1. Overview: An opportunity for sustainable development

Climate change and fast urbanisation are among the biggest challenges facing developing countries today. Rising global temperatures are reshaping livelihoods and increasingly exposing large shares of the population to unprecedented risks. The Sixth Assessment of the Intergovernmental Panel on Climate Change (IPCC) warns that global warming is expected to reach or exceed 1.5°C on average over the next 20 years, and possibly by the early 2030s, ten years ahead of previous projections (IPCC, 2021[1]). As such, many ecosystems will shortly reach tipping points that lead to irreversible damage, while socio-economic costs will continue to increase.

Along with the looming climate crisis and ecological breakdown that we are witnessing today, human settlements in developing countries are rapidly transforming. The urban population in many countries in sub-Saharan Africa and Asia will double in the next three decades (UNDESA, 2018[2]), while certain Latin American cities will struggle to cope with high levels of congestion and increasing inequality. Urbanisation can be a critical factor in enhancing economic growth and well-being. However, when it takes place too fast, it is not necessarily conducive to development. Rapid urbanisation can make it harder for governments to deliver basic services, update institutional frameworks and provide the infrastructure necessary for the private sector to thrive. Contrary to public perception, some of the most important changes in urban areas will not take place in large urban agglomerations, but rather in intermediary cities.

Intermediary cities are small and medium-sized cities that play an intermediation role by connecting urban and rural areas. In less developed regions, these are dynamic cities that support the flow of population, goods and services between rural areas and larger urban centres. To analyse their dynamics and linkages to climate change, this report builds on a series of data sources, in particular the Global Human Settlement Urban Centre database (GHS-UCDB) developed by the European Commission. This dataset gives access to information on more than 10 000 cities across different periods in less developed regions and is the main source for the analysis presented in the report. For practicality, and due to the lack of an internationally agreed definition, this report will classify intermediary cities as those urban centres with a population of 50 000 to 1 million.

Intermediary cities will play a critical role in the urbanisation process of developing countries. First, they will continue to account for a large share of the urban population in the coming decades. In 2020, intermediary cities (those with fewer than 1 million inhabitants) accounted for 58% of the urban population in less developed regions. Although this share is expected to decrease, by 2035 these cities will still account for close to 53% of the urban population in developing countries (UNDESA, 2018[3]). Second, the built-up area of many intermediary cities is expanding very quickly. Intermediary cities tend to have the highest built-up growth rates in developing regions. In certain cases, this fast expansion of built-up land has led to a decline in population density. Figure 1.1 shows the percentage of cities in developing countries that lost population density during the period 2000-15. This drop in density was most acute in intermediary cities. For instance, around 63% of cities with 50 000 to 100 000 inhabitants lost density over the period, compared to only 31% of cities with more than 1 million inhabitants.

The way cities develop has a major effect on their climate resilience and greenhouse gas (GHG) emissions. This is particularly true of urban sprawl, which can contribute to both higher GHG emissions and increased vulnerability to climate shocks. Urban sprawl transforms land use and shapes urban dwellers’ commuting patterns and needs. The expansion of built-up areas implies a reduction in the amount of land covered by vegetation, and thus reduced absorption of CO2 into the soil (UN-Habitat, 2011[5]). This not only leads to higher GHG emissions but also imposes higher economic costs, as it leads to a higher spatial dispersion of population and economic activities, which reduces accessibility (Litman, 2014[6]). Moreover, unplanned urban expansion and informal settlements increase the vulnerability of urban dwellers to climate shocks such as flooding, landslides and heat waves. This is because informal urban populations, in addition to residing in high-risk zones, have comparatively limited access to basic services (like water and electricity) and adequate infrastructure (like sewerage and water draining systems).

Climate change acts as a threat multiplier for intermediary cities in developing economies. Climate change does not discriminate across cities. Climate shocks and their magnitude depend on geography and local weather patterns. The extent to which they affect urban areas also depends on cities’ characteristics. Fast urban expansion, paired with lack of infrastructure, weak governance and limited capacity, can hinder the capacity of cities to adapt to and mitigate the effects of climate change. Unfortunately, many of these features characterise intermediary cities in developing countries.

Climate change directly affects intermediary cities in multiple ways. Some of the most important include heatwaves, water stress, riverine floods, storm surges and rising sea levels.

