG) targets.
Joining international consultations is also beneficial for cities, added Houben, because they can bring local perspectives into broader policy discussions.
Doubts and needs
Political support and success stories serve as significant motivators, though many cities still hesitate due to bureaucratic complexity and perceived risks, including doubts over transparency of choosing private sector partners and capital providers. Additionally, cities are frustrated by inconsistencies between national and European regulations, which create bottlenecks and leave them dependant on public funding.
Respondents to the Prospect+ consultation have noted that accessing external expertise and building staff capacity are essential. Some cities are beginning partnerships with experts, but they stress the need for more coordinated support and knowledge-sharing to make these efforts impactful.
Cities mark an urgent need for regulatory reforms and policy incentives at the national level to prepare cities and local markets to the new reality where access to traditional subsidies will soon be significantly reduced.
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