6 Low-carbon and Resilient Infrastructure Investment
Investments in low-carbon and resilient infrastructure are critical for transitioning to a clean, prosperous, and resilient 2050.1 The long life of infrastructure makes it important to make investment decisions today that maximize future expected returns across climate, economic, societal, and environmental objectives (GCEC, 2014; 2015). Tracking investment data can help governments understand where public and private investments are going, analyze benefits generated, and determine whether investments are supporting low-carbon and resilient growth objectives.
Headline Indicator #6: Public & Private Investment in Climate-related Infrastructure
To measure climate-related infrastructure, we use the flow of annual public and private investments in select categories in 2009 and 2019, illustrated in Figure 6.1. For clean growth success, we want to see investments increase and become lower-carbon and more resilient over time.
Overall, the level and composition of investment within each category changed significantly between 2009 and 2019, with the total level of investment increasing in six of the 11 categories. Investments in hydroelectric production, power transmission, and power distribution experienced the largest growth over the 11-year period and also attracted the highest levels of investment in absolute terms, driven primarily by the public sector (Statistics Canada, 2020). Big hydroelectric projects, such as the Site C Dam in British Columbia and the Muskrat Falls Dam in Newfoundland and Labrador, were likely large contributing factors to these trends.
Investments in pollution abatement and control were another area of significant growth. Although starting from a much smaller base relative to investments in the electricity system, spending on pollution and abatement increased 23-fold between 2009 and 2019. The bulk of this spending was in the private sector, where investments grew from $12 million in 2009 to $413 million in 2019, reflecting a shift to comply with broader and more stringent environmental policies across the country.
Notably, total investments in wind and solar decreased 78 per cent between 2009 and 2019 after reaching a peak of nearly $2.7 billion in 2013. And while the majority of investment in wind and solar came from the private sector between 2009 and 2015, the public sector was the dominant investor between 2016 and 2019. Ontario’s feed-in-tariff program for renewables (which ran from 2009 to 2017) was a major driver of private investment in renewables in Canada (Oji & Weber, 2017; NRCan, 2020), and its cancellation likely played a role in the notable decline in new investment.
The total stock of infrastructure matters at least as much as the flows of annual investment described above. In the transition to 2050, the stock of low-carbon and resilient-related infrastructure—the result of those investment flows—should increase over time, whereas the stock of GHG-intensive infrastructure should decrease.
Figure 6.2 shows the total value of select infrastructure categories important in the transition to 2050, totalling over $250 billion in 2019. In absolute terms, electricity power infrastructure is the highest-value infrastructure asset in the figure, which is consistent with the investment flows from Figure 6.1. Within this category, hydro power generation infrastructure and transmission and distribution networks have the highest asset value, which typically include massive infrastructure projects that are capital intensive to build and maintain. Nuclear production plants, along with wind and solar, are also important components of Canada’s electricity power infrastructure, albeit smaller in terms of asset size. Taken together, continued growth in the stock of Canada’s electricity system infrastructure will have a significant impact on reducing the country’s long-term emissions but also increase the importance of addressing physical risks from a changing climate in the sector.
The climate-related impacts of other types of infrastructure categories are more complicated, especially when we start considering other clean growth objectives. The total value of bus infrastructure in Canada, for example, declined slightly (-13 per cent) between 2009 and 2019, while the value of rail and rapid transit infrastructure more than doubled (120 per cent). These trends may signal a transition to cleaner, more efficient rapid transit replacing older, less efficient, and polluting diesel bus fleets. Yet as electric and hydrogen buses become more feasible, continued growth in both bus infrastructure and rapid transit could be a desirable outcome.
Figure 6.2 also includes oil and gas infrastructure to illustrate the difficulty in determining the climate-related impacts of infrastructure. The stock of steam production plants (i.e., fossil fuel electricity generation), for example, more than doubled between 2009 and 2019. And while we might expect the stock of these fossil fuel assets to decline over time as Canada dramatically reduces its GHG emissions, this is not necessarily the case. Carbon capture utilization and storage (CCUS) and other emerging technologies could help reduce the GHG emissions associated with fossil fuel infrastructure.2 At the same time, the air pollution and ecosystem impacts from all types of infrastructure may also factor into decision-making, as explored in Indicators #10 and #11.
The data in Figures 6.1 and 6.2, while helpful in identifying historical infrastructure investments in key sectors, provide an incomplete picture of the consistency of investment trends with clean growth.
First, the data provide insights on only a small subset of climate-related infrastructure in Canada. The figures do not include national-level investment trends in other important areas, such as energy efficiency upgrades, climate resilience, and natural infrastructure. While part of the problem is poor and patchy data in these other areas (see Data Gap section), the larger issue is that Canada lacks a comprehensive definition and taxonomy of climate-related infrastructure investments.