Since the mid-20th century cities have experienced a higher frequency of heat waves than rural areas, and this is expected to increase in the coming decades. The built-up growth of cities plays a key role in this process since buildings absorb heat, which intensifies both the duration and intensity of heat waves. This is particularly relevant for cities in warmer climates where the frequency and duration of extreme heat events (temperatures above 46º C) are increasing at higher rates. For instance, in 2016, cities characterised by low temperatures (those below the median temperature in the sample) went through an average of five extreme heat events with an average duration of 5.3 days, whereas in warmer cities (those above the median) there were on average 12 extreme heat events with an average duration of 8.8 days.

Extreme heat events can influence the gross domestic product (GDP) of intermediary cities. Overall, these events tend to have a larger and negative effect on the GDP of cities with cooler climates (independent of city size). In cooler climates, these effects increase with city size – extreme heat events have a stronger effect on the GDP of larger cities. Extreme heat events also negatively affect cities in warmer climates, but only those with fewer than 500 000 inhabitants. Our estimates suggest that extreme events can reduce the GDP of intermediary cities in warmer climates by 0.04% to 0.07%. The difference in the effect of extreme heat events on cooler and warmer cities could be due to a better adaptation capacity of the latter.

Rising global temperatures, combined with fast and unplanned urban growth, risk increasing the exposure of cities to water stress and droughts. Growth in urban population implies increasing demand for water and very often the depletion of natural resources, which places increasing strains on local (often declining) freshwater resources. In turn, this often results in limited access to water or in polluted water sources (Gebre and Gebremedhin, 2019[7]). For instance, water stress is already occurring in fast-growing small and medium-sized cities in Nepal and India. In Nepal, fast population growth, coupled with the increasing effects of climate change and urban sprawl, has led to the depletion of groundwater resources in the cities of Dharan and Dhulikhel (Straits Times, 2019[8]). Similarly, in 2019, the city of Chennai in India experienced a drought with severe water shortages, leading it to import 2.5 million litres of water (Straits Times, 2019[8]).

A large share of the population of intermediary cities is exposed to flooding. Figure 1.2 shows the share of cities that are exposed to riverine floods and storm surges (left), as well as the share of built-up areas exposed to riverine floods and of population exposed to storm surges (right), all by city size in 2015. It can be seen that, as cities become larger, the risk of disaster events increases but the percentage of the population and built-up area at risk decreases. For example, only 4% of the cities with a population of 50 000 to 100 000 are exposed to storm surges, but within these cities almost 90% of the population is exposed to this type of climate shock. In contrast, in the group accounting for the largest cities, 17% are exposed to storm surges, which affect 41% of their population. A similar pattern is observed in the case of riverine flooding: 26% of cities with 50 000 to 100 000 inhabitants are exposed to floods, while 60% of their built-up area is exposed to this phenomenon. In contrast, almost half of the cities with more than 1 million inhabitants were exposed to riverine floods, whereas only 38% of their built-up area was exposed.

Rising global sea levels threaten the populations of large cities in low-lying coastal areas and on small islands. Low coastal areas in developing countries are particularly vulnerable due to the acceleration of anthropogenic land subsidence caused by fast population growth and the expansion of built-up areas. A large share of the developing world’s urban population lives in close proximity to coastal areas. In 2015, around 22% of the population of cities in the developing world, or more than 635 million people, lived in areas below 50 metres of altitude and within 5 kilometres of the coast. These areas are particularly exposed to sea-level rise and urban flooding. The percentage of the developing world’s urban population living near coastal areas differs according to city size. In the sample of cities studied, cities of more than 1 million inhabitants accounted for 36% of the population, or 450 million people, that reside in low-lying areas. The percentage is lower for smaller cities in coastal areas, but a sizeable share of the population is still at risk. Among cities of 100 000 to 500 000 inhabitants, for instance, 11% of the population, or 107 million people, reside in low-lying coastal areas.

Given the intermediation role of intermediary cities, climate change also affects their development indirectly by disrupting the linkages connecting rural and urban areas. These disruptions materialise through different channels, two of the most important being food systems and internal migration.

