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Infrastructure to 2030: opportunities and challenges

by Pierre-Alain Schieb

Counsellor, Head of OECD Futures Projects

August 28th, 2009

Working Group 5- Infratech- a chance in crisis

2009 ALPBACH TECHNOLOGY FORUM

© OECD International Futures Programme 1

Who are we?

Advisory Unit to the Secretary-General (SGE/AU)

International Futures Programme (IFP) Q Multidisciplinary team, created in 1990, reporting directly to

the Secretary-General of the OECD

Q Mission = Identify and explore emerging policy issues to 2030 (management of new emerging risks, the security economy, bioeconomy, migrations…)

Q Participation / Project Funding = Involvement of governmental bodies and private sector actors in each (self-financed) project


Examples of OECD/IFP projects

Space Space Infrastructure Infrastructure

2004 2005 2006 2007


Why infrastructure in OECD countries? Q Economic benefits in OECD countries were deemed

« unconclusive » in the 80’s (Ashauer, 1989, A. Munnel..) Q Cost of opportunity in 2000s: shortages, market failures,

ageing infrastructure..

Q Attractiveness (Krugman): what if you have science parks and universities but no power, clean water, public transportation?

Q Many kinds of social benefits (Lewis Mumford etc) Q And now, keynesian approaches (stimulus packages)


Italy Blackout (2003)

5

Rail congestion in Europe (2006)

http://www.cemt.org/online/Congestion07/UIC.pdf 6

Water stress by major water basins in 2000 and 2030

Source: OECD Environment Directorate (2006), Working Party on Global and StructuralPolicies, Revised environmental baseline for the OECD environmental outlook to 2030,20-21 November 2006,ENV/EPOC/GSP(2006)23

7 7

Main Features of the Project

Q Long-term view of infrastructure development and investment

Q 2 year duration (2005-2007) Q OECD countries + BRICs Q Telecoms, electricity, road, rail, water Q Time horizon 2030 Q Project team – OECD IFP Q Steering Group (government, business, research) Q Collaboration across Organisation

OECD International Futures Programme 8

Phase 1: Assessment of needs, potential demand and the future evolution of the sector

Q Critical assessments of existing reports Q What are the key factors driving the future evolution of the

sector? Q Longer term prospects for needs and potential demand Q Cross sectoral interdependencies/synergies


Electricity Sector Investment to 2030 (IEA, Trevor Morgan)

Reference scenario:

Q OECD: 3,940 trillion $ Q Transition economies 0,653 trillion $ Q Developing countries: 5,205 trillion $ Q Total:

9,798 trillion $ IEA


Electricity sector investment to 2030

Q Alternative policy scenario: - 15,7 %

Q OECD:

3,184 trillion $ (-19,2%) Q Transition economies 0,515 trillion $ (-21,2%) Q Developing countries 4,564 trillion $ (-12,3%) Total:

8,263

trillion $ (-15,7%)

IEA, February 2006


Water investment to 2030 (R. Ashley, A.Cashman, Sheffield, UK)

OECD and « big five » only :

Q to 2015: 772 billion $ a year

Q to 2025 1 trillion $ a year


Transport Investment to 2030

(David Stambrook, Canada)

Q Road transport: 220 to 290 billion $ a year (2/3 in OECD countries)

Q Rail transport: 50 to 60 billion $ a year

(2/3 in OECD countries) Q Policy matters: potential shift of 10% from road to rail


Telecom Investment to 2030

(Erik Bohlin, Simon Forge and al.,

Sweden and UK)

Global investment needs: Q 2005: 650 billion $ Q 2010: 745 billion $ Q 2020: 572 billion $ Q 2030: 148 billion $


Lessons learned:

Change of ranking: -Water comes first (OECD +Big five): 770 Billion$/year,

1 trillion $ by 2025 -Telecom: range of 650, 745 and 572 Billion$/year

(global)

- Electricity: 350 Billion$/year (global) - Transport: 220-290 Billion$/year (Road) +

(50-60 Billion$/year Rail) on a global basis


Estimated average annual world infrastructure investment requirements 2003-2030 (additions and renewal)

In USD Bn and as a percentage of world GDP

Type of infrastructure

2000-10 Approx. % of world GDP



Road 220 0.38 245 0.32 292 0.29

Rail 49 0.09 54 0.07 58 0.06

Telecoms1 654 1.14 646 0.85 171 0.17

Electricity2 127 0.22 180 0.24 241 0.24

Water1,3 576 1.01 772 1.01 1 037 1.03

1. Estimates apply to the years 2005, 2015 and 2025. 2. Transmission and distribution only. 3. Only OECD countries, Russia, China, India and Brazil are considered here.

Table 1 p 29 - Infrastructure to 2030: Telecom, Land Transport, Water and Electricity (2006)

16

Phase II- Possible challenges for project design and business models?

