Countries with ambitious net-zero policies are most successful at securing infrastructure investment, writes the Global Infrastructure Investor Association’s Jon Phillips.
Is the world moving fast enough to decarbonise and modernise infrastructure networks?
Two major announcements last month provide a snapshot of progress to date.
In May, the World Meteorological Organisation warned that the 1.5 degree global warming target is at serious risk, due in no small part to harmful emissions from transport, energy, and utility networks.
A few days later, the International Energy Agency predicted that investment in renewable energy sources would reach $1.7 trillion in 2023. Investment in solar alone – $380 billion – is expected to outstrip investment in oil.
So, there is progress. But keeping the 1.5 degree target alive will require an unprecedented mobilisation of infrastructure investment – both private and public – in an exceptionally short time.
So how do we unlock the investment we need?
Estimates of what we require globally differ. But they’re invariably in the trillions of dollars.
The need for project delivery in the areas of decarbonisation, renewable energy, and fuel generation – as well as carbon capture, utilisation, and storage (CCUS) – has never been more pressing.
And unlocking the investment required to make that delivery possible can only happen if the right policies and regulatory frameworks are in place.
Europe and the Americas are outpacing the UK
The Global Infrastructure Investor Association (GIIA) represents members with more than $1.6 trillion in infrastructure assets under management.
Our latest Pulse Survey highlights the gulf in sentiment towards markets that are progressing on this front compared to those with work to do.
The UK stands out as an example of the latter. Investors flag an “unattractive regulatory regime” and “political instability” as significant barriers to investment compared to the rest of Europe and the Americas.
Behind these concerns is a tendency among regulators towards short-termism at the expense of measures needed to spur long-term, sustainable investment.
To tackle this issue, we recommend that the next government takes steps to prioritise unlocking the investment needed to reach net zero.
The House of Lords has shown its support for this ask, amending the Energy Bill to make net zero an essential consideration for the energy regulator Ofgem.
How is the US driving sustainable infrastructure investment?
Investors are, by contrast, far more positive about sustainable opportunities in the US.
Two major pieces of US legislation have recently transformed the investment landscape: the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA).
The two pieces of legislation combine $550 billion of new public funding for projects – designed to ‘crowd in’ additional private investment – and $369 billion of green tech and energy investment incentives.
Other markets have directly responded with their own stimulus packages, including the EU through a new Green Deal Industrial Plan.
These hugely welcome measures are helping drive billions in new net zero investments.
Regulatory reform is also crucial
It’s notable, though – especially for markets such as the UK, which lack the fiscal firepower of the US or the EU – that GIIA members categorise “regulatory reform” as their number one ask of governments, ahead of “climate-friendly incentives”.
Policymakers can and should learn lessons from these emerging programmes as they seek to unlock investment at scale.
They should also acknowledge the power of long-term stability to mobilise capital.
As the US, UK, EU, and India head into election periods next year, policymakers must be mindful that infrastructure investors work to 10, 20, and 30-year investment timeframes – not four or five-year political cycles.
Sending the right message to investors
Cross-party support for investment initiatives, as in the case of the bipartisan IIJA, can send a powerful message to the infrastructure investor community.
It’s a community with just shy of $500 billion in funds already raised and ready to deploy for the right opportunities.
To unlock it, governments and regulators must put the right policies, regulations, and incentives in place.
In case you missed it
The ICE has updated our Enabling Better Infrastructure guidance to enable decision-makers to deliver the infrastructure that societies need.
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