Climate change affects food systems by reducing crop productivity, damaging infrastructure, disrupting storage facilities and transportation services, and hindering rural livelihoods. Intermediary cities are particularly affected by these disruptions due to their strong reliance on local food markets. These effects of climate change can translate into food insecurity and fewer opportunities for income diversification, for both urban and rural populations. Vulnerable populations such as women, youth and rural migrants are particularly affected, and such disruptions further widen social inequalities.

Loss of livelihood, whether partial or complete, can increase internal migration as people leave rural areas for intermediary cities. Estimates suggest that climate change could lead to 216 million additional internal migrants across the world by 2050 (Clement et al., 2021[9]). As temperatures increase and precipitation patterns shift, many livelihoods will be affected. This will be particularly the case for households that rely strongly on the primary sector, as in many developing countries, particularly for people living in rural areas and intermediary cities. A large portion of these displacements are expected to take place across a short distance, i.e. many migrants in small towns and rural areas are expected to move to neighbouring intermediary cities. The analysis in this report captures part of this process and suggests that increasing temperatures are associated with changing population levels in cities across developing countries. However, this relationship follows a U-shape, suggesting that the influence of temperature on city population depends on baseline climatic conditions – where temperatures are historically higher (warmer places), this relationship is positive. Moreover, this relationship is stronger for cities with fewer than 1 million inhabitants. City population levels are also associated with increasing precipitation. For our sample, this relationship is positive overall but only significant for cities with fewer than 500 000 inhabitants.

Cities are key in national and international climate-change mitigation efforts. Although urban areas account for merely 2% of the Earth’s surface, they account for 60% of global GHG emissions (UN-Climate Action, 2018[10]), and 70% of total CO2 emissions (IEA, 2021[11]).

In developing countries, most urban CO2 emissions are produced by big cities. In 2015, cities of more than 1 million inhabitants produced around 13 million tons of CO2 on average. This is almost five times more than the average amount of CO2 produced by cities with 500 000 to 1 million inhabitants, 37 times higher than for cities of 100 000 to 500 000 people and 132 times higher than for cities of 50 000 to 100 000 people. Overall, cities of more than 1 million inhabitants accounted for 57% of all CO2 emissions in 2015 (Figure 1.4). The contribution to CO2 emissions by city size further depends on the sector of activity. As shown in Figure 1.4, large cities produce around two-thirds of CO2 emissions in the transport and industry sectors, and more than half of the emissions in the residential sector. In contrast, intermediary cities account for the largest share of emissions in the energy and agriculture sectors.

CO2 emission levels are strongly associated with a city’s degree of urbanisation and wealth. Figure 1.5 shows the relationship between CO2 emissions and GDP for cities in developing countries in 2015. An increase of 1% in GDP among cities of more than 1 million inhabitants is associated with a 0.38% increase in CO2 emissions on average, whereas for cities of 50 000 to 100 000 inhabitants, a similar rise in GDP leads to an increase of only 0.13% in CO2 emissions. As for population, there is no significant difference between intermediary and large cities. An increase in built-up areas is only significantly correlated with rising CO2 emissions in cities that have fewer than 500 000 inhabitants, where a 1% increase in built-up expansion is related to an increase in total CO2 emissions of 0.15% to 0.18%.

Two important messages emerge from the analysis presented above:

  • The effects of climate change are not evenly distributed across cities of different sizes. This distribution is not static, however, since many intermediary cities are growing very quickly in terms of both population and built-up expansion. They will shortly become large cities and face challenges similar to those faced today by larger urban centres.

  • There is an unprecedented opportunity to guide the design of intermediary cities from a very early stage for improved climate resilience and reduced emissions. This can be achieved by building them as climate-proof cities instead of climate-proofing them later. In this sense, intermediary cities differ from large cities and national capitals. They can avoid the “grow now, clean later” path, which costs more both financially and politically. However, since many intermediary cities are urbanising quickly, there is only a small window of opportunity.

To build on these messages, it is necessary to understand the strategies, actors and enabling environment that have driven the development of climate policies across intermediary cities in the last decades.

Cities are increasingly recognised as key agents for economic development in terms of both the Sustainable Development Goals (SDGs) and the Paris Agreement. Indeed, no global meeting is complete without a mayor or two. There is, however, a large information gap regarding strategies for addressing climate change in intermediary cities. Most surveys, as well as national and international initiatives on urban climate change, tend to focus on high-income regions and large cities, particularly those conducted in developing countries. To address this gap, this report analyses existing climate policy strategies for intermediary cities in Africa, Asia, and Latin America in order to identify enabling factors, key actors and the main policy instruments put in place.

