Last edited 11 Feb 2021

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The Institution of Civil Engineers Institute / association Website

Natural capital, infrastructure banks and energy system renationalisation



[edit] Introduction

In this Infrastructure Policy Watch series, ICE's Director of Policy Chris Richards looks at key issues in a manner that will allow infrastructure professionals to play their part in shaping the discussion. These issues include:

[edit] Natural capital

In February 2021, the UK's National Infrastructure Commission (NIC) published a report on natural capital and environmental net gain. Countries like New Zealand and the UK have been looking to capture the value of natural capital so that it can be included in decisions on infrastructure and other economic and social activities.

As the NIC's discussion paper sets out, infrastructure development can both positively and negatively affect natural capital assets, with recent decades seeing more negative impacts than positive.

[edit] NIC proposals

Despite progress in understanding the issue, the infrastructure system's role in addressing this decline is still not set within a clear policy framework. The NIC proposes using the concept of environmental net gain, which would see:

The NIC is developing a set of natural capital principles for use in infrastructure. These principles will be factored into the creation of the second National Infrastructure Assessment in 2021.

[edit] ICE's view

ICE is working with the NIC and wider infrastructure profession to inform the best way for environmental net gain to factor into decisions on infrastructure.

[edit] Infrastructure banks

Achieving the UN Sustainable Development Goals (SDGs) and the Paris Climate Agreement will require significant infrastructure systems changes and these changes will cost money.

Even before the COVID-19 pandemic, there was a considerable gap between trend infrastructure investment and what was needed, particularly in roads and electricity. Countries have been looking at how to respond to these and other challenges in infrastructure finance, and in some countries, the answer appears to be setting up or strengthening state-backed infrastructure banks.

[edit] Canada's approach

Prompted by the Government, the Canada infrastructure bank updated its expections in February 2021 with five priority areas for investment: public transit, green infrastructure, trade and transport, broadband and clean power. The expectations also include a CAD 1 billion target for indigenous infrastructure projects across the five areas.

With the UK set to create its own infrastructure bank (announced at Spending Review 2020), Canada's focus will be one lesson to learn from on how to set up in a way that adds value to overall infrastructure financing.

[edit] ICE's view

As part of ICE's response to the UK Government's Infrastructure Finance Review in June 2019, ICE explored the benefits of an independent UK infrastructure bank, including crowding-in investment, de-risking new technologies for decarbonisation and supporting regional economic growth.

[edit] Energy system renationalisation

In January 2021, Ofgem completed a review of the energy system in Great Britain. The review focused on whether or not the governance framework for energy was fit for purpose to deliver the UK's net-zero emissions targets.

One of its key recommendations in the review was to create an independent body, or systems operator, to help lead the decarbonisation of the electricity system, effectively stripping National Grid of the responsibility.

[edit] Reasons behind Ofgem's recommendations

The changes are suggested as Ofgem felt that better strategic planning and management of the electricity system is needed to meet net-zero, particularly as renewable capacity increases and transport and heating sectors electrify.

This effective renationalisation of system operation would see the new body taking a more active role in designing and planning new grid infrastructure and providing independent advice to the UK government on how best to hit the 2050 net-zero target. Ofgem suggests the move could save bill payers up to £4.8bn between 2022 and 2050.

The UK government hasn't backed away from the recommendation, suggesting it may have some government traction.

[edit] ICE's view

Improved strategic planning of infrastructure investment would unlock more benefits than the current siloed sector-by-sector approach.

This article originally appeared on the ICE Infrastructure Blog under the headline, 'Infrastructure Policy Watch: natural capital, infrastructure banks, and energy system renationalisation?' It was written by Chris Richards, ICE Policy Director and published on 9 February 2021.

--The Institution of Civil Engineers

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