World leaders set an ambitious agenda in 2015 through the Sustainable Development Goals and the Paris climate agreement. The difficult question is how to turn this ambition into action, while also achieving economic growth. Sustainable infrastructure gives us the answer.
A new report out this week argues that a concerted effort on sustainable infrastructure is the only way to build cities with better air quality and connectivity, ecosystems that are robust and resilient, and energy systems that can curb dangerous climate change.
Around US$90 trillion will be invested in infrastructure globally between now and 2030 – which requires roughly doubling current investments. Low- and middle-income developing countries will drive as much as 70% (or about US$4 trillion per year) of this demand in order to provide for their rising populations and increasing rates of urbanisation.
Because so much of their infrastructure is yet to be built, these countries have an opportunity to ‘leapfrog’ over the dirty, resource-intensive and unsustainable energy, urban and land use systems of the past, and take a lead in implementing sustainable, climate-compatible infrastructure.
There are four ways decision-makers can make this prospect a reality.
1. Tackle price distortions – reform distorting subsidies, and implement carbon pricing to reflect its true cost to the economy and society.
As ODI, the International Energy Agency, and others have repeatedly shown, countries continue to provide hundreds of billions of dollars to support fossil fuel investments – around US$550 billion in 2014 according to this latest report. Urgent reform of these would signal the direction the world needs to take to build climate-compatible energy systems.
But more importantly, given that most fossil fuel subsidies benefit the rich, it would also channel scarce resources into areas such as sanitation, affordable transport, education and adaptation against climate impacts, and help meet the development goals for the poorest and most vulnerable in society.
2. Strengthen policy frameworks and institutional capacities to generate enabling conditions for investment, to prepare good infrastructure projects, and to attract private investment.
There is broad consensus in the international financial community that neither capital nor projects are lacking. But there is a lack of ‘bankable’ projects, at least on terms that meet the expectations of the financiers, with the biggest gap in low-income countries.
Increased concessional finance for project preparation, and more support for implementation as part of a broader policy reform process (such as measures to tackle inefficiencies, improve governance and combat corruption) would help generate a strong pipeline of projects.
3. Transform the global financial system to deliver the scale and quality of investment needed in order to augment and catalyse financing from all possible sources (especially private sources).
The money is there. Institutional investors, mainly based in the advanced economies, for example, hold around US$100 trillion of financial assets, which could become a substantial source of capital.
4. Governments and private investors need to boost investments in clean technology research and development (R&D) and deployment to make sustainable technologies cheaper and more available.
Over the past few years, we’ve seen a pivot in ambition on climate and development goals. But the challenges we face require an unprecedented shift. In the energy sector, for example, investments in oil, coal and gas must decrease by about one-third by 2030, while investments in renewables and in energy efficiency must increase by at least a similar proportion if we are to keep average temperature rise below 2°C.
The sustainable energy infrastructure required will vary by country and over time. But there are great opportunities for low-income countries, where transformative investments in off-grid clean energy, new storage and distribution systems for on-grid renewable energy, and information technologies that support efficiency and flexibility in the system, can help provide electricity access to the 1.1 billion people who currently lack it.
Our challenge is urgent: the decisions made in the next two or three years will determine the course of infrastructure for decades to come. Aligning the right signals, policies and financing will enable us to build better, cleaner and resilient infrastructure, and help deliver on the commitments the global community has collectively aspired to take on.
To find out more about the Global Commission on the Economy and Climate and its New Climate Economy initiative (of which ODI is a core research partner), visit their website and read their third major annual report.