A new World Bank report focusing on railways It outlines the significance of railways in achieving low carbon transport solutions, the investment needs of the rail sector, and the challenges and opportunities in accessing climate finance.
Railways offer a sustainable transportation solution, reducing greenhouse gas (GHG) emissions by shifting traffic from road and air to rail. The report highlights the capital-intensive nature of the rail industry and estimates that developing countries will require USD 25 – 80 billion per year in investments. Climate finance is identified as a crucial source of funding for these investments, defined broadly as financing for activities that mitigate GHG emissions or support adaptation and resilience to climate change.
Climate Finance Instruments
The document examines different climate financing instruments, including:
- Private Climate Financing Instruments: These include green bonds and loans, and sustainability-linked financing instruments. Green bonds and loans have been successfully issued by several rail operators, providing a pathway for creditworthy railways and bankable projects to access climate finance. Sustainability-linked financing instruments, which tie financial terms to achieving specific sustainability targets, have also seen significant growth and are accessible to rail-related businesses.
- Carbon Finance Markets: The report explores voluntary and compliance carbon markets as potential sources of funding for rail projects. While the current use of carbon markets in the rail sector is limited, there is potential for expansion, particularly if additional regulations and standards for rail are introduced.
- Climate Funds and Results-Based Climate Finance: Multilateral and bilateral climate funds offer another avenue for rail projects, although historically they have provided limited financing. Results-based climate finance, which provides payments against verified GHG emission savings, could bring additional funds to the sector.
Challenges and Solutions
Accessing climate finance poses several challenges for the rail sector, including the need for creditworthiness, the capital-intensive nature of rail investments, and the complexity of qualifying for and utilizing climate-specific financing sources. The report suggests that familiarity with climate finance, high abatement costs, standardization of metrics and methodologies, and enhancing creditworthiness are critical areas to address.
To overcome these challenges, the report proposes a set of solutions, including:
- Mainstreaming climate finance knowledge within the rail sector to bridge the information gap between railways and climate financiers.
-
Developing and adopting standardized monitoring, reporting, and verification (MRV) standards for railway investments.
-
Supporting structural and governance reforms to assist railways in LMICs in achieving creditworthiness, thus expanding the availability of climate finance.
The report concludes that strategically considering climate-specific financing opportunities, alongside traditional sources such as public sector and development finance, can unlock significant potential for climate finance within the railway sector. It emphasizes the role of development institutions, like the World Bank, in facilitating access to climate finance for railways by addressing the identified challenges and leveraging their sector knowledge and financial instruments.
You can download the full report from open knowledge repository of the World Bank here.