Disaster risk management (DRM) and the upgrading of Informal settlements have often served as entry points for climate actions. This is because there are strong overlaps in strategies that aim to target climate vulnerabilities and those addressing wider socio-economic goals (health, infrastructure, etc.). Both strategies aim to improve conditions for vulnerable urban dwellers by addressing their need for risk-reducing infrastructure. Vulnerable urban populations need (sufficient and affordable) access to piped and safe water, good-quality sanitation and electricity, all-weather access roads, storm and surface drainage, and street lighting. Beyond infrastructure, they need risk-reducing services including hospitals/health care, emergency services, road-traffic management and the rule of law (Revi et al, 2014[12]). The upgrading of informal settlements in particular has been an entry point for climate policies across intermediary cities in Asia and Africa, often taking place in collaboration with international partners. In Latin America, DRM has often been integrated into local urban planning in intermediary cities. Territorial development strategies, as well as urban and environmental planning, have also been entry points for building climate policies in Latin America and in some cities across Asia.

Across the cities reviewed, a series of underlying conditions acted as enabling factors that facilitated successful climate actions. Governance mechanisms that promote participatory planning, accountability and transparency are critical enablers, since well-governed cities are better able to plan and implement climate policies while also being accountable to those they serve. Decentralisation is another institutional factor that can promote climate action by providing local governments with adequate autonomy, resources and mandates while strengthening democracy and ensuring that local needs are met with greater transparency and accountability. This requires building effective multilevel governance systems that facilitate consultation with, and the participation of, other relevant stakeholders. Strong local capacity and resources (human, financial, technical, political and data resources) are the foundation for successful climate actions (Carmin et al., 2011[13]). Natural disasters can act as triggers that lead cities to transition from emergency responses to an integrated strategy (such as DRM plans). Local actors can be incentivised to plan with “a risk lens” when pushed to understand, and take responsibility for, the risks of city expansion into highly vulnerable areas, including difficulties in water management and basic service provision.

Key actors contribute to the success of climate action across intermediary cities. Local champions, national governments and international organisations are critical enablers. Local champions, such as mayors, can engage key stakeholders and ensure the durability of programmes, and can systematically integrate climate change and environmental issues as cross-cutting themes in the local agenda. National governments, with their larger capacity and greater legislative power, are critical for establishing and implementing policies that go beyond city boundaries, scaling up successful local actions and mainstreaming climate standards across sectoral policies. As such, national governments can help to build coherent policies and strategies across different levels of government and different sectors. International organisations can also play important roles in supporting local policies. They can help to pilot climate actions in cities (SEI, 2020[14]; Bulkeley and Castán Broto, 2013[15]); support cities in accessing networks of experts or other cities; and create platforms for peer learning and profile building (SEI, 2020[14]). International organisations also have better financial capacities and are free from many of the political barriers that may constrain city actors, lending them a great capacity to invest in a wider scope of projects. Meanwhile, the active engagement of civil society, academia and grassroots organisations has played a key role in many cases where Latin American cities have successfully implemented sustainability policies. They help cities to acquire the technical know-how needed to launch these policies and to sustain climate initiatives over the long term despite shifts in local administrations.

A critical and sometimes overlooked aspect of the development of climate policies across intermediary cities is the financial feasibility and sustainability of these policies. Boosting cities’ access to climate finance is therefore essential in climate mitigation and adaptation efforts. Limiting the global temperature increase to below 2°C by 2100 will require an annual investment in global infrastructure of USD 6.9 trillion between 2016 and 2030; approximately two-thirds of this, or about USD 4 trillion per year over the same period, is needed for developing countries (OECD, 2017[16]). The magnitude of investment necessary to meet the Paris targets requires that climate finance be reframed as a mainstream form of financing that supports investments to reduce GHG emissions. As such, and to incentivise environmentally sound investment in urban infrastructure and services, all urban investment financing should promote climate objectives.

