How will we finance the city infrastructure of the future?

New road tunnels under construction in Rio de Janeiro, Brazil, in 2013. Image: AFP/Getty.

What are the biggest financial priorities for cities in our rapidly urbanising world? Who are the key players to invest in urban infrastructure? What are the most effective, innovative financing mechanisms that cities can adopt?

These are urgent questions that global cities are asking as they face a huge infrastructure funding gap. To find solutions to this major 21st century challenge, the New Cities Foundation has launched the Financing Urban Infrastructure Initiative. Its mission is to produce actionable research and pragmatic recommendations for key urban decision-makers, including mayors, institutional investors and real estate developers, on how we can use innovative financing models that can address this gap.

The Initiative will be led by Dr. Julie Kim who joins us from the Stanford Global Projects Center as a New Cities Foundation Senior Fellow. We caught up with Dr. Kim, to find out more about her planned research.

NCF: How has infrastructure financing changed over the past few decades?

In the past 50 years, we went from infrastructure financing being largely in public hands to increased private sector participation – starting in the mid-80s for emerging economies and mid-90s for advanced economies.

More recently, it came back into the public hands with “remunicipalisation”, especially for the water sector.

Today, there is an unprecedented investor appetite for infrastructure globally and there are more financing options available for cities. As the market becomes more complex with increased demand, a more sophisticated approach is required.

NCF: What are the most pressing priorities in financing cities in the 21st century?

JK: Firstly, cities must strive to be more independent financially. They need to seek local financing capacity while capitalising on all resources available from multilaterals, bilaterals, central and provincial governments.

Secondly, they need to become smarter. The money is there, but packaging bankable projects is difficult. It takes sophistication and financial knowledge to reach well-balanced financing structures, which requires better education, networking and capacity building. This is one of the areas where the New Cities Foundation can play an important role.

Thirdly, cities need to be balanced in their development approach, especially big cities facing rapid growth and globalisation. They must balance the desire to grow economically with the need to address critical environmental and social equity concerns, whilst being sensitive to local needs and promoting inclusivity.

For small to medium-sized cities, it’s important to tap into all external resources – including grants, subsidies, credit guarantees and more.

NCF: It is well documented that cities in the Middle East and Asia face the toughest challenges when it comes to meeting investment resources with demand. How will you go about researching solutions specific to these zones?

JK: These cities need credible institutions and rule of law to attract financing: political instability presents a big challenge. In the short to mid-term, these cities must work closely with multilaterals and other development-oriented institutions to tap into their resources on technical assistance, capacity building and political risk insurance programs. Then, with multilateral backing, they must engage institutional investors for the long haul, in order for economic growth to catch up with the repayment needs.

In particular, they should explore opportunities with sovereign development funds and other impact investors who are interested in socially responsible investments with long-term positive impacts.

NCF: Do you have some standout examples of effective urban financing models that you’ve worked on or witnessed, that you can share with us?

JK: One example related to the local financial independence I mentioned earlier is the Enhanced Infrastructure Financing District (EIFD) model in California.

EIFD allows local and regional agencies new taxing powers – benefits assessment and Tax Increment Financing, for example – as well as multi-agency collaboration across multiple sectors, including transportation, water, waste management, and more. Urban infrastructure projects should not be developed in isolation, but in conjunction with land development that helps to trigger economic growth.

I was also involved in Pusan Centum City in South Korea where a 300-acre former air force base was converted into a major “economic incubator”. This was initially entitled “DMZ” – digital media zone – mixing technology, media and entertainment with education and residential land uses. This was a successful development that succeeded in drawing $2bn in outside investment.

NCF: This June, you’ll be coming to our New Cities Summit in Jakarta: a city that encapsulates many of the issues faced by rapidly urbanising zones in Asia. What interests you most about this city and its neighbouring areas?

JK: I’ll be fascinated to observe how this booming megacity plans to address economic, environmental and social equity challenges within a context of rapid urbanisation and growth. On a personal level I’m fascinated by Jakarta’s incredibly rich culture: its multi-layered, multiethnic population, peaceful and functioning effectively in all aspects.

I think Jakarta can emerge into one of the most unique metropolises in the world, on a par with global cities such as Paris, London, New York, Tokyo, Shanghai – growing to symbolise South East Asia beyond what’s being offered by Singapore.

Dr Julie Kim is a senior fellow at the New Cities Foundation (NCF), an international non-profit organisation. This Q&A was originally posted on the foundation’s blog.

The Financing Urban Infrastructure Initiative is supported by Cisco and Citi.

