Just 2-3 years to lock in climate positive infrastructure investment: New Climate Economy report

Report recommends four major changes to make infra climate future proof rather than damaging.

Infrastructure investment is at a crossroads between building a sustainable future or contributing to dangerous climate change, according to a new high-level report: “The Sustainable Infrastructure Imperative”. The report has been published by The New Climate Economy, the flagship project of The Global Commission on the Economy and Climate, which examines how countries can achieve economic growth while dealing with the risks of climate change. It is chaired by the former President of Mexico, Felipe Calderón, and comprises former heads of government and finance ministers and leaders in the fields of economics and business. The time window to make infrastructure investment sustainable is alarmingly short, the report says, just two to three years to finance long-term, low carbon projects using state-of-the art technologies allied with sustainability-driven business models. Failing to do so means continuing with climate polluting projects. Barriers to change, the report says, range from unfavourable policies and investment regulations, a lack of transparent and bankable projects, inadequate risk-adjusted returns, a lack of viable funding models and high transaction costs.
To overcome these, the report suggests four inter-linked shifts that would enable the development of sustainable infrastructure for the 21st century.
First, there is a need to tackle fundamental price distortions – including subsidies and lack of appropriate pricing – that lead to poor infrastructure investment decisions. At the same time, improvements must be made to incentivise investment, innovation, and revenue generation. Second, policy frameworks need to be strengthened and institutional capacities for infrastructure investment developed in order to build pipelines of viable, sustainable projects.
This could reduce high development and transaction costs, and attract private investment.Third, reform of the financial system is needed to encourage financing from broad sources, especially the private sector, via long-term debt issuance and catalytic finance from development finance institutions (DFIs). Fourth, investments in clean technology research and development (R&D) need to be ramped up, followed by much greater deployment to reduce costs and enhance the accessibility of more sustainable technologies. Overall, the report says about $90 trillion of investment is needed over the next 15 years, for which the global south will finance about two thirds.
There are, however, positive signs of economic activity that could underpin a green infrastructure shift. The report says almost 30 countries, among them Egypt, Canada, Indonesia and India, have already set out reforms of fossil fuel subsidies. And the leaders of the G7 countries and North America have declared to phase out fossil fuel subsidies by 2025. While current carbon pricing schemes are not sufficient yet, and only cover about 12 percent of global GHG emissions, countries and companies have started to shift to cleaner energy solutions. Already 40 countries are either planning or have implemented carbon pricing. And corporate leaders of companies like Nestle, Unilever, Mazda and Shell have put shadow/real pricing on carbon in place. The report says multilaterals and other DFIs will have a pivotal role in this transformation, and that a number are already partnering with countries for bankable sustainable infrastructure projects. Major investors, including pension funds and insurance companies, have also started to shift investments.
It says innovation is being driven by collaborative multi-partner global initiatives such as the Mission Innovation group, the Breakthrough Energy Coalition and the Low Carbon Technologies Partnership.
The report concludes that investment in sustainable infrastructure is the growth story of the future and can boost growth and global demand in the short-term.