Intermediary cities often struggle to access fiscal resources due to a series of constraints. Their overall lower income per capita and generally limited capacity to mobilise local resources are among the main factors preventing access to climate finance. Intermediary cities may be limited in their ability to take on debt due to the limited size of their urban economy and revenues. They may also have limited ability to raise the fees and taxes required to provide needed revenue streams and debt-service capacity. In addition, in comparison to large cities, intermediary cities generally have lower land values and can provide less leverage. This limits their ability to react to and influence the commercial conditions that provide the context for private investment through instruments such as land-use controls.

Intermediary cities are further constrained by structural shortfalls in existing financing mechanisms that prevent effective engagement. Climate finance, whether through existing financing and funding streams or through specialist climate funds, needs to address these shortfalls. They include: a lack of climate budgeting that recognises the many linkages between national climate goals and the resources of local governments; an absence of climate issues in urban planning; a lack of the technical capacity and resources needed to access climate finance; a lack of capacity to manage the technical aspects of a climate project; and a lack of funding and partnerships.

In many cases, action on climate change falls beyond the policy scope of intermediary cities. For instance, local governments can be limited in their capacity to address the larger-scale impact of emissions produced by enterprises based in the city. Spatial constraints relating to distance and remoteness compound the problems for some intermediary cities, particularly in small island developing states. As such, industries in intermediary cities (including in industrial clusters) often struggle to achieve scale and are more likely to face higher transaction costs for financing, which undermines their competitiveness and efficiency in supporting urban populations.

Intermediary cities face constraints on both the demand side and the supply side of urban climate finance markets. The demand side refers to the agencies that make investment decisions in cities, while the supply side refers to the institutions that supply the finance for these investments.

Bottlenecks on the demand side of climate finance in intermediary cities are diverse and vary on a city-by-city basis. A common challenge in access to finance is the inflexible structure of intergovernmental transfers. Intermediary cities tend to be highly reliant on transfers from central governments (Farvacque-Vitkovic and Kopanyi, 2014[17]), which tend to be formula-based (e.g. based on population size) or tied to specific uses. Inflexible systems limit cities’ autonomy to utilise more innovative financing. Moreover, intermediary cities are limited in their capacity to take on debt due to their limited creditworthiness. Local governments’ creditworthiness is often determined by their ability to use central transfers effectively and the extent to which local revenue is maximised. As noted above, intermediary cities struggle this.

On the supply side, intermediary cities face barriers to mobilising large-scale private institutional and commercial finance. Institutional investors can face challenges in finding investment opportunities that are low risk, reliable and with stable return, particularly around infrastructure and general climate projects, which must meet climate objectives in addition to the general requirements of technical, financial and regulatory standards. Furthermore, the generally low credit rating of intermediary cities creates an obstacle in the investment decisions of financing institutions. In addition, the focus among investing institutions on short-term investments with quick returns works against long-term investments, such as in infrastructure. Other challenges include lack of experience in urban investment and regulatory constraints that limit the ability to invest in urban climate and infrastructure projects. Factors such as a lack of appropriate financing vehicles for smaller projects, as well as wider macroeconomic conditions that affect inflation and foreign exchange (which shape aggregate demand), can also deter financing institutions.

On both the demand and supply sides, actions to alleviate these constraints need to focus on producing transparent processes for defining clear city climate objectives and for detailing the programme of investments that will meet those objectives. For the required investments to be financed efficiently, they need to be structured as financing mechanisms that are appropriate to intermediary cities. Competent and effectively mandated implementing agencies need to be assigned clear responsibility for investments in green infrastructure; enterprise capital for renewable energy and energy efficiency; cluster support systems; and human capital development. These can initially be linked to COVID-19 recovery, but as recovery from the pandemic proceeds, they will need increasing emphasis on the implementation of nationally determined contributions, which represent national government promises of aggregate cuts in emissions and increased climate resilience.

It is important that the demand and supply sides of the climate finance market be strengthened in tandem. Strengthening financial institutions will be of limited use if cities do not have the fiscal space or capacity to utilise the available finance on both sides of the market and at national and subnational/local levels. As such, interventions need to address structural issues. However, the effectiveness of these interventions critically depends on the strength of enabling frameworks and other capacity support structures.

Intermediary cities have great untapped potential to help address climate change. To utilise this potential, local and national authorities, and their development partners, must consider a series of key issues.

