More severe weather and natural disasters are prompting the market to explore new kinds of infrastructure.
- 2017 saw 16 climate change and weather disasters which accounted for an estimated $306 million in total costs due to losses
- Resiliency in infrastructure projects is likely to be looked at more as the number of climate-related events increases
- Some maintain that resiliency is difficult to price in because the end requirement is not necessarily clearly specified.
Surface transportation and resiliency are not often spoken about in the same breath, but the frequency and magnitude of adverse weather events is creating a need for action.
“We aren’t getting enough done to avoid catastrophic climate change or change the nature of infrastructure to make it more resilient,” Paul Forrester, a partner at law firm Mayer Brown told Icons of Infrastructure.
Forrester noted that, unlike in the renewables sector, there are no climate-friendly policy regulations or dedicated clean-tech tax incentives for the transportation sector. For example, measures such as the production tax credits (PTC) for the renewable industry incentivize the energy industry to be environmentally minded and make projects resilient.
The federal renewable electricity PTC is an inflation-adjusted per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. The duration of the credit is 10 years after the date the facility is placed in service for all facilities placed in service after August 8, 2005. Originally enacted in 1992, the PTC has been renewed and expanded numerous times.
According to the National Oceanic and Atmospheric Administration’s (NOAA) National Centers for Environmental Information (NCEI), 2017 saw 16 climate change and weather disasters which accounted for an estimated $306 million in total costs due to losses. Scott Zuchorski, co-head of US Transportation and Infrastructure Finance at Fitch Ratings, noted that the ratings agency currently asks grantors issuing proposals whether they are taking into account floods or other natural calamities. He added that resiliency in infrastructure projects is likely to be looked at more as the number of climate-related events increases.
Sectors under consideration
According to a January 2018 report by the Centre for Climate and Energy Solutions, some of the priority infrastructure types for resilience include electricity transmission and distribution, alternative transportation modes and fuels; internet and telecommunications infrastructure; water infrastructure.
Specific infrastructure projects could include building new wires to connect clean energy resources with demand centers, capital improvement in existing mass transit systems, adding bike lanes to existing streets, developing high-speed rail corridors, and expanding electric vehicle charging infrastructure so as to reduce road traffic and divert commuters to more sustainable forms of transport.
According to Mike Parker, infrastructure leader for the Americas at EY, flood prevention is also an area that is attracting interest.
“We aren’t getting enough done to avoid catastrophic climate change or change the nature of infrastructure to make it more resilient,”
— Paul Forrester, a partner at law firm Mayer Brown
For example, the Port of Miami Tunnel P3 in Florida, which was was completed in 2014, included a requirement for resiliency involving storm gates. So any time there is surge in water levels, the tunnel is secured with water tight doors.
Parke noted that an important consideration in any type of resilient infrastructure is the challenge that it will only work full capacity when a disaster occurs. As a result, that threshold has to be built into design.
While there are clearly obstacles in the path of greater resiliency in infrastructure projects, evidence suggest that it is beneficial when implemented.
According to NCEI figures, projects to reduce wind and water damage in Florida were found to have avoided $81.1 million in losses after Hurricane Matthew hit the state in 2016. Moreover, they only cost $19.2 million to implement. Additionally, green infrastructure currently being used in Philadelphia, Pennsylvania helps to address flooding challenges. Those investments have had an economic impact of nearly $600 million within the city, and they support 430 local jobs.
However, Forrester noted that infrastructure resilience is difficult to implement since it is hard to measure.
“How do we make our subway electrical systems more resilient for instance from floods and hurricanes? Maybe move them from the basement,” he said. “We are still struggling with appropriate measures of resiliency and sustainability.”
Despite the benefits, some headwinds remain in regard to financing more resilient infrastructure.
Ernest Chung a project finance attorney at Nixon Peabody noted that resilient projects do not always generate cash flow unless they have a government backing. He added that, while resiliency is something bidders are increasingly expected to address in a proposal response, it is it is difficult to price in because the end requirement is not necessarily clearly specified.
“Bidders may be asked to speak about their approach toward resilience in general, but often the specific measures to be taken are not articulated.”
Chung also noted that, in terms of a P3, it is difficult for a bidder to build resilience in unless there is a chance to be rewarded for it. He added that even that is difficult because the lowest-cost bid is often rewarded, thus bidders may be concerned that adding resiliency may adversely affect bid competitiveness.
Michael Rinaldi, a senior director in Fitch Ratings, added that some public transport agencies such as New York’s Metropolitan Transit Agency (MTA) have issued green bonds to finance more resilient infrastructure projects. He added that other procurement bodies are currently exploring innovative new schemes such as “mitigation banking credits”.
One example, the Pennsylvania Wetlands Mitigation P3, will provide environmental mitigation credits for projects with unavoidable impacts. Some include wetland creation and preservation, stream bank restoration, threatened species preservation, stormwater runoff volume control and pollutant reduction.
Others including the Centre for Climate and Energy Solutions have noted that federal funding incentives which are exempt from federal income tax, such as Private Activity Bonds (PABs), could be expanded to projects that meet resilience criteria and enhance community resilience. The report further notes that private investment in resilient infrastructure could be accelerated as a result. However, no such expansion has yet taken place.