The infrastructure sector contribution to sustainable development - MOOC FFD WB Marco Pittalis final project

The infrastructure sector contribution to sustainable development - MOOC FFD WB Marco Pittalis final project

• 1.
  World Bank MOOC:Financing For Development, Billions to Trillions to Action Final project Development finance impact project – digital artifact by Marco Pittalis THE INFRASTRUCTURE SECTOR CONTRIBUTION TO SUSTAINABLE DEVELOPMENT The paper presents the relevance of the infrastructure sector to sustainable development, with particular regard to its central role within the Sustainable Development Goals, and details the financing requirements and financing modalities options to support the implementation of required interventions in the sector. The discussion is concluded introducing basic climate change concepts related to the infrastructure sector, presenting for each infrastructure subsector a number of mitigation options that could be implemented with the financing resources mobilized following the modalities presented early. 1. Infrastructure sector and the Sustainable Development Goals On September 2015 the United Nations member states adopted the seventeen Sustainable Development Goals (SDGs). These constitute a new set of goals; targets and indicators that are expected to constitute the frame for the political policies and agendas of developing and developed countries in the period 2016-2030. The SDGs are following and expanding the Millennium Development Goals (MDGs), which where the eight development targets agreed by the UN member states in the occasion of the United Nations Millennium Summit in September 2000 and that had to be achieved during the period 2001-2015. The SDGs include a broad spectrum of areas of intervention that ranges from the eradication of poverty to the strengthening of the global partnership for sustainable development. While some of these can be considered a continuation of the goals defined in the MDGs, some others introduce new specific areas of action, as in the case of the SDG n. 9 “Build resilient infrastructure, promote sustainable industrialization and foster innovation”. The goal comprises eight targets which set the following points of intervention: the development of national, regional and transborder resilient and sustainable infrastructure; the promotion of sustainable industrialization; the increase in access to financial services for small scale industrial enterprises; the upgrade of infrastructure and retrofit of industries to reach sustainable standards; the support for technology development, research and innovation; the access to information and communication technologies and to the Internet. In the long road towards the achievement of the SDGs the infrastructure sector will play a crucial role through new investments and innovations and the SDG n. 9 makes an explicit statement of its relevance. It is in fact a sector that is central for the achievement of the other SDGs. Infrastructure is directly addressed with relation to energy, water and urbanization respectively in the SDGs n. 6, 7, 11, and in implicitly in a number of other SDGs like those related to agriculture, health and education (SDGs n. 2, 3, 4) and others. Infrastructure will also be pivotal in the fight against climate change, which is by itself one of the SDGs, thanks to its broad spectrum of intervention and its transformative effects. Infrastructure is also a common denominator of the sustainable development, the eradicating poverty and the climate change agendas and it on the
• 2.
  base of thesedeep interconnections that is important to give to infrastructure a central role. 2. Infrastructure financing needs and options for funds mobilization. To make possible that the infrastructure sector will support the achievement of these agendas a global investment of over US$ 90 trillion by the year 2030 is expected to be required. This means an annual investment of around US$ 6 trillion per year by 2030, which is almost the double of the current investment in the infrastructure sector estimated at US$ 2-3 trillion per year. The new investments will take place mostly in developing countries (around US$ 2 trillion per year in high income countries and around US$ 3-4 trillion per year in middle-low income countries), with the biggest increment expected to happen in countries other than China, marking an important change compared to the last two decades. Due to the large volume of financing required there is a need to develop and deploy new financing options through the action of a varied range of actors that will include: governments through public finance and official development assistance, the private sector and the multilateral development banks. Regarding the role of governments in making available new funds for infrastructure investments, options available include domestic resources mobilization through better taxation systems, a more effective and efficient public expenditure system, tackling illicit financial flows and a larger use of policy guidance and technical assistance. In addition to this, ODA has still space for growing. It now estimated at a total of around US$ 130 billion per year, but due to the large number of Organization for Economic Cooperation and Development member countries which don’t comply to the pledge of devoting at least 0,7% of their GDP to ODA each year there is the possibility to double this amount. Hence, firstly the flow of ODA should increase, even if it will remain of modest scale compared to the complete volume of funds required. Secondly, ODA should be used as a catalytic source of finance in developing countries, encouraging the participation of the private sector and other investors by signaling that profitable markets exist and acting also as a risk mitigation agent. ODA will then play a leverage effect, by which for a certain amount of funds made available by development finance institutions a correspondent multiplied amount of funds will be made available by the private sector and investors. A large potential for mobilizing additional infrastructure financing lies with the private sector, which currently support the infrastructure sector financing with around US$ 1,5-2 trillion per year at global level. There is room for this sector to increase its investments of around an additional US$ 1,2 trillion per year, helping to close a significant part of the infrastructure-financing gap. To exploit this possibility, a combination of different conditions should be in place, including: good stable policies that will encourage the action of investors over time, instruments to help mitigate non-market risks, adequate market regulations, stronger regulatory oversight and transparency. A key role will be plaid by traditional investors, such as banks, insurance and investment companies, and private pensions funds, as well as by new actors like impact funds. Finally, the multilateral development banks could help close the infrastructure financing gap. MDBs, while having a relatively small global annual volume of investments (the eight major MDBs are investing around US$ 40 billion per year), can have a multiplier effect in crowding in new investments from investors. For example, the World Bank can mobilize up to US$ 28 from international markets for every dollar put in as paid capital, as well crowd in private capital for individual
• 3.