Most intermediary cities in developing countries are trying to cope with the consequences of climate change, but few are implementing consistent mitigation policies. For many local authorities, reducing emission levels is perceived as an additional cost, both financially and politically. This creates a sense of trade-off between environmental sustainability and wider development objectives, exacerbated by the continuous financing gap that many of these cities face. Yet this is a false perception: various policy actions can help reduce (potential) emissions while also addressing other development objectives. However, these actions require robust analytical frameworks that allow for the identification of policy complementarities and policies that address the real underlying phenomena that lock cities into carbon-intensive paths. For instance, adopting a system thinking approach to climate mitigation can help cities shift from an economic growth-oriented model towards a more holistic wellbeing-oriented model. Systems thinking enables the design of policies that aim to reduce GHG emissions, while simultaneously enhancing the well-being of populations, by conferring the ability to understand and capture the interlinkages across sectors, thereby allowing policy makers to minimise trade-offs (OECD, 2019[18]).

Establishing spatial planning frameworks that aim to reduce urban sprawl and promote compact and accessible urban forms can reduce future GHG emissions while also enhancing the well-being of urban dwellers. Moreover, early planning can avoid the high costs associated with changing already-built urban infrastructure and established urban forms (IPCC, 2014[19]). Spatial planning must consider factors that are key to limiting future GHG emissions and strengthening resilience. This can be achieved by:

  • integrating infrastructure, housing and mobility policies into spatial planning in order to enable intermediary cities adequately to meet the demands of a growing population while reducing the risk of carbon lock-in and reducing the scope for urban sprawl.

  • accounting for food systems and internal migration. As these are key channels that connect intermediary cities to rural areas, it is critical to build coherent and sustainable frameworks that stretch across sectors and strengthen rural and urban linkages.

  • addressing the needs of vulnerable populations in informal settlements and integrating them into spatial plans.

Please note that none of these actions will be effective without the data, statistics and indicators needed to build a comprehensive understanding of local vulnerabilities and assets.

Fostering local economic development and better access to services for both rural and urban dwellers is critical for climate-change resilience. For instance, tapping into fast-transforming food systems and the growth of post-farm-gate activities can provide large opportunities for local development in intermediary cities and their surrounding rural areas. Moreover, effective local development requires improving access to basic services for surrounding rural populations by fostering closer ties with intermediary cities. This allows better use of rural resources by the cities while simultaneously improving the quality of these resources. Better access to urban markets is equally important. It enables rural producers to increase their earnings; further invest in more diversified economic activities (Hussein and Suttie, 2016[20]); access agricultural inputs and technology; achieve stronger integration into food supply chains; and reduce their climate vulnerabilities (FAO, 2008[21]). This is a perfect example of the potential synergy between sustainability and wider developmental goals.

National governments have a critical role to play in supporting local governments in implementing climate actions and building local resilience. Their involvement is key to supporting and scaling up smaller, more local, climate actions. The wider scope and greater policy-making capacity of national authorities enable them to promote place-based policies that take account of different levels of government and encompass both rural and urban territories. Their larger political, administrative and financial capacities give them access to resources and the ability to improve co-ordination between regions and policies. Moreover, this scope allows them to adopt a systemic approach by envisioning intermediary cities as part of a wider urban system and fostering stronger partnerships, connectivity and collaboration across cities.

Redressing the financing gap faced by intermediary cities requires addressing demand-side and supply-side constraints simultaneously.

On the demand side, this implies boosting actions by national and subnational governments, as well as other urban investment agents, with the aim of strengthening their capacity to finance climate projects. Some of these actions include:

  • building local capacity to integrate climate objectives into local plans, for example by localising nationally determined contributions towards cuts in emissions and increased climate resilience

  • leveraging internal and external development assistance for the development of bankable projects with high climate performance that can attract international and private financing.

  • improving fiscal management systems to maximise their own sources of revenue in order to provide intermediary cities with better access to climate finance.

On the supply side, actions should aim to strengthen the enabling framework for subnational climate financing and the capacity of financial institutions and their regulators to finance climate projects developed or proposed by urban investment agents. These actions include:

  • increasing financing flexibility. National governments and partner institutions can enhance the ability of capital market institutions to accommodate the higher risk profiles of intermediary cities and their enterprises through more flexible financing systems.

  • establishing regulatory frameworks for greening the financial system, building capacity and establishing mechanisms for aggregating small-scale projects in order to maximise intermediary cities’ access to climate finance.


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