Required infrastructure needs
Required infrastructure needs
About US$ 5 trillion in global infrastructure investment is required per year to 2030 in various sectors; this investment must be greened to secure future growth
To support a future global population of 9 billion people an estimated US$ 5 trillion per year needs to be invested in global infrastructure (~US$ 100 trillion over the next two decades, Figure 6). This business-as-usual approach would maintain investment in conventional, emissions-intensive technologies, endangering future growth. A 2012 World Bank report21 highlighted that the planet is on track for a global average temperature rise of at least 4°C beyond pre-industrial levels, which would bring impacts detrimental to growth, including unprecedented heat waves, severe droughts and major floods. The McKinsey Global Growth Institute has estimated that rates of environmental degradation are unsustainable for the long-term functioning of the global economy.22 Existing and future investment, therefore, must be greened to avoid dangerous levels of climate change and adverse environmental impacts that could erode the benefits from new green developments; if non-green investments continue to grow in parallel with increased investment in green infrastructure, it will not be possible to achieve green growth.f
While greening investment is one aspect of the challenge, the key is to secure financing for infrastructure needs in general. Approximately US$ 24 trillion is earmarked to be spent on infrastructure before 2030, falling short of the cumulative US$ 60 trillion needed.28 Development capital needs are in addition to the annual US$ 5 trillion figure cited in this report, and the IEA estimates that the share of energy-related investment in public research, development and demonstration has fallen by two thirds since the 1980s.29 Better inter-agency planning and strategic integration is required to determine common green-growth goals between sectors.
More work is needed to better understand the investment needs in the agriculture, water, transport infrastructure and telecommunications sectors. In the power generation, buildings, industry and transport vehicles sectors, the IEA has estimated there will be significant incremental capital costs for technologies beyond business-as-usual spending. Business-as-usual and incremental costs in sectors beyond the scope of assessment have not been assessed in this edition of the report.
It is possible that for some sectors, the incremental costs could be lower for some types of infrastructure in a 2°C scenario compared with a business-as-usual scenario. For example, investment in infrastructure to transport and distribute oil and gas should be less than the US$ 155 billion per year (2005 US$) projected by the OECD under a business-as-usual approach. Transporting fossil fuels accounts for more than 40% of the tonnage of maritime trade and more than 40% of rail tonnage in the USA; so the expected increases in investments in port and marine infrastructure under a business-as-usual approach should be lower in a 2°C scenario.30
In all sectors, the green-growth challenge is multi-faceted:
- Capital costs for infrastructure to support growth are high and not being met. Other than clean energy, investment flows are not well documented.
- To ensure growth is sustainable, an unprecedented shift in long-term investment is required from conventional to green alternatives, producing synergies between development and the greening of growth.
- There are also incremental investment needs for technologies such as CCS that carry greater risks for investors.
- Research and development spending is equally important to help demonstrate and commercialize green technologies.
Table 1 collates and normalizes as much as possible the investment requirements from different sources for various sectors under business-as-usual growth and under a 2°C scenario.
Table 1: Annual estimated investments needed under a business-as-usual and low-carbon scenario (US$ billions per year between 2010 and 2030)
Note: Total investment does not include synergy effects that can occur between other investments besides energy, buildings and industry and transport. The total amount provided is a proxy of future investment. Investment in water and telecommunications infrastructure covers the OECD and emerging markets only. Investment in agriculture covers 93 developing countries only. See Appendix 1 for full details of assumptions, scope and calculations.
The next section in this chapter focuses on the agriculture and water sectors, where the incremental costs under a 2°C scenario are not well known; a qualitative explanation is offered. More work is also needed to understand the financial implications for adaptation in the IEA’s Current Policies (6°C) scenario, and the incremental costs for the telecommunications sector. Finally, this chapter estimates incremental costs (under a 2°C scenario) for the energy, buildings, industry, transport and forestry sectors.
The Food and Agriculture Organization (FAO) has estimated the gross investment requirements for primary agriculture in developing countries at US$ 125 billion per year to 2030. The FAO further breaks this investment down by the need to replace existing capital stock (60%) and for new capital stock (40%) to increase agricultural productivity to double current levels by 2050.36 In practice this means that energy for production will need to be low carbon (for both vehicles and electricity needs), and research and development will need to focus on livestock and crop practices that reduce emissions, require less fertilizer and chemical input, and provide climate-resilient crop varieties. Agricultural growth needs to be more inclusive, supporting the equitable reduction of poverty and hunger, and balanced with preserving existing high-value ecosystems. This productivity revolution in the sector could require additional costs beyond current spending but no estimates exist of the incremental cost for greening the agricultural sector.
The International Food Policy Research Institute estimates that only 6% of investment in agriculture in developing countries is from private sources, compared with 55% in developed nations.37 Private investment from foreign and domestic sources will need to be mobilized to deliver most capital requirements, particularly for equipment, to develop infrastructure and maintenance, and for research and development for new crop varieties and breeds. Reducing subsidies for input-intensive agriculture could release funding to bring about private investment.
As the world’s population tripled in the 20th century, water consumption increased in absolute amounts and per capita. Rapid demographic and economic growth has put increasing pressure on the quality and quantity of water resources. With a growing population, water resources must be managed effectively to address water pollution, excessive consumption, preserve the ecology and the environment, and to safeguard the hydrological cycle in general while providing adequate, long-term supplies of acceptable-quality water for domestic, industrial and agricultural needs.
The OECD estimates that US$ 1.3 trilliong needs to be invested annually38 to replace and maintain water infrastructure in developed countries and emerging markets alone. In addition to these baseline financial needs, effective Current Policies and finance are needed to support new, resilient infrastructure.
Climate change adaptation
A world that is at least 2°C warmer than in pre-industrial times will experience heightened rainfall and more frequent and intense weather events, such as flooding, droughts and heat waves. The Intergovernmental Panel on Climate Change’s (IPCC) Fourth Assessment Report illustrates the strong links between climate adaptation and growth. For example, more than one sixth of the world’s population lives in areas supplied by glacial melt water, and as glaciers decline, so will long-term water availability. Coastal areas are in danger of being flooded due to impending rises in sea levels, with poorer communities the most vulnerable due to lack of adaptive capabilities. Highly negative health impacts are predicted from increased transmission of disease.39
The World Bank estimates the cost of adapting to a 2°C increase in global average temperatures will be US$ 85–121 billionh per year between now and 2050.40 However, under the IEA’s policies scenario (6°C), adaptation costs will be significantly higher and have not yet been fully estimated, for example, to ensure that disasters are managed and development is more resilient to extreme weather events. Furthermore, there is no certainty that adaptation is possible beyond 2°C of warming.41 The Climate Policy Initiative estimates investment flows for climate adaptation of US$ 12–16 billion in 2011,42 implying a shortfall of US$ 69–109 billion per year in adaptation investment.