Editing IPCC:AR6/WGII/Chapter-6 (section)

==== 6.4.5.1 Urban Adaptation Financing Gap ====

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Cities and settlements in higher-income countries typically have access to funding that could be used to enhance resilience and build adaptive capacity; this includes both the private resources of individual households and firms (which varies significantly within and among cities) and public budgets of different government tiers (see Table 6.10).

Depending on fiscal devolution levels within a country, public revenues may be collected and managed primarily at the national, state, metropolitan or local level. In federal countries, sub-national governments collect an average of 49.4% of public revenues, compared with only 20.7% in unitary countries ( [[#OECD/UCLG--2019|OECD/UCLG, 2019]] ). For example, sub-national revenues represent over a quarter of total public revenues in Belgium, Canada and Denmark, but less than 5% in Greece, Ireland and New Zealand ( [[#OECD/UCLG--2019|OECD/UCLG, 2019]] ). The share of the national revenue transferred to sub-national governments also varies significantly among countries: grants and subsidies account for over three-quarters of sub-national government revenue in Malta, but less than a quarter of sub-national revenue in Iceland ( [[#OECD/UCLG--2019|OECD/UCLG, 2019]] ). A local government’s capacity to collect revenues is further mediated by incomes within a city (which dictates the prospective tax base) and the capacity of civil servants to administer taxes, fees and charges. The result is that metropolitan and local governments’ budgets vary dramatically, across and within countries. For example, per capita municipal budgets vary from USD 1114 in Saskatoon and USD 2682 in Peterborough (Canada), USD 2635 in Leipzig and USD 3638 in Freiburg (Germany), to USD 4907 in Bristol and USD 5612 in Aberdeen (UK) ( [[#Löffler--2016|Löffler, 2016]] ).

Revenue streams are often insufficient relative to the scale of adaptation requirements. For example, Kano, Nigeria, is a large urban area that urgently needs investment in human development and climate resilience but where a fragmented local government has little capacity to finance their climate plans (Mohammed, Hassan and Badamasi, 2019). Many local governments are unable to mobilise funds for adaptation as they face competing priorities, meaning that resources for resilience must be allocated by higher levels of government ( [[#Hughes--2015|Hughes, 2015]] ), which also perceive opportunity costs to adaptation investments. Funding from non-state actors is, therefore, proving important. For example, in the USA, private foundations and non-profit organisations account for 17% and 16%, respectively, of adaptation support in urban areas (Carmin, Nadkarni and Rhie, 2012). However, tapping into these funding sources raises complex questions about accountability and ownership of urban adaptation (Chu, Schenk and Patterson, 2018). Land reclamation may foster real estate markets and mobilise finance for adaptation, as shown in Germany, the Netherlands and the Maldives (Bisaro et al., 2019).

City governments need to anticipate climate shocks and stresses, and design their operating models and investment plans accordingly to ensure financial resilience (Clarvis et al, 2015). Climate risks threaten fiscal models, for example, a drought may disrupt water revenues by reducing total water consumption and incentivising households and firms to invest in independent water storage or supply infrastructure (Simpson et al., 2019). Storm surges and sea level rise may threaten sunk investments in revenue-generating infrastructures such as toll roads or electricity generation and transmission systems. .

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