The need for low carbon cities can be reduced to a simplified equation; cities produce too much Green House Gases (GHG) thus contributing to climate change and negatively impacting their sustainability. The major source of urban GHG’s are fossil fuels used for energy generation in the sectors of transport, electricity and district heating (Whiteman et al 2011:252). It is therefore essential to not only transition to more sustainable, less carbon intensive sources of energy but also to reduce overall energy consumption. Poor town planning initiatives that do not encourage transit oriented development, mix use, densification, green infrastructure as well as an ill adapted regulatory environment surrounding waste disposal, construction materials and property development further contribute to urban GHG emissions (CCC, 2012:8).

Due to greater levels of efficiency through higher population densities, cities are a key platform towards a lower carbon future. Over half of the world’s population is urban (UN-Habitat, 2010) and up to 70% of GHG emissions globally are urban (Sullivan et al 2013:3, Lehmann 2015:32, UNEP 2012:12). Cities in urbanised countries produce up to 80% of economic output (UNWUP, 2009:8) but it is the ‘global south’ which provides the most potential for change. The United Nations (2012) predicts that by 2050, 5.1 billion of the 6.2 billion people who will live in urban areas will do so in the developing world (p.13), this rapid urbanisation along with a growing middle class is driving changes in patterns of consumption and production which will accelerate the need for cities to become carbon efficient.

Within the UK, local authorities influence 40% of GHG emissions (up to 70% if national authorities are included)(CCC, 2012:6), this allows highly efficient, large scale solutions to be implemented. An alliance of 40 cities has been established to globally coordinate efforts while integrating private sector activities (C40 Cities, 2008)

While the incentives to change and the consequences of not doing so are well documented, the process is far more complex (Helm 2015, CCC, 2016, UNEP 2011). Solutions proposed appear to be increasingly fragmented (Bulkeley et al., 2011:24) while consumers, who pay such initiatives through higher bills or taxes, are frustrated by slow progress and high costs (Helm 2015:10). UNESCAP (2012) highlights that the ‘business-as-usual’ scenario is resulting in ‘unsustainable and inefficient economic patterns in the long run’ (p.16).

Stern (2007) blames slow progress on market failures of ‘unfettered capitalism’ and its inability to price negative externalities as a key cause of climate change, arguing for greater government intervention. Helm (2015) on the other hand, argues that government intervention and top down international agreements such as those stemming from Rio, Kyoto, Durban, Copenhagen and Paris are inefficient, simplified, riddled with conflicts of interest, lack clear legal frameworks or enforcement measures with a focus on “catchy statements” that allow politicians to congratulate themselves but achieve little progress; ‘from a climate change perspective it has all been pretty disastrous’ (Helm 2015:5). While both forms of criticism may be justified and acknowledged by stakeholders (United Nations, 2012:5), it remains that both governments and international organisations remain the lynchpin on which any sustainable change is dependent. There are as many proposed solutions to a low carbon future as there are stakeholders and challenges. While there are key questions surrounding the forms that such a low carbon transition should take – is nuclear energy more desirable and sustainable than renewable? Which renewable is better adapted and efficient? – there are further questions surrounding the implementation, investment and ownership mechanisms that such a shift requires.

Beyond the essential aspect of preserving our natural habitat, there are considerable economic benefits to reducing carbon emissions which can benefit private sector actors. Those are both direct – R&D research, infrastructure investments, direct employment – as well as indirect – reduced health care costs, attractiveness to investments, reduced vulnerability to natural disaster events (UNESCAP, 2012:16; Sullivan et al 2013:520). UNESCAP (2012) identifies the role of the private sector in driving the essential change of the economic system but highlights two ‘gaps’ for which government leadership is needed, a ‘time gap’ between ‘short-term costs and long term benefits’ and a ‘price gap’ between ‘current market prices and the real cost of natural resource use and ecosystem services’ (p.19). The impact and mitigation strategies surrounding those “gaps” is explored below through some of the advantages and disadvantages of private sector financing in low carbon cities from the perspective of local authorities.


