How to Scale Innovative Financing Solutions for Green Infrastructure
As an outdoor enthusiast, I’ve always been fascinated by Central Park in New York; the feeling one gets in the middle of the park when all urban chaos disappears and the array of outdoor activities it offers make it a truly unique place. That is the true magic of ‘green infrastructure,’ a broad term used to describe parks, waterways, gardens, trees, and other natural aspects of the urban environment.
New York is not the only city benefiting from such infrastructure. In Detroit, the rise of urban gardens has already proven to have a strong positive impact on the local population and social cohesion.So the question is: why has green infrastructure not become mainstream, what’s keeping it from being scaled in all urban centers across the country?
Historically, like most urban infrastructure, green infrastructure has been the responsibility of local governments. Green infrastructure is rarely seen a priority for local governments because its value is not always obvious or quantifiable. Growing pressure on municipal budgets, and many competing priorities for funds, has decreased the focus on green infrastructure. An additional challenge for local governments to scale the implementation of green infrastructure is the ability to invest in it in the first place, as green infrastructure depends almost entirely on public financing. The quantity, quality, and maintenance of green infrastructure is directly linked to the affluence of a neighborhood. This means that mainly wealthier areas can afford to implement sustainable urban infrastructure, widening the socio-economic gap between neighborhoods much more visible.
Finance is Key to Scaling Green Infrastructure
The biggest roadblock for implementing and scaling green infrastructure is the financing. We urgently need innovative financing solutions that will alleviate the financial burden of the public sector by strategically involving the private sector. The private sector can drive the uptake of green infrastructure through capital investments and implementation support, while reaping the social, environmental, and financial benefits. These actions from the private sector can help mainstream infrastructure that is smart, sustainable, and resilient to a changing climate. This is why EIT Climate-KIC and South Pole have come together to launch the City Finance Lab, a platform supporting the development of innovative, replicable, and scalable financing solutions that increase investment in climate-resilient, low-carbon, and green urban projects for sustainable cities.
The core aspect of innovating to find new sources of financing for green infrastructure is identifying the multiple beneficiaries and monetizing their benefits. Green infrastructure in a city benefits all citizens’ well-being, but certain citizens, businesses, investors, and public departments will have additional financial benefits from well-designed green infrastructure. By capturing a small portion of these benefits that result from public investments, local governments can partly or entirely finance the investment and maintenance costs of green infrastructure.
Examples of these financial benefits in practice:
- A new or improved park will, in most cases, increase the value of the real estate around the park. Research from the University of Texas estimates a value increase of up to 20% for real estate abutting or fronting a park.
- A well-designed matrix of sidewalk trees in a neighborhood can drastically reduce temperatures in the summer, reducing the need for air conditioning, whilst improving comfort for local inhabitants. Similarly, rooftop gardens improve insulation from heat and cold, benefiting building users all year round.
- A ‘green walkway’ with flood protection systems can reduce the risk of flooding for cities, which could in turn reduce their flood insurance premiums, as well as the overall flood recovery costs.
- All these examples have social and health benefits that can reduce public social and health program costs, freeing up public funds for further green infrastructure.
Innovation Will Help Mainstream Smart Solutions
To inspire local authorities and local communities to innovate with dedicated business models, the European Union’s Naturvation program has developed a comprehensive catalogue of innovative solutions for nature-based solutions in cities. We hand-picked four highly promising models.
Green infrastructure adds economic value to neighboring real estate, and this added-value can be financially captured to pay for the construction and/or maintenance costs. This can be done in several ways:
- Contractual agreement with neighboring real estate owners that quantifies their financial gains from the new green infrastructure, and defines a percentage of those that will be paid back into the project maintenance.
- Adding a dedicated property tax that kicks in once the infrastructure is built to fund continuous creation and improvement of green infrastructure.
- Capturing part of the added-value on a real estate sale stemming from new green infrastructure.
- Legally ensuring that all new real estate development assign a fixed percentage of the costs to green infrastructure.
It is crucial, however, that these innovations do not negatively impact landowners who do not have the capacity to pay the taxes stemming from this increased value.
Business Improvement Districts
Local businesses and stakeholders enter into an agreement with the local government to finance improvements to green infrastructure in a specific area. The engagement of local stakeholders in the creation and maintenance of green infrastructure is crucial to ensure it matches their needs and will stimulate the sense of community.
Vacant Space Model
In a vacant space model, the local government takes a detached approach to the implementation of green infrastructure, offering unused public space to local initiatives and entrepreneurs that have socially and environmentally viable projects.
Redistribution of Public Budget
Green infrastructure is well known for its environmental and social benefits. It can also have a range of clear co-benefits, including improved physical and mental health, improved resilience of the city against extreme weather events, reduced criminality, and more.
One way to scale the development of green infrastructure is by capturing the added value that these co-benefits entail, such as reduced public health costs, reduced police budget needs, and reduced disaster relief budgets or insurance premiums. By capturing this value, more public funds can be redirected to green infrastructure.
A Path Forward
The City Finance Lab is currently exploring the full range of innovative financing solutions for the Northern Gateway project with the Greater Manchester Authority and the City of Manchester, U.K. This ambitious renovation project has a strong emphasis on green infrastructure and is a perfect testing ground for these innovative solutions, seeking to mobilise more than USD 60 million dedicated to green infrastructure. If this project is a success, the City Finance Lab will actively share knowledge and stimulate the replication of these solutions in other cities in Europe and worldwide.
The more cases we have like Manchester, the more these innovative financing solutions will be mainstreamed and replicated, and the faster the transition to greener cities.
If you are working on implementing an innovative financing solution for urban green infrastructure, or you are interested in replicating existing financing solutions in your city’s context, the City Finance Lab can support you in this process. Please contact us at [email protected].
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