Guest Post: Why Governments Must Encourage More Investment in Green Infrastructure, Now!
By: Chris Lewis, Global Infrastructure Leader at EY
At COP27 in November last year, there was an overwhelming consensus that the target of lowering global temperatures by 1.5°C – as outlined in the historic Paris Agreement – is now at risk of not being met, unless the world acts now. This sounds like a huge undertaking, but it is more realistically achievable if more investment is funneled into green infrastructure projects, which are critical to accelerating the transition toward a low-carbon economy.
Currently, most governments and investors, especially on the institutional side, have been slow and reluctant to invest in green infrastructure projects, due to concerns over their economic viability. To reverse this worrying trend, there are a number of steps that governments must take to demonstrate the value, importance and financial viability of green infrastructure, before it is too late and the Paris agreement target is missed.
Build more investor confidence in green infrastructure projects
The greatest fear that many investors have around investing in green infrastructure projects is that they become “stranded assets.” For example, an investor may make a large investment in a hydrogen energy project, which is then undercut by a cheaper and more financially attractive green energy source – rendering the project a “stranded asset” as it’s no longer economically feasible.
To prevent this, governments must make a long-term commitment to a green energy source such as hydrogen or nuclear. This will give investors more confidence about future investments in green energy infrastructure projects, as they will have a higher degree of certainty that the government is committed to introducing this energy source as a long-standing policy initiative.
Develop incentives to encourage investments in green tech and define the role of the environmental regulator
Green technologies such as carbon capture and solar will be critical in accelerating the transition toward a low carbon economy. Governments must make investments in these technologies more attractive by developing revenue support, green grants and incentives, either through revenue policies, tax incentives or government funding. The introduction of these support mechanisms will make investing in these technologies even more enticing to investors.
As of now, there is a gap between regulators of infrastructure, set up to deliver efficient networks and environmental objectives that require investment to reduce carbon intensity. Regulators focus on efficiency, repeatable network outcomes and minimizing the impacts on bills while governments need to set net-zero plans for countries, reduce emissions and, therefore, invest in renewables, water resilience and network flexibility. Governments need to reset regulatory objectives to include carbon targets so they can balance the need to invest against the need to keep networks affordable.
The role of public-private partnerships in green infrastructure projects
Governments – and the public sector more broadly – will no longer be able to plug the funding gap for green infrastructure projects without private sector help. The private sector has the expertise, funds and experience critical to the success of these projects. As a result, the private sector will have to invest in the new infrastructure needed for sustainable development goals. This will include newer asset classes, like advanced nuclear power, electric vehicle infrastructure, floating renewables and carbon capture. Each of these projects will have to secure a strong credit rating for the companies who invest. So, each project must have strong fundamentals for financing, through stable, predictable revenue, reasonable protection from changes in policy and support to new supply chains to be able to deliver the early projects.
Encouraging the development of relevant skills and experience
Ensuring that the region or local community where a green infrastructure project is located has a working population, with the relevant skills and experience is crucial to attracting investment. Such skills and knowledge include engineering, technology and project management – all of which are essential to the success of any big green infrastructure project.
Governments can help ensure the development of sufficient skills and experience by encouraging colleges and universities to offer engineering, technology and project management courses to their students. In addition, governments should focus on developing formal learning programs and apprenticeships that focus on these skills. At the same time, companies will need to reskill employees by instating new internal mobility programs and blending digital academies with self-directed learning courses. Examples include:
- The Scottish government creating a “Just Transition Fund” of £500m with the primary focus of supporting the NE Scotland move from its reliance on high carbon industries and enabling the region shift to net-zero. Investment in innovation, reskilling and the workforce transition to support a flourishing renewables industry is a key part of this program.
- The offshore energy industry creating an Integrated People and Skills Strategy to identify the roles and skills required to drive the significant investment in, and change to, the energy mix in the UK. This is projected to see a 30% increase in the workforce by 2030 and the strategy sets out a structured approach to attract talent into the industry plus transition and reskill from sectors that are contracting (e.g,. oil and gas).
We have a huge amount of work still to do if we’re to meet the 1.5°C target. It may seem like a big task, but if governments take the steps I’ve outlined above, we will be able to move significant private sector experience and capital into green infrastructure projects that are critical to combatting climate change.
About the author:
Chris leads the EY global infrastructure team, working closely with governments as the key advisor to major projects in nuclear, carbon capture, water, road, rail and renewables. With more than 25 years of industry experience, he is helping private and public sector organizations take projects from inception to financial close.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.