Funding – Sullivan et al (2013) interviewed stakeholders of low carbon programmes within British local authorities and found that ‘finance was seen by virtually all … as the key obstacle to the low-carbon cities agenda‘. In a global context of decentralisation of energy provision and decarbonisation of consumption (Helm, 2015:8) and a reluctance by the public sector to finance capital intensive, risky projects with uncertain results (Kolk and Pinske, 2005:7; Sullivan et al 2013:516), the continued (and increased) involvement of the private sector in the financing of low carbon cities has become inevitable and even desirable, particularly in capital starved developing economies which now represent a majority of global GHG emissions (UNESCAP 2012).

An example of funding requirements was explored by Gouldson et al (2012) in the case of Leeds City Region where an attractive case could be made for a £4.9 Billion investment into lower carbon transition effort under commercial debt terms of 8% APR which would see a repayment within 4 years, reduce energy costs by £1.2 Billion a year in addition to creating hundreds of jobs and promoting the local economy. Such capital requirement could not be obtained by Leeds City Authorities through public sector sources since the total amount earmarked by the UK for low-carbon investments over the coming decade is only £14 Billion (DECC, 2012). Private sector sources of financing are thus required to achieve meaningful progress. It is how this private capital is paid back which creates conflicting results and reflects a gradual shift from taxpayer funded to end-user funded (through bills) energy programs as it gives greater (theoretical) control to end user, fewer liabilities to local authorities and greater transparency for stakeholders (Michaelowa, 2012). Increasingly, sources of “third party” finance from international NGO’s such as the Green Development Fund and the Green Deal Finance provide missing links between the private and public sectors through co-investments, thereby reducing public sector’s financial burdens while enhancing private sector’s profit making elements (CGTLA, 2015).

R&D – Helm’s Carbon Crunch (2015) argues that current renewable technology is deemed expensive with minimal profitability margins, a dependency on subsidies, carry significant risk of change in public policy, must compete with much more efficient methods of energy production through fossil fuels and face rigid built-in networks of distribution with high sunk costs (Kennedy and Corfee-Morlot, 2013). He believes that the true potential in lower carbon intensive forms of energy production resides with future renewable technologies and not current ones. Yet national authorities have so scarce financial resources that the R&D of future renewables must be financed through the private sector. In order to do so, patents must be protected and opportunities for profit making must be afforded through regulation in order to develop a competitive market place (Kolk and Pinske 2008).

Efficiency through competition – Both state and private actors understand that competitiveness breeds efficiency while monopolies and oligopolies foster complacency (Porter, 1998). By providing the environment for companies to compete in researching and financing low carbon future technologies in real life settings such as Songdo in Korea and Masdar in the UAE, it is possible to catalyse development of technologies and create synergies between elements of the private sector (Shwayri 2013; Cugurullo, 2015; Evans and Karvonen, 2010). In both cities, it is multinational companies who finance R&D and dictate their development allowing for rapid global application and adaptation.

Indirect Impact – The largest contributions to lower carbon emissions may come not through complex partnerships between public and private sectors but rather independently of each other (Rugman & Verbeke, 2000). Tesla has developed electric cars that have become attractive to the public, not because of their electric status but despite of it (Stringham et al 2015). While electric cars still produce carbon through electricity generation and the manufacturing process, Tesla is striving to create a closed loop system for the car’s energy through the individualisation of energy production (solar roofs) and improved energy storage (power-walls) to reduce the vehicle’s carbon footprint (Eisler, 2016). Uber (and Lyft or Zip) on the other hand are reducing the desire for car ownership by providing access to cars on as-needed while using technology to reduce costs and business expenses (Cramer and Krueger, 2016). The example of the T-Zed (Towards Zero Carbon Development) in Bangalore shows how a private company (BCIL) can build low carbon gated communities which are energy independent since municipal energy provision is unreliable, thus catering to a new form of market demand (Bulkeley et al, 2011).