  projects and lowerthe cost of the private capital by mitigating the private investors perception of project risks. They can also provide support strengthening the project development phase in infrastructure investment. To effectively exploit their potential, MDBs should go through an internal reform process that will improve their readiness to embrace the challenge, including make less burdensome their management procedures, rebuild staff capacities and put in place the necessary instruments to catalyze the different pools of private financing. In addition to the mobilization of new infrastructure financing sources, there is also space for improving the infrastructure sector productivity. It is estimated that making use of the infrastructure sector best practices and reforming infrastructure governance and delivery system could help save up to US$ 1 trillion per year by 2030. This will include interventions in the optimization of infrastructure portfolios, improving the streamline delivery and making the most of the existing infrastructure. Along the definition of these new financing modalities, a particular attention will need to be paid to the definition of standards and procedures to be used for the identification of the right infrastructure projects to be financed, making possible to have the best pipeline of projects ready to be implemented. Activities in these sense mean that governments will have to define realistic revenue streams from infrastructure projects (i.e. generation of revenue from roads and water systems is not always guaranteed, often they come for free, while it is important to define adequate tariffs to cover operational and capital costs without overburdening the community), establish mechanisms to create packages of small projects hence that they can become more attractive to investors, build the capacities to identify the right types of capital for every project, deeper partnerships among infrastructure finance players for example through exchange of information or allowing investors to present unsolicited project proposals. These will be crucial activities to guarantee that all the financing mobilized will be used in the most valuable manner, and I think there is an enormous potential for the international development agencies which could provide support to the developing governments with focused capacity building schemes. 3. Infrastructure, climate change and possible mitigation options As mentioned at the beginning, the infrastructure sector will give strong contribution to fight against climate change. Climate change is probably the toughest policy problem that humanity has ever faced. It is a global crisis, which affects every part of the planet, and every part is contributing to it. Due to the toughness of this crisis and its global scale, it is difficult to get the world mobilized to take corrective action as there are sharp cross-country differences of opinion and interest on the proper way forward. The problem of green house gas emission goes to the core of a modern economy, since the current world economy has grown up as a fossil fuel based economy. With the current rate of GHG emissions the temperature increase by the end of the century compared with preindustrial average temperature could be as much as 4-7°C. This increase in temperature will have devastating effects including a major decline in crop yields, melting glaciers, rising sea levels threatening major cities, an increase in ocean acidification, loss of solid moisture, decline in rainfall, more frequent heat waves, droughts, floods, and extreme tropical cyclones. The solutions to climate change are inherently complex; there is no single technology that would solve it, and the changes that are needed involve every sector of the economy. The first way of responding to global warming is mitigation, and refers to reducing the GHGs causing human induced climate change. As per IPCC data, the
• 4.
