Empowering local governments to meet the cost of climate action

Across the EU, local authorities play a leading role in the climate transition. They have core responsibilities in the sectors that are central to reducing emissions, including transport and buildings. They are also major contributors to the public investment necessary for achieving carbon neutrality. When local authorities develop their climate transition plans, including for example to expand the public transport networks and retrofit public buildings to increase energy efficiency, they must also plan for significant public investments.  

According to a study by I4CE, local authorities in France need to double their investments in decarbonization by 2030 – without taking into account future adaptation costs. This significant effort will be critical for achieving carbon neutrality in France by 2050. 

With public investment on a tight rope in large parts of Europe, doubling investment for the climate transition is no small challenge. In response to this, I4CE, in collaboration with a group of cities and metropolitan authorities in France, have developed a new tool for local decision-makers: a method to elaborate a “climate-aligned financing plan” tailor-made to their city. But what does that mean in practice? 

Driving local climate action through investment planning 

A climate governance tool: aligning investments with climate objectives 

Any local authority that has adopted a climate strategy has also set local emission reduction targets. Achieving these quantitative targets, requires matching them with financial resources and embedding them in a clear, long-term investment trajectory. Integrating the necessary climate investment into a multiannual strategy provides an overview of financing needs and how to address those.   

When climate investments are integrated into existing local investment plans, local governments  have already taken the first steps to ensure that investments are allocated according to its decarbonization trajectory and that all departments of the city administration are engaged in achieving the objectives.  

A financial steering tool: ensuring a match between climate and financial trajectories 

One key challenge is making sure the trajectory of the financing plan is aligned with that of the climate plan. The “climate-aligned financing plan” provides a method for mobilising all available financial levers across a local government and building a shared framework for investment.  

Beyond optimizing traditional funding sources—grants, taxes, debt—local authorities can explore innovative tools like the “green budget”. This approach assesses the climate impact of investments by identifying “green” or “brown” expenditures, which helps redirect or rebalance planned spending where needed. 

Having a clear view of the investment effort required for the climate transition also strengthens dialogue with financial partners. A well-structured investment plan gives credibility to access grants, loans, or co-financing by improving financial visibility and reinforcing long-term commitment. 

3 Key Steps to Build a Climate-Aligned Investment Plan 

1) Develop a quantified, sector-specific climate strategy 

Break down your climate targets by sector and translate them into tangible targets or “physical trajectory”. For example, reducing GHG emissions from public buildings by X% could mean retrofitting Y square meters. 

2) Translate those targets into investment needs 

Once the targets are set, estimate the investments needed. To do so, define a “unit cost” per climate action (e.g., €/m² for building retrofits) and calculate the total climate investment needed (e.g. Y m² × €/m²). 

3) Embed these financial needs into the investment plan 

This means 2 things: converting investment needs into operational projects across line departments and identifying all available financing options to support them. 

A tool for all local governments across Europe   

This methodology will be available by the end of June. While this method is tailored-made to French local governments, the approach is adaptable to other contexts. Whether it is called a capital investment plan, multi-annual budget, or infrastructure investment roadmap, the principles remain the same: 

• Anchor climate goals in long-term financial planning 
• Mobilize all sectors of local government around climate action 
• Use the investment plan as both a management, fundraising and advocacy tool 

Adopting a climate-aligned investment planning approach can make climate objectives tangible, fundable, and achievable. It is therefore a relevant tool not only for local authorities, but also for the national and EU level policy makers who recognise that meeting ambitious climate objectives requires innovative tools and increased capabilities at the local level. As the EU aims to stay on course to meet its mid- and long-term emission reduction targets, the investment planning approach can equip cities to better lead and deliver climate transition in Europe.      

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This project is part of the SLPF project (sustainability in local public finances). This project is funded by the European Union via the Technical Support Instrument, and implemented by Expertise France, in cooperation with the European Commission. This project is produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.