Loss of Control – By enabling the private sector to control strategic elements of energy provision without adequate regulation and oversight, the public sector may loose control and suffer significantly from excessive pricing and suffer from economic vulnerabilities. The California Electricity Crisis of 2001 is an example where market deregulation and the privatisation of energy distribution, initially aimed at improving competitiveness and efficiency, led instead to wholesale opportunistic behaviour as Enron manipulated energy markets for exceptional profit to the detriment of the state of California (Hodge and Dahl, 2012) leading to the collapse of both Enron and Californian utility companies (Maize, 2003).

Profit Requirements & Public Good / Cherry Picking – The private sector has amongst its first incentives, the maximisation of profits for the benefit of its shareholders. With the increasing involvement of the private sector in the provision of energy globally and the relative poor financial performance of renewable energy provision, there exists a clear risk that the private sector will continue to prefer the financing of more profitable and lower risk coal based energy sources and lobby as such, thus depleting scarce financial resources from furthering an urban low carbon agenda. This profit maximising incentive also means that certain projects which have limited capacity for financial profit but which do have public good elements are excluded.

PPP’s – Capacity for implementation and subsequent flexibility – Public Private Partnerships, the preferred method of integrating the private sector in public sector investments (Loorbach et al, 2009), is complex and requires special skill sets that most developing economies do not yet posses. An example of this can be found in the Salkhit wind farm project in Mongolia. The Government of Mongolia (GoM) passed a renewable energy law in 2007 to permit Independent Power Producers (private sector) to provide “clean” power to the grid through a Power Purchase Agreement (Ferrostaal, 2015) based on the principles that the GoM would pay a premium for renewable energy (8 to 12 cents/kWh when the market rate is 5 cents/kWh) (Radii, 2008). This was the first energy PPP between Newcom (a private sector company) and the GoM, financed in part by the EBRD (Pyrkalo, 2013). The wind farm was to be built over 2 stages and was governed by an agreement which dictated that the entire output would be purchased by the GoM at a premium rate to ensure its financial sustainability (Shayer and Vendrell, 2016). At first stage completion, the GoM had not increased end-user energy costs as planned due to “political concerns” and found that in the midst of an economic crisis and unusually harsh winters (World Bank, 2016), it was more economical to generate electricity through cheap coal (Bolor 2015) rather than pay a premium for renewables, in particular when most of the output would be generated at night, when demand was lowest (Detert and Kotani, 2013). As a result, the GoM initially purchased part of the output at times of greater demand and at lower than market rates, leading future phases of the project to be suspended alongside another 5 wind farms in Mongolia (, 2015; Shayer and Vendrell, 2016). While those issues are now mostly resolved, the institutional uncertainty lingers. This project emphasised that the absence of strong institutional partners, reliable data, institutional capacity building and within small markets, companies will be reluctant to finance renewable energy projects (Painuly, 2001). The issue of stability of decision makers in the energy sector as a barrier to private sector investment is continuously highlighted ‘current Mongolian energy planning processes also suffer from inconsistent policies and poor coordination between different ministries and a lack of transparency leading to uncertainty …’ (Sovacool et al, 2011:38; Radii, 2008). This example also illustrates that due to the long term nature of PPP’s, the private sector will require that terms are established with minimum flexibility for renegotiation, leading to situations where, as in this case, the GoM is forced into buying energy outputs it does not require at prices it can ill afford (Detert and Kotani, 2013).

Experimental and Fragmented Solutions – It is important to recognise that not all cities suffer uniformly from the impacts of climate change nor do they have the same means of action (Romilly, 2007) some may even benefit from climate change (Helm, 2015). Making process in reducing the carbon footprint of cities cannot be done in isolation, organisations such as C40 Cities provide frameworks on how to co-operate with the private sector but such ‘emergent organisations’ are not legally binding and provide little enforceability and thus limit themselves to capacity building roles (Kolk and Pinske, 2008). Jurisdictional confusion between the various state, municipal and local authorities as to responsibilities and approach to low-carbon initiative funding continue (Sullivan, 2008).

