Review: Barriers to low-carbon infrastructure investment
Let's do a thought experiment. You are buying some lunch and are given two choices. The first is a ham sandwich that costs $5 and the second is a turkey sandwich from the deli around the corner that cost $10. Suppose that for some bizarre reason, whichever option you choose will be your lunch for the next 100 days. Personal preferences aside and assuming both sandwiches satiate your appetite identically, the choice is quite clear, the $5 sandwich. Your savings over the next 100 days is $500! Now let's replace the ham sandwich with a burger from McDonald's. The choice is now less clear. This is because to some degree, you can appreciate eating McDonald's for 100 days is probably not a healthy decision, and you are considering the negative externalities of eating the burger beyond the money you are saving.
Unfortunately, negative externalities are often not taken into account in government decision-making with respect to policy. Here are some numbers that illustrate this oversight:
World Bank review of environmental pollution damages in India: US $80 billion, roughly 5.7% of GDP. Just from these numbers, it doesn't look that bad. More often than not, this is where the discussion ends. However, the same study reports a mere 30% reduction in pollutants would have saved over US $100 billion annually in pollution-related health costs!
Globally in 2014, the International Energy Agency estimates direct fossil fuel subsidies amounted to US $490 billion (3 times higher than global subsidies for renewable energy). Adjusting for the negative externalities, the economic/social cost is astronomical, roughly equivalent to US $5.3 trillion.
The need for low-carbon infrastructure is urgent, but its development faces significant barriers. Investments in infrastructure not only provides short-term economic boosts, but generate long lasting improvements through increased efficiencies in other economic sectors. When constructed, infrastructure depreciates slowly and will constrain specific developmental pathways. Unfortunately, infrastructure can lock-in to patterns of inefficiency. Therefore, building the right way, is just as important as building more infrastructure. Here, researchers discuss the directions and necessary conditions needed for reducing the barriers to developing low-carbon infrastructure.
Two major conclusions drawn from this paper:
1. Scaling up infrastructure investment is a necessary condition for 'green' growth, but is insufficient in that it can lock in to either emissions or efficiency.
2. Mobilizing capital for low-carbon infrastructure investment has less to do with spending billions on 'new' resources for low-carbon infrastructure, but more to do with unlocking and decarbonizing the trillions of dollars in annual infrastructure investment yet to be deployed.