Transport is one of the fastest-growing sources of greenhouse gas emissions, accounting for 24% of carbon emissions worldwide. Nearly three-quarters of those emissions come from road vehicles. Solutions like electrification and increased public transport can reduce the transport sector’s emissions, but they come at a hefty cost — particularly for low- and middle- income countries, which account for 82% of the world’s population.
To reach net-zero emissions by 2050, the International Energy Agency calculates that carbon emissions from the transport sector need to drop 50% by 2035. For that to happen, not only do we need to boost the percentage of electric cars on the road — from 10% today to more than 85% in just a decade — but we also need a fundamental shift in how people move.
The world needs significantly more public transport, and buses in particular, to reach net zero. By 2035, electric buses need to make up 60% of total bus sales around the world to stay on track, a sharp increase from the current 4%. Reliable and frequent public transport is currently available in only 37% of the world’s urban areas, despite the United Nations Sustainable Development Goals calling for all urban dwellers to have such access by 2030. Reaching net zero will also depend on shifting more travel behavior toward walking and cycling, ensuring these modes are convenient, safe and accessible.
Meeting these goals will require significant investment. As urbanization continues to accelerate — particularly in Africa and Asia — transport demand will grow, increasing the pressure to secure resources and act fast to avoid locking cities into unsustainable development patterns. Because infrastructure and new technologies are expensive and have particularly high upfront costs, low- and middle-income countries, which often face higher interest rates and debt burden than other countries, have unique challenges in transitioning to more sustainable transport systems.
Global climate finance can help ease this burden.
The transport sector currently receives $334 billion a year from public and private sources, but that amount needs to increase to an estimated $2.7 trillion by 2050 to meet the reduction goals for global transport emissions. In developing countries (excluding China), the Independent High-Level Expert Group on Climate Finance estimates that the transport sector will need $575 billion per year by 2030 to reach those goals.
The new climate finance goal agreed to at the UN climate summit (COP29) —$300 billion per year by 2035 for all sectors—falls very short of these requirements and shows how much work remains in the years ahead. But, despite this limited commitment, and even stiffer headwinds in global politics that have developed since COP29, some hopeful trends are emerging. Multilateral development banks, for instance, have been steadily growing the amount of climate finance they offer, with the total reaching $125 billion in 2023. This is especially significant for transport, given that 16% of lending by multilateral development banks since 2000 has gone to the sector.
Moving forward, it will be important for national leaders, city officials, banks and development institutions to understand, through a sector-specific lens, how finance can be harnessed and scaled up to meet emissions reduction needs and increase climate resilience. To that end, a recent WRI working paper examined more than 800 transport projects in Asia, Africa, Latin America and the Caribbean and analyzed 14 case studies to highlight opportunities for, and barriers to, accessing climate finance for sustainable transport in low- and middle-income countries.
The State of Climate Finance for Transport
In its current state, climate finance for transport takes many shapes. The UN Framework Convention on Climate Change defines it as financial resources —from public, private or alternative sources — that support efforts to mitigate and adapt to climate change. In practice, financial flows are tagged as “climate” according to the provider’s intent or the nature of the project they are financing.
Blended finance, which combines private bank lending with lending from philanthropies or development banks with the goal of reducing perceived risks and increasing investor confidence, supported about 30 of the transport projects we examined. Bogotá, Colombia, for example, purchased a new fleet of 401 electric buses using $134 million in development finance from the Inter-American Development Bank Invest and private sources.
Green bonds are another important financial instrument to raise funds, but their applicability to low- and middle-income countries is currently limited. In our research, nearly two-thirds of the transport projects that used green bonds were developed with well-established capital markets. Low- and middle-income countries saw relatively few, likely due to economic and political instability creating a perception of these countries being high-risk. Additionally, many subnational governments are unable to issue bonds. Addressing these structural barriers in low- and middle-income countries can help enable equitable access to not just green bonds, but also to other forms of financing.
