Saving the World: One EM City at a Time

Saving the World: One EM City at a Time

The Global Commission on the Economy and Climate has issued a new report urging governments and major financial institutions to “scale up and shift investment to sustainable infrastructure as a fundamental strategy….”

The report, The Sustainable Infrastructure Imperative, has no force as law or policy anywhere, but it may signal where the wind is blowing among the governing elites out of whom the members of the commission come.   The commission consists of former heads of government, finance ministers, and comparable bigwigs.  It is chaired, for example, by Felipe Calderon, former President of Mexico (2006-2012).

The Commission was created by seven countries (Colombia, Ethiopia, Indonesia, Norway, South Korea, Sweden, and the United Kingdom). This is the third report it has released. One intriguing feature – the urban emphasis.

Reducing Climate Change Risks

This report argues that “record low interest rates, large available pools of finance, and rapid technological change” make the present a welcoming moment for the creation of new institutions that will reduce the risks that climate change poses to the world.

The word it uses for these key institutions, “infrastructure,” the report uses in an extended sense, to include not only the sorts of things the word typically includes (public transport, buildings, transportation systems, and so forth) but also legal and social institutions engaged in the protection of wetlands, forests, and watersheds, the “natural infrastructure.”

The world will spend around $90 trillion in infrastructure over the next 15 years, both to accommodate growth in emerging economies and to replace aging facilities in the industrialized world.  Doing this investing right, doing it in a way that points toward a sustainable world system, will not “cost much more,” the commission finds, than would doing it wrong, though higher “up-front financing” may be necessary to get it right, before efficiency gains and other benefits begin to accrue.

Emphasis on Cities

The report expends especial attention on urban centers, on the premise that more than 70% of the global demand for infrastructure involves the cities of the world.

“Compact, connected and coordinated urban infrastructure” the report says, “can be low-carbon and resilient while also promoting equitable growth.” It can combine these features by punishing personalized motorized transport, showing preference for bicycle paths and affordable rapid mass transit, as well as by creating the incentives and regulations necessary to enhance the energy efficiency of a city’s buildings.

No single city, perhaps, could finance the necessary changes internally, so national-local partnerships will have to get the job done.  This doesn’t just mean that the nation-state gives the orders (or the “mandates for action” in more polite terms) and that the localities carry them out. The nation-state should also work with the cities to “find effective financing solutions.“

The financing is an “immense challenge,” in part for reasons specific to urban environments.  The environment comes with historically ingrained subsidies for the use of carbon-burning personal vehicles. Company cars as a status symbol, parking tax credits and subsidies for both “petrol” and “diesel at the retail pump, are examples.

The commission finds the subsidization of diesel especially egregious, since “diesel emits higher levels per litre of harmful local air pollutants such as nitrogen oxide, Sulphur dioxide, and particulate matter, as well as carbon dioxide.” In France in particular diesel related air pollution kills more people than do road accidents.

The report acknowledges a fact typically cited by the advocates of favorable treatment for diesel. It is more fuel efficient than petrol. But one implication of that favorable sounding fact is that its social costs, its contribution to congestion, noise, and infrastructure wear, are higher per litre. That is, the answer to the statement “it is more efficient” is the question, “more efficient at doing WHAT?”

Brazil and Colombia Lead the Way

But again: what about financing? The report praises municipal green bonds as part of the answer. This market is relatively small at the moment, with a total global valuation of $6 billion, according to a report from the Climate Bond Initiative: but it is growing.  In Brazil, for example, the governments of São Paulo, Rio de Janeiro and Curitiba have had success with financing urban redevelopment projects through securitization bonds called CEPACS (certificadoes de potencial adicional de construção), that is, certificates for additional construction potential.  By permitting additional building in certain districts the bonds increase the density of certain areas. Higher density means less need for traveling, thus less driving than what is required to sustain suburbs and sprawl.

Likewise, Colombia has its Financiera de Desarrollo Territorial (FINDETER), set up in 2009 as “a quasi-public financial institution that facilitates commercial banks to finance municipal governments by lowering the costs of loans.” FINDETER expanded the ambitions of its operations in a big way in 2012 in a partnership with the Inter-American Development Bank.

A Final Observation

At the launch of the report, Ngozi Okonjo-Iweala, a member of the Commission and the former finance minister of Nigeria, said: “Our action agenda [is] … an especially exciting opportunity for the developing world, where we are just starting to build fundamental infrastructure, to show real leadership thanks to the opportunities to skip over the inefficient, polluting systems of the past.”

 

 

 

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