  main sectors responsiblefor GHG emissions are: electricity and heat production (25%); agriculture forestry and land use (24%); industry (21%); transportation (14%); other energy (10%); building (6%). Hence, the infrastructure sector has a primary role in the generation of GHG emissions, and mitigation policies will necessarily be based on interventions in its different sub-sectors. For example, the energy sector will require an increase in the share of energy produced from renewables, which should rich 57% of the world electricity mix plus a share of 14% coming from fossil fuel plants equipped with carbon capture systems. The action required to achieve this target will pass through the development of new power production plants based on wind, solar, hydro, thermal and biomass. This could be favored implementing adequate policies that through renewable portfolio standards, feed-in tariffs, tax incentives or carbon taxes will ease the creation of the right market conditions for these investments. At the same time for fossil fuels based power plants a number of measures could be applied to improve their energy efficiency or to sequestrate the emissions. In the industry sector will require a shift in the typologies of energy consumed, where the share of energy produced from renewables should increase, and the implementation of energy efficiency and process integration and optimization measures, which will lead to reduced consumption levels. The measures of energy efficiency will be extremely important because will also reduce the need for new energy supply. The outlined change of behavior in the industry sector could be reached by the governments implementing regulatory measures that could include: taxes to reduce activities not in line with the environmental policies, targeted pricing to support the introduction of new technologies, and environmental and energy efficiency regulations. All these measures will need to be well balanced so not to let large multinationals move the production to other countries. The energy efficiency strategies will be put in place in high-energy consumption sectors such as building and industry, hence reducing the increase in energy supply as a result of increasing energy demand. The increase could be kept at a 35% compared to the 85% in a business as usual scenario. The transportation sector will require the promotion of new behavioral models that will minimize the needs of transportation and avoid unnecessary transport, the use of less carbon intensive modes and the improvement of vehicles efficiency. The measures related to transportation will be closely related to new models of urban development, which will need to focus on more compacted and better-connected cities. This will be a crucial area of action for development since the majority of the population is now living in urban areas and this percentage is expected to grow steadily. Governments could promote changes in the transportation sector for example through the elimination of fuel subsidies, the introduction of carbon taxes and incentives for scrapping old vehicles. Finally, in the household sector (residential and non residential buildings) changes will be related to energy efficiency, in terms of introduction of appliances with reduced energy consumption and better construction codes that will reduce the household energy consumption, as well as the use of renewables as energy source. In cases in which electricity is not available better energy efficiency will also mean the shift to more efficient cook stoves, with a beneficiary effect on the environment thorough reduced deforestation and health, or the introduction of for example light bulbs powered via renewables. The household/building sector will be of primary
• 5.
  importance due tohigh urbanization rates; hence it is important that governments will promote the above-mentioned measures through adequate regulatory systems. To rationally approach all the interventions required in this large set of sectors, governments could implement a low carbon development plan, which will articulate the planning, and implementation activities required. The plan will be organized along different phases. These include: the definition of how better support the national development goals, the execution of low carbon development studies, the mobilization of adequate resources and building capacities, identification of low carbon pathways and mitigation options and the relative implementation strategies. International development cooperation agencies could play an important role supporting the governments of developing countries in the definition of their low carbon development plan through provision of technical assistance and capacity building, and, in the subsequent phases, via the identification and mobilization of adequate sources of financing for the realization of the projects. 4. Conclusion For the agendas of sustainable development, poverty reduction and climate change the next 15 years constitute a period of great challenges. The infrastructure sector will play a central role in achieving the development goals and in supporting the fight against climate change thanks to its interconnection to a large number of subsectors and to its transformative power. However, there is the need to mobilize sufficient financing to support the broad interventions and projects required. This, while demanding, can be achieved thorough a number of options to be put in place by governments, the private sector and multilateral development banks. And it is estimated that globally the required financing is actually available, it only need to be properly tapped and to be used in the execution of the right infrastructure projects, as those related to climate change mitigation. The infrastructure sector has the characteristic of investments that last for decades and which effects generate changes in behaviors across long time intervals. Hence, to obtain the most from the transformative power of this sector, this is most valuable moment to take action Marco Pittalis [email protected]
• 6.
  References 1. Driving sustainabledevelopment through better infrastructure: Key elements of a transformation program - By: Amar Bhattacharya, Jeremy Oppenheim and Lord Nicholas Stern 2. Why Infrastructure is Key to the Success of the SDGs – By: Liesbeth Casier 3. Mobilising Investment in Low Carbon, Climate Resilient Infrastructure - By: Christopher Kennedy, Jan Corfee-Morlot 4. Financing for development post 2015 – World Bank 5. Innovative development financing – By Eytan Bensoussan, Radha Ruparell, and Lynn Taliento 6. Making the most of a wealth of infrastructure finance – By: Tyler Duvall, Alastair Green, and Mike Kerlin 7. Green Infrastructure: Definition and Needs – By: Marshall Brown, Yongsung Kim and Mattia Romani 8. Ensuring new infrastructure is climate-smart – By: James Rydge, Michael Jacobs and Ilmi Granoff 9. Global Greenhouse Gas Emissions Data – By: http://www3.epa.gov/climatechange/ghgemissions/global.html 10. Understanding the challenges for infrastructure finance – By: Torsten Ehlers 11. Energy Innovation - By: Bill Gates 12. Infrastructure investment needs of a low-carbon scenario – By: NEW CLIMATE ECONOMY PROJECT 13. Infrastructure productivity: How to save $1 trilliona year – By: Richard Dobbs, Herbert Pohl, Diaan-Yi Lin, Jan Mischke, Nicklas Garemo, Jimmy Hexter, Stefan Matzinger, Robert Palter, Rushad Nanavatty