Transport plays a vital role in the development of nations, yet it is a significant source of greenhouse gas emissions. Developing countries are confronted with the challenge of expanding transportation to foster inclusive growth while shifting towards sustainable, low-carbon mobility.
A recent report titled "Financing Climate Action for Transportation in Developing Countries" examines how climate finance intersects with transport. The report outlines the global climate finance framework, including financiers, volume, products, and beneficiaries. It also addresses challenges and opportunities for policy and regulatory changes. Additionally, it offers insights into innovative financial solutions that can attract private and concessional finance through blended approaches while ensuring accessibility, affordability, and resilience.
The report's findings reveal that transport emissions are increasing at a faster rate in low- and middle-income countries (LMICs) compared to high-income countries. With limited public transit options and longer distances to markets, these regions are expected to become major contributors to transport-related carbon dioxide emissions in the coming decades.
Investment needs for resilient transport systems in LMICs amount to $417 billion annually from 2015 to 2030 (1.3% of GDP), but this investment could yield $4.2 trillion in net benefits—offering a $4 return for every dollar invested.
Despite global climate financing reaching $1.27 trillion annually, only $336 billion is directed toward the transport sector. Of this amount, just 3% is allocated to least developed countries (LDCs) and 15% to other emerging markets and developing economies (EMDEs), excluding China.
Low-carbon transport financing is largely led by the private sector, focusing on vehicle electrification in developed nations. Development finance institutions (DFIs) play a crucial role in supporting developing countries.
Investment barriers include a lack of bankable projects, limited market demand, and governments' reliance on DFIs due to restricted access to commercial borrowing and risk management capabilities.
Key policy actions for LMICs involve removing subsidies, ensuring users of private and air transport cover full social costs, and recycling tax revenues from transport pricing into green investments.
The report suggests strategies like blended financing, credit enhancements, and creating portfolios of bankable green projects as ways to attract sustainable finance and scale up small urban projects.
Achieving a paradigm shift requires decoupling transport demand from greenhouse gas emissions by moving away from road expansion and vehicle subsidies toward an integrated approach that combines economic and social considerations with transportation planning.
To facilitate this transition, the report advocates for setting specific climate action goals for transport; establishing green regulations; incorporating greenhouse gas analysis into planning; optimizing funding mechanisms; ensuring efficient public spending; focusing on research and development; and developing financing strategies such as blended financing aligned with the Paris Agreement transition goals.