While climate finance funds a wide range of transport project types, the vast majority —75% of the 839 we examined — involved land transport. Of those, one-third involved building, rehabilitating and/or maintaining roads, highways and bridges, and improving connectivity among modes. This includes promoting multimodality across roads, railways and ports. Meanwhile, only 130 public transport projects and roughly 60 electric vehicle projects accessed climate finance. This highlights a gap in accessing climate finance across modes, even as electric mobility gains momentum and attracts increasing investments in recent years, underscoring the need for greater support for public transport and broader low-emission and sustainable mobility solutions.
More broadly, just 20% of accessed projects were related to boosting adaptation and resilience, a percentage that doesn’t match the rapidly growing need to enhance resilience in the transport sector.
At the same time, some projects in low- and middle-income countries show significant promise for accessing climate finance.
The Bus Rapid Transit (BRT) system in Dar es Salaam in Tanzania, for instance, includes a 21-kilometer (13-mile) corridor of dedicated bus lanes running in the center of the city, train-like bus stations, and improved walking and cycling infrastructure. The project, a private-public partnership that included $121 million from the African Development Bank, is the first of its kind in Tanzania and East Africa.
A similar project also opened this year in Dakar, Senegal, but with all electric buses —another first. That project included a World Bank guarantee of 19.9 million euros to Meridiam, a private investor and asset manager specializing in public and community infrastructure, to secure its equity investments into the system. Such guarantees of public capital could spread risks and help attract private capital.
And India’s national government is procuring 10,000 electric public buses, bolstered by a payment security mechanism aimed at reducing risk.
Another example, off the coast of East Africa, shows the importance of grant funding in an adaptation project. With $36.5 million in funding from the African Development Bank, the country of Comoros is rehabilitating 29 miles (47 kilometers) of road to protect against sea erosion.
Such public-private partnerships have worked to boost project efficiency and sustainability. While concessional loans and grants from multilateral development banks and development finance institutions have been critical in getting projects off the ground, particularly in low- and middle-income countries, mechanisms like payment security systems that emerge from these partnerships can reduce financial uncertainty and enhance contract viability.
Barriers for Low- and Middle-Income Countries
Despite these success stories, significant challenges remain. To begin with, low- and middle-income countries often lack the policies and regulatory frameworks that could enable climate finance. For example, informal public transport in Africa is often loosely regulated and organizing owners to access credit is difficult. Limited governmental capacity exists for project preparation and implementation, as illustrated by the fact that the Dar es Salaam BRT transit agency set up its contract with a private operator. Poor coordination among transport, climate and finance ministries further impede the identification and execution of bankable transport projects that could attract private sector participation.
Transport projects that receive climate funding consistently have high up-front costs, which can be a deal breaker for many low- and middle-income countries. If new technologies like electric buses are not purchased through pooled procurement, for instance, they can end up being more expensive than diesel buses — a contributing factor to the perception that transport projects are high-risk to investors.
Then there are issues around the quality of finance. While development finance is increasingly considering the impacts of climate change, a better understanding of how finance can align with the goals of reducing emissions and improving resilience is essential. Climate finance should not just be measured by the amount of money provided, but also on its impact, with careful attention to ensure it does not exacerbate debt distress in lower-income countries that may already face high debt burdens. Grants and concessional finance (which has more favorable terms, such as lower interest rates) are critical for these countries. This is particularly true for climate investments like adaptation projects that may offer less immediate economic returns or require longer repayment periods.
Multi-stakeholder action on climate finance can help overcome these challenges. Governments can draft new policies in support of national public transport or an electric vehicle roadmap, for example. They can also set up national payment security mechanisms to make projects more appealing to private investors. Creating private financial entities that replicate successful projects and establishing common tracking frameworks to bring efficiency and scale would also help.
Despite the overall inadequacy of COP29’s climate finance outcome and the withdrawal of the United States from international climate leadership — indeed, perhaps because of this retreat — sectoral players should continue to improve on the delivery of climate finance. Sustainable mobility investments can show how “climate” investments are, in reality, often investments in much more than just greenhouse gas reductions. They can also serve people, improving livelihoods and economies, while working toward a more just and sustainable world.