Because what is built today will be around for a long time, it is crucial buildings, energy grids and public transport are constructed with the Paris climate accord in mind.
Over the next 15 years, governments and finance institutions will need to shift investment towards sustainable infrastructure to meet climate change targets and kick-start economic growth, a major new report has concluded.
Investing in sustainable infrastructure is “key to meeting the Paris Agreement,” said Felipe Calderón, former president of Mexico and chair of the Global Commission on the Economy and Climate – which published the report.
The world’s existing infrastructure – spanning sectors such as energy, public transport, buildings, water supply and sanitation – is estimated to be responsible for 60 per cent of the world’s greenhouse gas emissions.
“Infrastructure can be the pillar on which we build a sustainable economy,” Calderón says, pointing out it will also be key to reigniting global growth and help reduce poverty.
A combination of public and private investment totalling $90 trillion – with public investment used strategically to help leverage further private investment – will be needed, the report says.
This would mean that the $3.4 trillion that is currently invested in infrastructure globally every year would increase to $6 trillion, according to the report. Two third of the investment would be needed in cities.
“We can and should invest in and build cities where we can move and breathe and be productive, while protecting the natural world that underpins our livelihoods,” says Nicholas Stern, the British economist and co-chair the Global Commission.
Stern says this will require not only better policies, “but also a sea change in the financial system itself to make it fit for purpose for the scale and quality of investment we now need.”
The report recommends tackling fundamental price distortions through fossil fuel subsidy reform and carbon pricing. The study notes fossil fuel subsidies amounted to some $550 billion in 2014, skewing investment away from sustainable alternatives.
The strengthening of policy frameworks and institutional capacities is also a key recommendation. Better planning and governance can ensure the right projects are selected in the first place, and the right financing is used at the right time.
Another crucial element is the transformation of the financial system through new tools like green bonds and green investment banking, according to the report.
Finally, investments in innovation and the use of clean technologies to reduce the upfront costs of sustainable infrastructure will need to be ramped up, the report recommends.
“It all depends on whether we get financing right, only then will capital fully shift in the low-carbon direction,” Mexico’s Calderón said.
For cities in emerging economies, a flourishing green bond market could offer much-needed access to low-cost capital and finance sustainable infrastructure.
Mexico City, for example, hopes to issue its first green bond with support from Climate-KIC, the EU’s public-private climate innovation partnership. Climate-KIC is testing out new ways to finance sustainable infrastructure through its Low Carbon City Lab.
— South Pole Group (@southpolegroup) October 12, 2016
The report was launched by Felipe Calderón and Nicholas Stern at the Inter-American Development Bank in Washington, DC, last week (6 October).
Find out more about unlocking the climate action potential of cities, visit Climate-KIC’s Low Carbon City Lab.