 
 
 
 

Which nations control the materials required for renewables? Meet the new energy superpowers

Solar and wind power facilities in Bitterfeld, Germany. Image: Getty.

Imagine a world where every country has not only complied with the Paris climate agreement but has moved away from fossil fuels entirely. How would such a change affect global politics?

The 20th century was dominated by coal, oil and natural gas, but a shift to zero-emission energy generation and transport means a new set of elements will become key. Solar energy, for instance, still primarily uses silicon technology, for which the major raw material is the rock quartzite. Lithium represents the key limiting resource for most batteries – while rare earth metals, in particular “lanthanides” such as neodymium, are required for the magnets in wind turbine generators. Copper is the conductor of choice for wind power, being used in the generator windings, power cables, transformers and inverters.

In considering this future it is necessary to understand who wins and loses by a switch from carbon to silicon, copper, lithium, and rare earth metals.

The countries which dominate the production of fossil fuels will mostly be familiar:

The list of countries that would become the new “renewables superpowers” contains some familiar names, but also a few wild cards. The largest reserves of quartzite (for silicon production) are found in China, the US, and Russia – but also Brazil and Norway. The US and China are also major sources of copper, although their reserves are decreasing, which has pushed Chile, Peru, Congo and Indonesia to the fore.

Chile also has, by far, the largest reserves of lithium, ahead of China, Argentina and Australia. Factoring in lower-grade “resources” – which can’t yet be extracted – bumps Bolivia and the US onto the list. Finally, rare earth resources are greatest in China, Russia, Brazil – and Vietnam.

Of all the fossil fuel producing countries, it is the US, China, Russia and Canada that could most easily transition to green energy resources. In fact it is ironic that the US, perhaps the country most politically resistant to change, might be the least affected as far as raw materials are concerned. But it is important to note that a completely new set of countries will also find their natural resources are in high demand.

An OPEC for renewables?

The Organization of the Petroleum Exporting Countries (OPEC) is a group of 14 nations that together contain almost half the world’s oil production and most of its reserves. It is possible that a related group could be created for the major producers of renewable energy raw materials, shifting power away from the Middle East and towards central Africa and, especially, South America.

This is unlikely to happen peacefully. Control of oilfields was a driver behind many 20th-century conflicts and, going back further, European colonisation was driven by a desire for new sources of food, raw materials, minerals and – later – oil. The switch to renewable energy may cause something similar. As a new group of elements become valuable for turbines, solar panels or batteries, rich countries may ensure they have secure supplies through a new era of colonisation.

China has already started what may be termed “economic colonisation”, setting up major trade agreements to ensure raw material supply. In the past decade it has made a massive investment in African mining, while more recent agreements with countries such as Peru and Chile have spread Beijing’s economic influence in South America.

Or a new era of colonisation?

Given this background, two versions of the future can be envisaged. The first possibility is the evolution of a new OPEC-style organisation with the power to control vital resources including silicon, copper, lithium, and lanthanides. The second possibility involves 21st-century colonisation of developing countries, creating super-economies. In both futures there is the possibility that rival nations could cut off access to vital renewable energy resources, just as major oil and gas producers have done in the past.


On the positive side there is a significant difference between fossil fuels and the chemical elements needed for green energy. Oil and gas are consumable commodities. Once a natural gas power station is built, it must have a continuous supply of gas or it stops generating. Similarly, petrol-powered cars require a continued supply of crude oil to keep running.

In contrast, once a wind farm is built, electricity generation is only dependent on the wind (which won’t stop blowing any time soon) and there is no continuous need for neodymium for the magnets or copper for the generator windings. In other words solar, wind, and wave power require a one-off purchase in order to ensure long-term secure energy generation.

The shorter lifetime of cars and electronic devices means that there is an ongoing demand for lithium. Improved recycling processes would potentially overcome this continued need. Thus, once the infrastructure is in place access to coal, oil or gas can be denied, but you can’t shut off the sun or wind. It is on this basis that the US Department of Defense sees green energy as key to national security.

The ConversationA country that creates green energy infrastructure, before political and economic control shifts to a new group of “world powers”, will ensure it is less susceptible to future influence or to being held hostage by a lithium or copper giant. But late adopters will find their strategy comes at a high price. Finally, it will be important for countries with resources not to sell themselves cheaply to the first bidder in the hope of making quick money – because, as the major oil producers will find out over the next decades, nothing lasts forever.

Andrew Barron, Sêr Cymru Chair of Low Carbon Energy and Environment, Swansea University.

This article was originally published on The Conversation. Read the original article.