This article is the product of a POLITICO Working Group.
WARSAW — Cities generate about 70 percent of the world’s greenhouse gases, so any effort to become carbon-neutral fails without their involvement. But the costs of going green are immense.
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Think of the EU’s Green Deal program to become climate-neutral by 2050 as a pyramid. Up on top, the bloc’s leaders have made the mid-century target the core of the new European Commission’s program. That aim has to be approved by national governments (something that’s being worked on). Then those goals get transmitted further down the chain to end up at municipal governments.
The transmission belt that begins with Commission President Ursula von der Leyen ends with local officials like Justyna Glusman, Warsaw’s coordinator for sustainable development and greenery, who has to figure out how to revamp her city with very limited financial resources.
“Cities face all kinds of challenges. They are seen as opportunities but they are also seen as those who have to take the responsibility for driving climate neutrality,” said Katarzyna Szumielewicz, program manager at the Commission’s Directorate General for Regional and Urban Policy, speaking at a recent POLITICO working group on how cities can reduce their carbon footprint.
Globally, cities need to invest $1.8 trillion a year to become carbon-neutral, according to a report by the Coalition for Urban Transitions, an NGO. It calculates that the investment would generate annual returns worth $2.8 trillion in 2030, and $7 trillion in 2050 based on cost savings alone.
A local problem
Those big numbers gain granular meaning at the level of individual cities. The EU wants new buildings to reach nearly zero energy performance by the beginning of 2021 and to decarbonize all of Europe’s buildings by 2050.
The Polish capital, a city of 1.7 million in a greater metropolitan region of about 3 million, faces a huge job in reaching the bloc’s green goals.
It has the Continent’s largest centralized urban heating network, but it is coal-fired so will have to be changed in order to conform to carbon neutrality. About a fifth of the city’s houses have their own heating systems, many of them antiquated coal-fired furnaces that create smog and emit carbon dioxide — but many of those house owners don’t have the money to upgrade to cleaner gas, let alone to zero-emission systems like photovoltaics or heat pumps.
“Most of the buildings in Poland are single family buildings and people have no money to invest,” Alicja Kuczera, CEO of the Polish Green Building Council, said at the working group.
Warsaw isn’t as old as many other European cities because it was flattened during World War II. But it was largely rebuilt in the decades following that conflict when the main push was to house people, and modern energy-efficiency standards were unknown.
That means existing buildings need to be insulated and modernized.
The city has about 300,000 buildings. “If we want to retrofit just a part of them it is a huge cost,” said Glusman. She estimated that upgrading a fifth of the city’s residential building stock would cost €700 million; the city’s three-year budget for such tasks is €70 million.
“We know it is not enough,” she said.
Warsaw’s issues are faced by cities across the Continent. About two-thirds of Europe’s building stock dates to before 1980, which means it doesn’t meet modern energy standards and has to be upgraded.
It’s not just buildings. In order to become carbon-neutral, everything from waste systems to water and transport also has to be rethought. Although Warsaw is Poland’s wealthiest city, it lags Western Europe in many of these areas. The Polish capital has only 43 charge points for electric cars while Berlin has 573 and Paris has 815 — and both the French and German governments have made pledges to dramatically speed up their deployment.
That is setting off a race for cash. National governments are fighting among themselves to get as large a slice as possible from the EU’s next seven-year budget. Below them, regional governments and city administrations are also calling for more money.
“Cities are the largest emitters so if the EU wants to address the issue it needs to address cities directly and not through national governments,” Glusman said.
In Poland, local governments face severe funding challenges. The country’s laws set debt limits for cities, making it difficult for them to borrow large sums needed for expensive carbon-reduction projects.
While Warsaw is large and relatively rich, smaller cities and towns face difficulty in approaching debt markets because their projects are too small, said Piotr Dmuchowski, head of regional institutional sales for HSBC.
“If a mayor of a smaller town wants to buy 10 electric buses, that’s too small as the eurobond minimum is €500 million,” he said. He advocates for the government to make it easier for Polish cities to club together to jointly finance such projects, something that’s already happening in Scandinavia, the Netherlands and France, among other EU countries.
Polish municipal budgets also face a political problem. The country’s ruling nationalist Law and Justice party is at odds with many municipal governments, which are in the hands of liberal opposition parties. Sweeping reforms to the education system and to social benefits have put extra strains on local budgets that have to bear those costs.
Glusman said that those policy changes have cost Warsaw about 1 billion złoty (€230 million). Calling on Brussels to send cash to cities, she said: “The policy of the EU will be crucial to the success of these programs,” she said.
The EU’s Green Deal calls for €1 trillion in investments — money that is to come from the bloc’s budget, the European Investment Bank, governments, private lenders and investors.
“For Europe to transition to a climate-neutral economy, we need both political commitment and massive investments,” Valdis Dombrovskis, the Commission vice president in charge of the budget, said earlier this year.
In a sign of that new effort, the EIB in January struck a €1 billion financing deal with the city of Vienna, largely related to energy-efficiency measures in municipal housing. It was the bank’s first such agreement with a large European city.
“Over the next 10 years, we plan to kickstart climate action projects worth €1 trillion,” Andrew McDowell, the EIB’s vice president responsible for energy policy, said in January.
That spigot of cash is going to have to be directed across the Continent for cities to really reduce their carbon footprint.
“In the end it’s all about the money. Without the money it will be extremely difficult,” said Piotr Czopek, director of renewable and distributed energy at Poland’s ministry of state assets.
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