Q Huge opportunities but a financial gap Q From centralised to decentralised, smaller scale Q From large equipment to small equipment

and perhaps different suppliers

Q From ground to mobile/on board networked systems Q From « conventional » to new policy challenges (funding,

back up systems, safety, liabilities..) Q Shortage of human capital (quantitative and qualitative

basis)


of total government expenditure is declining General Government GFCF

As a percentage of total government outlay

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

In OECD countries, public capital investment as a share

Ye a r s of S ur v e y

Source: OECD Economic Outlook No. 80 database, November 2006. 18

Public sector finances increasingly less able to meet future infrastructure needs

Social expenditures have increased their share (from 16% of GDP in 1980 to 21% today)

Spending on public health and long-term care likely to increase from 6.7% of GDP today to between 10.1% and 12.8% by 2050

Pensions set to rise by 3-4 percentage points

from traditional sources

Lower spending on education for the young and child benefits

But higher spending expected on secondary, tertiary and lifelong education

Tax base may come under pressure through ageing workforce

19

Source : Intelligent Infrastrucutre Futures / The Scenarios – Towards 2055

Office of Science and Technology 20

Extremes of exchanges in infrastructure changes with telecommunications substitutions

Infrastructure element Investment increase or decrease

First estimate % change increase (+ve) or decrease (-ve)

Road transport infrastructure - -5 to -10%

Air travel (business) infrastructure

- -5 to 10%

Fuel oil – car, air transport - -5%

Health care - -10%

Education - or same -5 to -10%

Justice -- -20%

Electricity supply + +5%

Gas supply + +5%

Heating oil + +5%

Water supply + +5%

Sanitation + +5%


Phase III -17 policy recommendations Source: Volume 2, Infrastructure to 2030 (OECD, 2007)

Q 1- Innovative approaches to finance Q 2- Improving the regulatory and institutional

framework conditions

Q 3- Strengthening governance and strategic planning Q 4- Developing and integrating technology Q 5- Expanding and improving the toolkit


3.1 Innovative approaches to finance

Q Encourage public private partnerships (PPPs) as a means of raising additional financing for infrastructure investment and diversifying business models.

Q Encourage the investment of pension funds and other large institutional investors in infrastructures.

Q Make greater use of user charges for funding infrastructures. They should be designed to signal prices, reflect real costs and contribute to demand management.

Q Diversify and expand traditional revenue-raising sources.

Main findings and policy recommendations – Infrastructure to 2030 (2006)

24

3.2 Improving the Regulatory and

Institutional Framework

Q Examine the legal and regulatory framework conditions with a view to encouraging the emergence of fresh sources of capital and new business models for the construction, maintenance and operation of infrastructures.

Q Encourage the emergence of new players and new business models through the creation and promotion of frameworks that stimulate the development of effective competition either in or for the market.

Q Place greater emphasis on the issue of reliability of infrastructure functioning.

Q Strengthen the framework for standards, as a tool for encouraging new operational models and for improving interoperability.

Main findings and policy recommendations – Infrastructure to 2030 (2006)

25

3.3 Governance and Planning

Support the development of long-term, co-ordinated approaches to

infrastructure development.

Reduce the vulnerability of long-term infrastructure planning and

implementation to short-term thinking and priority setting.

Ensure the involvement of a broader range of stakeholders in the process of needs assessment, prioritisation, design, planning and delivery of infrastructures.

Strengthen international co-operation to improve the efficiency, reliability and security of flows of goods, services and information across transborder infrastructures.

Main findings and policy recommendations - Infrastructure to 2030 (2006) 26

3.4 Use technologies both to improve efficiency in infrastructure and to

enhance demand management

Q Intelligent transport systems and capacity improvement programmes Q New systems of road network pricing and tolling Q Remote metering Q Further development of cross-border electrical transmission

interconnection

Q Microbial fuel cells for energy from wastewater Q ICT-driven public transport management Q Enhanced signalling and freight rail capacity Q Use of GIS to facilitate life-cycle management of assets

27

3.5 Improving the Toolkit Q Strengthen public capacity to inform decision-making,

improve analysis, monitor performance, and develop the requisite interdisciplinary skills to address infrastructure issues.

Q Data collection, research and analysis, accrual accounting and asset management, wider use of cost-benefit analysis, new interdisciplinary approaches to education and training.

28

3.6 Impact of current crisis Q Financing/funding:

¾ short term retreat from bank financing ¾ increased gap for long maturity financing ¾ difficult time for increase of user charges, but ¾ hedge funds move to infras., concept of an asset class is more popular,

clubs of investors are created, dedicated funds are launched (see Canada, Switzerland..), national bonds in France..

Q Differentiation between projects: some will be postponed, reconsidered, or re-designed, some should be accelerated with derogatory procedures, governments are required to act more proactively as catalysts and PV as integrators.


Ongoing work and next steps with the IFP Q Bioeconomy to 2030: Designing a Policy agenda

OECD, 2009 Q Space Technologies and Climate Change (water

management, Marine resources and Maritime transport) OECD, Nov. 2008

Q The Future of International Migrations to OECD Countries (Forthcoming September 2009)

Q Infrastructure 2030: Phase II on Transcontinental Infrastructure Needs (First meeting on November 19, 2009 and seminar on funding issues on November 20)


Options for Austria

Q Project on Transcontinental Infrastructure (20092010) ?

Q Participation in OECD Space Forum (2009-2014) ?

Q Project on Future Global Shocks (2009-2011) ?


Thank you. Pierre-Alain Schieb

[email protected]

www.oecd.org/futures


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