Table 6.1 proposes a new approach to better define and track climate-related infrastructure investments across four types of infrastructure: low-carbon infrastructure, enabling low-carbon infrastructure, resilient infrastructure, and natural infrastructure. Each of these categories plays an important role in achieving clean growth. Importantly, the categories in Table 6.1 are not mutually exclusive. Investments can meet several objectives simultaneously; in fact, the framework provides a more structured way to identify infrastructure investments that offer the highest clean growth return. It also offers a way to identify projects that perform well on one objective but detract from other objectives, such as low-carbon electricity infrastructure not designed to withstand extreme climate events (i.e., maladaptive).
Second, the data do not provide insight regarding the extent to which investments are aligned with long-term clean growth goals. Investments may reduce GHG emissions or improve resilience; that does not necessarily mean, however, that they are consistent with long-term goals.
Given the long life of infrastructure, decisions made today have significant implications for the future. In particular, they can create “path dependencies” that are challenging and expensive to undo. For example, improvements to coastal infrastructure might be directionally consistent with Canada’s goal of improving resilience to rising sea levels. But if the system is only a marginal improvement—for example, it protects high-value assets against small increases in sea-level but not the larger increases expected under potential future climate scenarios—it is not necessarily consistent with Canada’s long-term objective of economic resilience.
This limitation also means that trends in investment data have limited value in informing forward-lookingchoices (both public and private). Historic data can highlight potential gaps that require policy intervention, but additional analysis is ultimately needed to determine where limited public investment dollars are best placed in the future. Setting priorities also requires understanding barriers to private-sector investment in different types of climate-related infrastructure, as well as an assessment of current and future societal benefits that could flow from different projects (Box 6.1).
Box 6.1: Public Role in Driving Private and Institutional Investment in Climate-related Infrastructure
Private and institutional capital (e.g., pension funds) generally flows to projects with the largest financial returns (NRDC et al., 2016). Yet because markets have historically failed to fully value climate and social benefits, and because low-carbon and resilient investments may be higher risk or yield lower returns than alternatives, government policy intervention may be needed. Policies could include disclosure requirements, public-private partnerships, infrastructure banks, regulations, and pricing that provide an incentive for investors to channel and redirect capital towards lower-carbon and more resilient infrastructure.
Sources: GCEC (2015); Infrastructure Canada (2018); NRDC et al. (2016); Canada Infrastructure Bank (2020); TFCD (2019).
Although Canada already has good data on select types of infrastructure investments in Canada—illustrated in Figures 6.1 and 6.2—the breadth and resolution in these datasets can improve. Carbon capture, utilization, and storage technologies, for example, could play an important role in decarbonizing Canada’s emissions-intensive industries and are already being deployed at some facilities. However, the datasets from Statistics Canada do not provide detail on this type of specific investment spending. The datasets also do not include new and emerging areas of investment, such as EV charging infrastructure. Adding new categories to existing data surveys to capture low-carbon and low-carbon-enabling infrastructure and reporting at a more detailed level would help provide key insights and would be relatively straightforward.
Other climate-related investment data are less simple to capture. For example, national and provincial-scale data on natural infrastructure investments are poor in Canada, along with investments in climate-resilient infrastructure. Data on climate-related investments to Canada’s building stock is also scarce, especially for retrofits. These types of small-scale investments are diffused across Canada, which makes them difficult to track and monitor. Yet each of these areas are expected to play a big role in the transition to 2050. Fortunately, various initiatives may offer the potential to include additional data in the future (Box 6.2).
Box 6.2: Emerging Efforts in Tracking Climate-related Investments
Organizations such as the National Research Council, for example, are working with Infrastructure Canada to develop standards for buildings and other infrastructure for flood, fire, and extreme weather resilience. This type of data could feed into a broader tracking system that provides provincial- and national-level insights on resilient infrastructure. It could be integrated with the investment data already tracked by Statistics Canada. Some local governments are also starting to integrate climate-related investments into asset management planning; however, this type of approach is not widespread across local governments and data do not exist at an aggregate level (FCM, 2019). Efforts to scale up best practices in asset management provide an important opportunity to also improve how climate-related investments are prioritized, developed, and tracked
Sources: FCM (2019); Infrastructure Canada (2019).
Canada could also draw on international experience and approaches to implement a more comprehensive climate-related infrastructure investment reporting framework consistent with the categories proposed in Table 6.1. International official development assistance funding is, for example, “tagged” as either climate mitigation or climate adaptation. Investments could be tagged based on their primary, secondary, or tertiary objectives to help identify infrastructure investments that achieve multiple objectives.
Finally, Canadian governments can benefit from forward-looking data and analysis to ensure that current public and private infrastructure investments align with Canada’s long-term clean growth objectives. The Canadian Institute for Climate Choices has ongoing research in these areas that will inform these important discussions in the future.
- We define infrastructure as any basic physical system that is essential for the economy and society to function. It includes engineered infrastructure (e.g., buildings, transportation systems, communication networks, water, wastewater, electricity systems, heating systems) and natural or “green” infrastructure (e.g., wetlands, forests, estuaries, lakes, etc.). Infrastructure assets are generally long-lived and can be capital intensive to build.
- According to Statistics Canada, investments in CCUS technologies should be counted under “Pollution Abatement” in Figures 6.1 and 6.2. However, in some cases, these infrastructure investments might get counted in the oil and gas infrastructure category.