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Funding Low Carbon Cities: Mapping the Risks and Opportunities

There are compelling reasons for local authorities - and especially cities - to be interested in the low carbon agenda: it is estimated that approximately 70% of the UK’s economy-wide emissions are under the influence of UK local authorities, and recent research has shown that, at commercial costs of capital, cost-effective and cost-neutral investments in energy demand reduction could deliver a 40% reduction in greenhouse gas emissions from cities by 2020, as well as wider benefits such as enhanced competitiveness, increased employment and reductions in fuel poverty. Despite these compelling arguments, these investments have not yet been made at the scale required to deliver these benefits. This paper provides a contemporary account of how UK local authorities might approach the question of how to ensure the funding of retrofits and investments in low carbon options, with a particular focus on the major obstacles that need to be overcome and the key financial and non-financial risks that need to be managed. The paper identifies market risk (i.e. the impacts of interests rates and energy prices on the economics of low carbon investments) and take-up risk (i.e. that there are sufficient projects available for investment) as the two major risks that need to be managed and offers some practical suggestions on how these risks may be managed.