The G20 and Infrastructure

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[Spanish version available here.]

With the growing concentration of wealth and power, the financial and corporate sectors tend to capture governments to promote their own enrichment.

A consequence is inequality.  For instance, in Cape Town, South Africa, the approach of “Day Zero” – when the city runs out of water – has dire consequences, especially for the poor. “Day Zero” has already arrived for millions without access to safe water or energy and could arrive for the climate when catastrophic warming becomes irreversible for rich and poor alike.

In 2015, when the sustainable development and climate goals were adopted, public financiers, such as the World Bank, also adopted the “billions to trillions” model.  This model uses billions in public money (e.g., aid, taxes, user fees, pensions) to leverage trillions – especially from long-term institutional investors (e.g., pension funds) which control over $100 trillion.  It requires creating infrastructure as an “asset class” (i.e., “financialization”) as the Argentine G20 seeks to do.

G20 work on financialization did not take off until the 2014, although since 2010 infrastructure was part of its program on development.

The Argentine effort, described here, involves securitizing the revenue streams from the “pipelines” of projects and bundling them for trading by investors.  These maps show “pipelines” of projects for 4 sectors – energy, transport, water, and ICT – promoted by the Master Plans of each (sub)continent.

The 2017 German Presidency broke the taboo on discussing and acting on climate change in the G20, despite the infamous act of the U.S. in snubbing the world’s consensus.  Still, the German Presidency did not reconcile its “Climate and Energy Action Plan for Growth” with its Principles for Crowding In Private Finance, especially for infrastructure development.

These principles are being rigorously implemented by the World Bank Group (through the “cascade”), APEC Ministers, and others without adequate incentives to achieve sustainable development.  Without investment norms, screens, and incentives, private finance serves shareholders and not always the common good.

Infrastructure will accelerate global warming if the G20 continues to do the bidding of business interests which want subsidies for fossil fuels and recommend exploiting all energy sources, especially natural gas.  Oil Change International highlights Argentina’s reliance on natural gas, which should not be a bridge fuel to a sustainable future.  Instead, the G20 should direct its Infrastructure and Energy Transitions Working Groups (and its Sustainable Finance Study Group) to ensure that:

Infrastructure will accelerate global warming if the G20 continues to do the bidding of business interests which want subsidies for fossil fuels and recommend exploiting all energy sources, especially natural gas. Oil Change International highlights Argentina’s reliance on natural gas, which should not be a bridge fuel to a sustainable future.

Instead, the G20 should direct its Infrastructure and Energy Transitions Working Groups (and its Sustainable Finance Study Group) to ensure that:

— investment decisions reduce greenhouse gas emissions and increase resilience to climate risks, while serving social needs and respecting human rights.  This requires revamping rules, e.g., the “screening tool” that determines whether projects, including infrastructure services, will be publicly or privately financed and delivered; the 2013 G20 Principles for Institutional Investment, which are critiqued here; the 2017 G20 Principles for Crowding In Private Finance (as related to the G20 Climate and Energy Action Plan for Growth) and so on.

— all new infrastructure above a certain volume of investment to a mandatory “climate test”, which would need to be applied by multilateral and national development finance institutions across whole “pipeline” of projects.  As it is, the G20 is promoting a doubling of annual infrastructure investment without ensuring that the investments support the Paris climate goals. This could lead to a massive misallocation of capital, and a further lock-in of unsustainable modes of energy production and consumption, as well as transport.

–projects (including public-private partnerships (PPPs)) and project “pipelines” do not create inequality by socializing loss and privatizing gains, as would happen using some project instruments (e.g., the standard PPP contract). The collapse of the U.K.’s Carillion, manager of 450 public works contracts, illustrates this principle taken to an extreme.

Finally, the G20 should direct its Eminent Persons Group (EPG) on Global Financial Governance to ensure that catalyzing “vastly more market funding” serves the public interest. Otherwise, the EPG could continue privatizing global financial governance in ways that could marginalize the sustainable development efforts.

Ultimately, civil society organizations (CSOs) should not be turned away from the G20, as they were from the Argentine WTO Ministerial. Civil society must be an integral part of averting “Day Zero”.

 

 

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