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How to finance Smart cities

22 September 2010
How to finance Smart cities
On Tuesday 21 September, The Climate Group hosted a high-level discussion where government and business leaders shared their thoughts on policies for stimulating the growth of emerging technologies. The event, Financing Smart Cities, States and Regions: Policies to stimulate the growth of emerging technologies sought to answer one crucial question: What smart policies are required to stimulate the private finance necessary to enable the rapid scale-up of the technologies-led clean revolution?
The backdrop for the event is the Climate Group’s 2008 report, SMART 2020, which showed that ‘smart’ grids, buildings and transport systems could reduce global emissions by 15% in 2020. With the global urban population of more than three billion is predicted to grow to five billion by 2025, cities, which are currently responsible for 70% of global emissions, represent large and growing markets for smart technologies 
Two keynote speakers and experts on two panels discussed the barriers to commercialization, the challenge of financing early stage technologies and finding cities that are willing to be early adopters of clean technologies.
A number of practical measures that can be taken to accelerate trends in this area were also identified during the course of the discussion. A clear role for government in shaping the landscape within which adoption of these technologies could be accelerated was identified. 
“ICT has an important role to play in the technological and energy revolution. The barriers to institutional change tend not to be technological they tend to be political and regulatory. Government has to send the private sector a clear signal that they can make money out of this and they can make money out of this long term,” said Dimitri Zenghelis, Director of the Climate Change Practice at Cisco IBSG.

In practical terms, specific actions that government can take to stimulate growth in this area were identified. They include:

  • Creating a policy platform and framework to enable businesses to innovate 
  • Addressing the challenges inherent in the PACE (Property Assessed Clean Energy) bonds program so that this can once again be a viable option for the resident and commercial market
  • Improving mechanisms for de-risking investment by public and private pension funds
  • Providing political sponsorship at the top levels of government
  • Setting a carbon price
  • Regulating through standards and planning to set the framework within which companies can innovate
  • Encouraging innovative ways for government and the private sector to partner (PPPs)

Cities also have a role to play. Cities can:

  • Use the purchasing power of cities to ‘prime the pump’ and to the early adopters to help companies get to scale 
  • Invest in R&D
  • Issue and underwrite city-wide bond issues for clean tech projects 
  • Partner with residents

The discussion also highlighted a need for technology providers to:

  • Improve and communicate the utility or usefulness of the technology to building owners and tenants – As Clay Nesler from Johnson Controls put it “Smart is as smart does…the technology has to provide value to building occupants and owners”
  • Improve their ability to measure, verify and report on the savings of the savings as this is key information that financial institutions will need in order to finance against efficiency savings.
But is there anything government shouldn’t do? One view was that cities, states and regions are not well-placed to directly back and fund entrepreneurs. There was also a sense that cities should not look to large incumbent organizations to bring innovative products to market in this area. According to Alan Salzman, CEO and Managing Partner of Vantage Point, “The incumbents in this field are somewhere between struggling, withdrawn and indecisive”. However, he pointed to the important role of incumbents in the field working alongside entrepreneurs to bring new products and services to the market.
The overwhelming consensus is that these technologies will be deployed and cities will be hubs for this kind of technological investment. The drivers of change – particularly in China where daily air pollution and poverty challenges are tough to ignore – are too strong. The question is one of timing. If we do not act now, every day China and India are making choices that may lock us into high carbon infrastructure, requiring costly retrofit later. There is a clear role for government, cities and the private sector to play a role in scaling these solutions. Salzman’s view is that “the role of technology is to make things cheaper and better … what we are trying to do is to find the solutions that 99.9% of the population will embrace. We believe that the solution is to nurture those technologies at scale.”
As Dr. Han Seung-soo, former Prime Minister of South Korea and the Chairman of the Global green Growth Institute of South Korea said in the event’s closing remarks, “making low carbon choices is not only crucial for the well-being of our planet but also offers opportunities for sustainable growth and lasting prosperity”. The time to act is now.
This Climate Week NYC event was part of The Climate Group’s market transformation programme. See examples of ‘smart’ solutions here and more information on SMART 2020 here

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