Transport is crucial for the economic and social development of nations. However, it’s also a major contributor to greenhouse gas emissions. Developing countries are now facing the challenge of expanding transportation to support inclusive growth while transitioning to sustainable, low-carbon mobility.
Financing Climate Action for Transportation in Developing Countries explores the intersection of climate finance and transport. It describes the landscape of global climate finance architecture covering financiers, volume and products as well beneficiaries. It also discusses challenges and opportunities to introduce policy and regulatory changes. Finally, it provides insights into how innovative financial solutions can attract unlock private and concessional finance into blended solutions while ensuring accessibility, affordability, and resilience. The report aims to inspire policymakers, development practitioners, and the global community to leverage climate finance for creating sustainable and inclusive transport systems.
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Key Findings:
Transport emissions: Are rising at a higher rate in low- and middle-income countries (LMICs) than in high-income countries. With lack of public transit solutions and longer distances to markets, the developing world is likely to be the main contributor to transport carbon dioxide (CO2) emissions in the coming decades.
High Investment Needs, Higher Returns: Investing in resilient transport in low- and middle-income countries (LMICs) requires $417 billion annually between 2015-2030 (1.3% of GDP), yet yields $4.2 trillion in net benefits, offering $4 return for every $1 invested.
Insufficient Climate Financing: While global climate financing reaches $1.27 trillion annually, the transport sector only receives $336 billion, with just 3% allocated to least developed countries (LDCs) and 15% to other emerging markets and developing economies (EMDEs) excluding China.
Private Sector Dominance: Low-carbon transport financing is predominantly private-sector-led, focusing mainly on vehicle electrification in developed nations, while development finance institutions (DFIs) play a key role in developing countries.
Barriers to Investment: Challenges include a lack of bankable projects, limited demand in some markets, and governments' reliance on DFIs due to limited access to commercial borrowing and risk management capacity.
Key Policy Actions for LMICs: Transitioning to low-carbon transport requires removing subsidies, ensuring users of private and air transport pay full social costs, and recycling tax revenues from transport pricing into green investments.
Financing Strategies: Blended financing, credit enhancements, and creating portfolios of bankable green projects are recommended to attract sustainable finance and scale up small urban projects.
Paradigm Shift Needed: Decoupling transport demand from GHG emissions requires moving away from road expansion and vehicle subsidies towards a holistic approach that integrates transport with economic and social considerations, particularly for LMICs.
Policy recommendations
This report advocates for an integrated financing that:
Set out transport-specific climate action goals
Establish green transport–specific regulation and institutional frameworks
Incorporate GHG analysis in transport planning to prioritize policies and investments
Optimize funding mechanisms to incentivize greening actions
Ensure public spending efficiency
Put a focus on research and development
Develop a financing strategy including blended financing and credit enhancements to leverage sustainable finance into the Paris Aligned transition.
