Financing Transport Projects

The briefing argues that conventional neoclassical financial analysis fails to account for long-term non-financial risks and externalities, often leading to underinvestment in sustainable transport. It proposes an 'integrated financial analysis' where positive externalities—such as health benefits and time savings—are monetized and converted into revenue streams. Using a case study of a Bus Rapid Transit (BRT) system in Bandung, Indonesia, the paper demonstrates that while the project is financially unviable based on ticket sales alone, it becomes viable if a small fraction (12% to 19%) of its societal externalities are internalized. The author recommends lowering social discount rates to better incentivize long-term sustainable investments.

• Conventional financial analysis based on neoclassical theories often overlooks long-term non-financial risks, such as climate transition and environmental degradation, because it focuses on short-term cash flows and assumes natural services are freely available.
• The failure to internalize externalities creates market inefficiencies: negative externalities from carbon-intensive road transport are underestimated, while the societal benefits of sustainable transport are ignored, driving investment toward high-carbon options.
• Integrated financial analysis can convert monetized externalities into revenue streams through mechanisms such as outcome-based financing, the sale of carbon credits, or tax increment financing (TIF) based on increased property values.
• High social discount rates can disadvantage sustainable projects by giving less weight to future benefits and delaying the perceived impact of climate change; therefore, lowering these rates is recommended to incentivize long-term investments.
• A case study of a Bus Rapid Transit (BRT) system in Bandung, Indonesia, showed that the project was financially unviable based on ticket sales, with revenue covering only 3.4% to 4.2% of costs and debt.
• The Bandung BRT case study demonstrated that internalizing between 12% and 19% of the project's total externalities—specifically benefits like retail revenue and value of time saved—would be sufficient to reach the financial breakeven point.

APA

Carlucci, E. (2024). Financing Transport Projects. International Institute for Sustainable Development. https://www.iisd.org/system/files/2024-03/financing-transport-projects.pdf

Chicago

Carlucci, Edoardo. Financing Transport Projects. International Institute for Sustainable Development, 2024. https://www.iisd.org/system/files/2024-03/financing-transport-projects.pdf.

Wikipedia

{{cite report |last1=Carlucci |first1=Edoardo |title=Financing Transport Projects |publisher=International Institute for Sustainable Development |date=January 2024 |url=https://www.iisd.org/system/files/2024-03/financing-transport-projects.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{carlucci2024financing, author = {Carlucci, Edoardo}, title = {{Financing Transport Projects}}, institution = {International Institute for Sustainable Development}, year = {2024}, month = jan, url = {https://www.iisd.org/system/files/2024-03/financing-transport-projects.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }