Introduction

The report analyses how climate finance can enable low carbon transport in Asia and the Pacific, where transport demand is increasing due to economic growth, urbanisation and population expansion. Passenger transport is projected to more than double and freight to triple by 2050 compared with 2015. Without stronger action, transport CO₂ emissions in Asia are expected to rise by almost 50% by 2050. Meeting climate and development goals requires substantial investment, including around USD 8.4 trillion for low carbon transport by 2030 within total infrastructure needs of USD 26 trillion. Investment burdens vary significantly by subregion, reaching over 9% of GDP in the Pacific and nearly 9% in South Asia, underscoring the need for differentiated financing strategies

Low carbon transport financing barriers and challenges

Key financial barriers include high upfront costs, limited access to affordable capital, and project risk. Electric vehicles (EVs), charging infrastructure, and mass transit systems such as metros require large initial investments that public budgets alone cannot meet. Existing fiscal policies, including fossil fuel subsidies, can further weaken incentives for low carbon transport.

Policy barriers arise from fragmented regulatory frameworks, weak coordination across government levels, and short political cycles that prioritise near-term outcomes over long-term investment. Limited institutional and technical capacity also constrains project planning, procurement and implementation.

Market barriers include low consumer awareness of low carbon transport benefits, competition from subsidised conventional transport, and supply chain constraints. Limited availability of critical materials and manufacturing capacity can slow deployment, although demand aggregation and regional manufacturing hubs can help reduce costs and improve investor confidence.

Financing low carbon transport

The report outlines a range of climate finance mechanisms combining public and private sources. Global climate finance for low carbon transport almost doubled from USD 169 billion in 2019–2020 to USD 336 billion in 2021–2022. Private finance accounted for 63% of total funding and showed the fastest growth, while public domestic finance increased in absolute terms but declined to 29% of the total. Development and international finance institutions contributed around 8%.

Subsidies and incentives are central to uptake. Countries such as China, Japan, the Republic of Korea, India and Australia have supported EV adoption through purchase subsidies, tax incentives and investment in charging infrastructure. Public transport subsidies across the region support rail, metro and bus rapid transit systems to reduce emissions, congestion and accessibility gaps.

Carbon pricing mechanisms, including carbon taxes and emissions trading systems, generate revenue that can be reinvested in low carbon transport. Countries such as Singapore, Indonesia, Japan, New Zealand and the Republic of Korea allocate carbon pricing revenues to EV incentives, public transport upgrades and clean technology development.

Green bonds are increasingly important, with global low carbon transport bond issuance reaching at least USD 110 billion, and Asia-Pacific issuances totalling at least USD 33.3 billion between 2018 and 2024. Public–private partnerships (PPPs) are highlighted through examples such as Mumbai Metro Line 3, where concessional finance covered about 57% of project costs, reducing risk and attracting private participation. International climate finance from multilateral funds and development banks also provides concessional loans, grants and technical assistance.

Regional cooperation mechanism on low carbon transport: Identification and development of climate financing mechanisms

ESCAP’s Regional Cooperation Mechanism, launched in 2022, facilitates collaboration among member States. Regional consultations and a 2024 meeting identified common challenges, including financing gaps, limited technical capacity and fragmented planning. Countries emphasised the need for innovative financing instruments, stronger policy frameworks and regional platforms to match investors with climate-aligned transport projects.

Way forward: Policy recommendations

The report calls for stronger alignment of low carbon transport policies with national climate commitments, sustained capacity building to develop bankable projects, and investor matching platforms to improve access to finance. It recommends diversified funding approaches, including blended finance, expanded use of PPPs, green bonds and carbon pricing revenues. The wholesale model of financing is highlighted as a scalable approach to fund multiple sub-projects while leveraging private capital and reducing risk across the region