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Study: Infrastructure bank needed for US to go green

The transformation from a carbon fuel-based system to one that prioritises renewable energy would require an additional 1.7% of GDP spending in infrastructure each year. It could be best facilitated through a well-funded infrastructure bank, argues a study by consultancy CG/LA.

posted - 13 Jul 2009 17:05 GMT | updated - 13 Jul 2009 17:08 GMT

A national infrastructure bank with hundreds of billions of dollars of spending power could be used to move the US away from a carbon-based fuels to renewable energy, suggests a new study by Washington DC-based consultancy CG/LA Infrastructure.

CG/LA says the transformation from a “liquids” infrastructure system, or one that prioritises the use of carbon-based fuels, to an "electrons"-driven system focused on renewable energy, would require an additional 1.7 percent of GDP in spending annually. The increase would bring annual US spending on infrastructure, currently at 1.3 percent, up to 3 percent of GDP - in line with 1980 levels, says CG/LA chief executive officer Norman Anderson.

"That would for sure go more toward electrons rather than liquids," he adds.

Anderson says the US needs a "secular funding source" for infrastructure projects, or a source that is de-politicised. He believes a strong federal infrastructure bank, such as the one envisioned by the Obama administration, could fill that role. However, Anderson believes it would need to be capitalised at a much larger level than the $5 billion per year over five years that President Obama proposed for the infrastructure bank in his 2010 fiscal budget.

"We need at a minimum an infrastructure bank that is capitalised at over $300 billion over 10 years," Anderson said. He believes it is a sum that would allow the US to reach "escape velocity" from the infrastructure funding system.

The current system, centered around the interstate highway system developed 60 years ago under the Eisenhower Administration – “was built around the idea of cheap liquids", Anderson says. It has managed to stay in place, CG/LA argues, because it’s primary funding mechanism – the highway trust fund – favors entrenched political interests such as local politicians, engineering and construction firms and petroleum firms.  As a result, the current system does not address the carbon-neutral transportation and energy priorities of tomorrow. In the future, the US will need to source 50 percent of electricity generation

will have to come from renewable sources, CG/LA says. It will also need to develop and implement next-generation technologies such as smart electric grids, electric rail, electric and hybrid cars and  high speed rail to further reduce its carbon footprint and increase its competitiveness.

"With everything going on around electricity, the opportunities for massive innovation are obvious," Anderson said. But the US faces an “extremely difficult” issue of linking infrastructure investment with productivity and will have to figure out how to do so if it is to be competitive and innovative, he added.

Anderson is pessimistic on the economic stimulus’ ability to provide that link. The $787 billion American Reinvestment and Recovery Act signed into law earlier this year allotted $120 billion toward infrastructure, but only $10 billion of stimulus funds will go toward infrastructure projects this year and perhaps $40 billion next year, CG/LA estimates. As a result, overall investment - federal plus state - will be down 15 percent to 20 percent over last year's levels, Anderson says. He blames the decline on states' declining budgets and an inability to raise project-related funds. Overall investment in infrastructure will be in the range of $130 billion this year and may recover next year to 2008 levels, according to the study.

The study, “The US Infrastructure Marketplace: Facts and Figures”, is a companion report to CG/LA's North American Strategic Infrastructure Leadership Forum, which is being held in September.