City of Bologna set to scale up local carbon market after successful Climate KIC pilot

The development of local carbon markets can catapult cities into a low-carbon and resilient future, according to Climate KIC’s City Finance Lab’s successful pilot with the City of Bologna. City Finance Lab is Europe’s first dedicated platform aiming to develop innovative finance solutions for sustainable urban projects, driven by EIT Climate KIC’s Low Carbon City Lab (LoCaL) and South Pole Group.

“The City Finance Lab was instrumental in the development of a robust local carbon market for industries in the city of Bologna, through tailored advisory services to alleviate existing financial and legal barriers,” said Giovanni Fini, Expert in Energy Efficiency and Urban Sustainability Policies, City of Bologna. “The scaling of the local carbon market will help the city transition further toward a low-carbon resilient state.”

Although carbon markets at national and international levels are widely used mechanisms, their impact at the municipal level has yet to happen – until now. The increasing commitments of private companies towards sustainability, climate neutrality and the desire to create benefits for the local community, creates a demand pull for local climate mitigation projects.

“A municipal carbon market innovates by providing the private sector with an investment opportunity through local climate mitigation projects. The Bologna Carbon Market (BOCAM) will accelerate local private sector investments into city-level climate mitigation projects by creating a voluntary offsetting scheme,” said Aymeric Reymond, Consultant, South Pole Group. “Such an approach, once successfully implemented, can easily be replicated in other industrial regions of Italy and Europe, where the demand for local climate mitigation projects is equally high.”

The City Finance Lab launched its first public call for proposals on 14 June and will be supporting four to five European initiatives until the end of the year. It will announce the winning proposals in September.

According to the Intergovernmental Panel on Climate Change (IPCC), cities are key to tackling climate change, representing 70 per cent of global greenhouse gas emissions. And global urbanisation is constantly growing. Between €0.36 and €1 trillion per annum of incremental investment is needed over the next 15 years to set cities on a path to meet climate targets and build resilience.

However, green urban projects still struggle to attract enough investment due to high transaction costs, uncertainty in national and international frameworks, a lack of resources in making these projects attractive to investors, and gaps in knowledge about available finance options and mechanisms.

Cities can be part of the solution by working with the City Finance Lab, which was founded to support the development of innovative and well-designed financial solutions that can remove barriers to sustainable project investment.

Specifically, it provides technical assistance to developers while also building a pipeline of bankable urban mitigation and adaptation projects via a network of multi-competence centres that evaluate the financial and technical expertise of urban projects.

 “The City Finance Lab is the first dedicated platform of its kind, designed to source innovative mechanisms, deploy KIC partners as technical advisors, and finally, capture the learnings into training materials – all this feeds the LoCaL training hub,” said Victor Gancel, Climate Innovation Programme Manager, Climate KIC.

“Combining the urgency for climate mitigation and adaptation actions, the strong and growing interest of stakeholders and liquidity of the capital market, this is a crucial moment to scale new financing solutions and boost the financial sector as a whole,” said Denis Jorisch, Senior Consultant, South Pole Group. “The City Finance Lab will support this change by bringing together leading city finance experts from public, private, and philanthropic organisations to develop their innovative solutions.”

The City Finance Lab’s team plans to expand its scope to other continents as well as to evolve its offering and become a hub for innovative financing solutions at the city level. It’s working to leverage over €430 million in additional finance for climate action in cities over the next five years.