China and Sustainable Infrastructure
Lord Nicholas Stern, esteemed economist and author of the infamous Stern Review, joined the Chinese pavilion for a discussion on sustainable infrastructure over the next two decades. According to Stern, sustainable infrastructure spending is fundamental to the economic transformation challenge facing the world’s large economies, and most urgent of all in China. The policymakers of today have a huge responsibility on their shoulders to avoid being locked into a congested, polluted future. Speed and decisive, credible action by governments on infrastructure decisions matters enormously at this stage. Billions of dollars will be invested in such assets over the coming years and these investments decide which path our economies will go.
Stern presented infrastructure spending as a “fourth way” out of the stagnant growth that has been plaguing many key economies since the 2008 crash. The other three options — monetary policy, fiscal policy, and structural reform — are either reaching their limits, politically unfeasible, or too long-term to be of use. Simply to meet the energy and emission needs of a 2 degree Celsius climate scenario we will require 30% more investment in power production, and a 37% increase in efficiency.
In China’s case, stable and credible policy making by the Party’s central committee gives it a great advantage in moving towards the removal of fossil fuel subsidies, revolutionising city design, and implementing carbon pricing. These are all prerequisites to making smart infrastructural investment decisions in an environment of what Stern termed “predictable flexibility.” This is a world away from how policy making on renewable energy is being conducted in the West. Stern concluded by underlining the immense costs of getting the transition wrong. As our YEL Team Leader has written at the Institute for New Economic Thinking, we have little room for manoeuvre on high-carbon infrastructure and risk locking ourselves into a much higher emissions path, with disastrous consequences for our planet’s climatic stability.