As the cost of global climate disasters mount, nations need to pay special attention to enhancing their infrastructure to help stave off the worst of ongoing changes in the world's climate
In 2022, natural disasters caused a $313B economic loss, and the UN’s World Meteorological Organization (WMO) and the EU’s Copernicus Climate Change Service stated that this past July was the hottest month on record. Indeed, rising temperatures are forecasted to climb more than 2 degrees Celsius by 2050 – countering the goal of the Paris Agreement, a multilateral pledge to “hold the increase in the global average temperature to 2 degrees Celsius above pre-industrial levels” and “to pursue efforts to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels.” It was signed by 196 parties and countries.
Increased investment in infrastructure needed
As extreme weather events appear to be worsening, there is little doubt that more intense weather patterns from wind, wildfires, droughts, and floods will continue to have adverse impacts on infrastructure assets and their own resilience. The level of additional investment needed to ensure the resilience of infrastructure is causing alarm.
The current rate of investment in resilience is not enough to deliver the necessary level of change. The fast pace in which temperatures are rising is causing more and more extreme weather patterns, despite the level of climate policy commitments made by governments through 2050 sitting at $75 trillion.
Three factors heavily influence the state of preparedness and resilience of infrastructure around the world. The first one is awareness of the risks to critical national infrastructure, which lags behind the focus on reducing carbon emissions. The second is the level of climate disruption we design our infrastructure and buildings to withstand. At the moment, governments are making infrastructure investment designed to meet standards for a 1.5-degree-Celsius increase in the Earth’s average temperature, but the standards are inconsistent and likely not enough for the 3-degree course we are on.
Getting together multilateral parties to address environmental challenges is not new. Indeed, the mass effort to help repair the hole in the ozone layer and to remove acid rain are two recent examples over the last 50 years. We have solved these problems in the past, and innovation has been key.
Finally, we need financial incentives to spur investment from the private sector and enable the best resilience improvements around the world to be consistently applied. A good example of this is the long-term flood defense funding of the UK’s Environment Agency. This offers funding for inland and coastal flood defense based on the number of homes and businesses that are protected. The more protection, the greater the funding available to projects such as the £640 million River Thames Scheme.
Three ways to encourage infrastructure investment
One of the biggest challenges in encouraging private and public sector investment in building infrastructure resilience is how to pay for it. Historically, three methods have been used. The first one is the user-based method, which is spread out across all the primary users and benefactors of the infrastructure project. For example, in an investment in electricity network resilience, users pay through network charges. Another example from the UK would be the Thames Tideway Tunnel, which is a £4.2 billion wastewater project to protect London.
The next option is to finance the project through tax-based incentive structures. The Inflation Reduction Act in the US, which applies a layering approach of tax incentives to increase the financial benefit to companies, is an example of this approach. The World Bank’s Global Infrastructure Facility and the UN’s Green Climate Fund also are examples of this.
The third way of paying for infrastructure investment is a value-capture scheme to unlock more value in land. This method involves making proactive investments in protections to address potential infrastructure vulnerabilities in order to increase the land value. By foreseeing areas of concern, the land emerges as a more secure place to build.
Of course, there are factors that are currently slowing progress on resilient infrastructure investment. First, the lack of broad awareness of the low resilience of infrastructure. It has only been in the last 18 to 24 months that headlines about extreme weather events on the vulnerability of infrastructure from around the world are breaking through. The last few weeks have seen Hurricane Idalia in Florida, wildfires in Hawaii, and a severe heat wave in Europe.
Secondly, the strain on government finances after years of public investment in responding to the global banking crisis, the global pandemic, energy security, war, and natural disasters. Many governments are now more indebted than at any time in the last 50 years and are facing a sharp increase in the cost of servicing that debt.
Solutions to challenges
Fortunately, there are solutions to overcoming these challenges. Collaboration among governments and public and private sector actors usually is the norm when it comes to a particular infrastructure enhancement project. Private and public partners come together to identify the risk, locate the investments, determine the best solutions that need to be made, and then invest proactively to improve the resilience of the project.
However, this process needs to be improved with suggested actions, including:
Enhance collaboration
Partnerships between governments and private organizations that own some individual parts of the infrastructure are a crucial element for success. Within a particular project, there are multiple owners of buildings, power networks, water networks, gas networks, and other infrastructure projects.
Expand efforts to grow awareness
The days of the public purse paying for most of the damage and resiliency are likely to come to an end because of the low level of financial health of many governments. As a result, governments need to increase efforts to champion the cause of resilience and to identify and build awareness of the overall macro-threats to the resilience of cities and communities they own.
Increase investments from private asset owners
Likewise, private owners of assets also should be prepared to invest in innovation in order to create more efficient infrastructure proactively, instead of only paying for repairs to the previous level of resilience post-disaster. Indeed, innovating to create transportation and power systems that don’t emit carbon is one key area of immediate need.
Further, developed economies must lead the way with innovation and funding, simply because emerging economies cannot follow the same carbon-emitting development path as other countries. Instead, these emerging economies must develop sustainably and build resilience as more extreme climatic events occur.
Looking to the past to inspire success for the future
Getting together multilateral parties to address environmental challenges is not new. Indeed, the mass effort to help repair the hole in the ozone layer and to remove acid rain are two recent examples over the last 50 years. We have solved these problems in the past, and innovation has been key.
According to a recent report published by the International Federation of Consulting Engineers (FIDIC) in collaboration with Ernst & Young (EY), the world needs to deliver $139 trillion of sustainable infrastructure by 2050 to meet net zero – revealing a $64 trillion investment gap.
So, clearly, there is a way to go. And the path that lies ahead is difficult but not hopeless. Indeed, with optimism, innovation, investment, and collaboration, there will be better days ahead.