Lack of Capacity and Skills – The market size may be small, access to financial resources may be limited, pricing of the investment risks may be complex or a very competitive environment constrains the ability of the private sector to scale up low carbon investments and thus their ability to achieve considerable economies of scale (Kapur et al 2011).

Short-term focus / policy instability – The private sector has a shorter time span of investment periods into which it must achieve financial returns, this reduces the longevity of programs who may not achieve immediate results and thus creates tensions between environmental and economic concerns. Masdar City in the United Arab Emirates, was to be the world’s first zero-carbon city built under commercial (profit seeking) terms by the Abu Dhabi Investment Authority. When economic realities (and low oil prices) hit in 2008, plans were scaled back and sacrifices were made so that the city could continue being commercially attractive, thus compromising many of the zero-carbon principles that underpinned its creation (Cugurullo, 2013, 2015).

Part of this short term focus stems from unpredictable policies of subsidy or state support, in particular in emerging markets such as China where private support for the implementation of photovoltaic commercialisation has been erratic (Zhang, Andrews-Speed, and Ji, 2014) but also in developed economies where public policy on low carbon transition has been evolving and can be perceived as “confused” by the private sector (Sullivan et al, 2013).

Conflicts of interest – Either perceived or real, can be an issue for both private and public individuals. Accusations of collusion or crowding out of other actors if too successful and incompetence and wasting taxpayer funds if not are commonplace (Sullivan et al, 2013:524). A resistance to change and upheaval is common amongst stakeholders who are not well incentivised for risk taking (Sullivan et al 2013:519)


A city cannot sustainably pursue a low carbon agenda without considering liveability, efficiency, competitiveness, resilience, renewability of resources and social equity (Lehmann, 2015:9). A low carbon city encompasses those within a holistic approach to reducing carbon intensive energy consumption in tune with and adapted to its environment. Ebenezer Howard conceptualised the principle and the integration with the private sector with his 1902 book: ‘Garden Cities of Tomorrow’ which has been followed by countless publications (Devuyst et al., 2001). Despite such a body of knowledge, the rift between ourselves and our environment continues to grow while our culture of consumerism is left untouched. For sustainable change it is our behaviour that must be adapted (Lehmann and Crocker, 2012; Coutard and Rutherford, 2010). It is clear that not only are new forms private sector co-operation required in order to achieve more sustainable and faster progress towards low carbon cities, but new forms of consumption, investments and synergies are needed. This will require continued experimentation and subsequent adaptation not only as technologies evolve but also as our environment, market demand and capacity change (Evans and Karvonen, 2010).

The private sector links the various elements of a local, national and global society in a series of complex web of geo-socio-economic-political networks that ultimately drive change and deliver what markets demand (Korhonen and Seager, 2008). Yet the private sector is, just like cities, diverse in its capacity, willingness and ability to enact change with regards to climate change. It is subject to different legislations, regulatory pressures and corporate cultures (Kolk and Pinske, 2008), many of those differences stem from industry sectors, country of operations and origin as well as its perceived role in society (Jeswani et al., 2008). The private sector is now an integral part of our cities, urban systems and society, it cannot be excluded from carbon reduction initiatives if they are to succeed. The focus should shift away from whether the private sector should be involved towards how should it be involved and how can public sector involvement and regulation mature sufficiently to mitigate its disadvantages while maximising its advantages. It is in elements such as the allocation of risks and rewards (Sullivan et al 2013), the introduction of carbon pricing (Driesen, 2014), the promotion of technological breakthrough (Jacobson and Delucchi, 2011) and the establishment of a stable public policy (Helm, 2015) that sustainable progress can be achieved for the benefit of all stakeholders.


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