How European Cities Finance Climate Action: New Evidence from 203 Municipalities

Financing is a decisive factor in turning climate ambitions into concrete local action. A new academic publication provides one of the most comprehensive overviews to date of how European cities plan to fund climate change mitigation measures, from renewable energy deployment to energy efficiency and low-carbon transport.

The study analyses data from 203 cities across 21 EU countries, representing a combined population of around 46 million inhabitants. Drawing on information submitted through Sustainable Energy and Climate Action Plans (SECAPs) under the Covenant of Mayors initiative, it examines how cities allocate budgets, where funding comes from, and which financial instruments are used to support climate action. Together, the analysed plans include more than 8,500 mitigation actions and an estimated €100 billion in planned investment.

The findings highlight a strong dependence on public funding, particularly municipal budgets and grants. While cities increasingly recognise the scale of investment needed to meet climate goals, the use of more innovative financing tools  -such as green bonds, public–private partnerships, third-party financing, or pay-for-performance schemes- remains limited. This reliance on traditional funding sources raises questions about long-term financial capacity, especially for smaller and medium-sized municipalities.

The analysis also sheds light on what drives planned investment. City size and energy demand emerge as the strongest predictors, while higher GDP per capita does not translate into higher planned climate investment. Interestingly, the level of ambition in climate targets does not appear to significantly influence budget allocation.

By combining quantitative analysis with policy-relevant insights, the study offers valuable evidence for policymakers, local authorities, and practitioners seeking to strengthen local climate finance and unlock more diverse funding pathways.

Source: Energy Research & Social Science, ScienceDirect