ImpactAlpha, Aug. 11 – Finally, it really is Infrastructure Week.
The Senate’s passage of the $1 trillion package to shore up the nation’s aging infrastructure will unleash a flurry of climate-friendlier activity, from upgrades to the electrical grid and water pipes to funding for carbon capture, EV charging, clean hydrogen and to fortify communities in the face of extreme storms, floods, and wildfires driven by a rapidly warming planet.
The Infrastructure Investment and Jobs Act will be the first infrastructure bill to be passed in a decade if it is approved by the House of Representatives.
Many of the strongest climate provisions were pulled from the bill to win bipartisan support (it passed the Senate 69-30). Instead, they are packaged in a separate $3.5 trillion 10-year spending bill that Democrats hope to force through via budget reconciliation this fall. That broader spending bill will address Democratic priorities such as childcare, housing, education and other social infrastructure as well as combating climate change.
The policy push could provide tailwinds for an already-booming green infrastructure and climate tech market. In just the past several weeks, Generate Capital raised a fresh $2 billion for green infrastructure projects, Equilibrium Capital closed on a second $1 billion greenhouse agriculture fund, and BlackRock raised billions for green energy and emerging markets infrastructure funds. The numbers are growing: TPG Rise hauled in $5.4 billion, Brookfield $7 billion, and General Atlantic is looking to raise $4 billion for climate tech and decarbonization funds.
“Climate adaptation is enabled by technology, but will be executed in infrastructure,” says Equilibrium Capital’s Dave Chen.
Call to action
If it wasn’t already obvious, this week’s report from the Intergovernmental Panel on Climate Change makes clear that climate mitigation and adaptation investments are urgently needed. Human activity has released enough greenhouse gasses into the atmosphere to warm the planet by 1.1 degrees Celsius from pre-industrial times; we are on course to pass the 1.5-degree mark within two decades.
Each half-degree of warming will unleash more extreme weather and trigger more tipping points, such as the melting of permafrost, that accelerate warming, warn the scientists behind the report. The report concluded that only by rapidly shifting away from fossil fuels and decarbonizing the economy will we have any hope of stabilizing temperatures around 1.5 degrees.
“The IPCC report is a stark, sobering assessment of the climate crisis,” tweeted Brian Deese, director of the White House National Economic Council. It also underscores the opportunity to “innovate, create millions of good jobs and build a more durable, equitable economy,” he continued. “The President’s infrastructure plan and his Build Back Better agenda will harness this economic opportunity for decades to come.”
Impact investors are capitalizing on the decarbonization opportunity with or without government help, said Scott Jacobs of Generate. His takeaways from the IPCC report: deploy proven solutions for mitigation as fast as possible. Don’t wait “for a miracle to come out of a lab somewhere.” Take responsibility for our food, energy and other material waste. And focus on methane and other heavy climate pollutants rather than just talking about carbon dioxide.
“No policy measures that have been passed anywhere get us far enough along to address the concerns raised in the IPCC report,” Jacobs told ImpactAlpha. “Not the current infrastructure package moving through Congress, not the $3.5 trillion dollar budget, not the Green New Deal in Europe, not China’s succession of five year plans, not Paris, not Glasgow. We cannot rely entirely on policy to address the catastrophic effects of climate change.”
Down payment
Advocates for climate action are looking to Democrats’ broader spending bill for more aggressive measures. Specific climate provisions being considered include a clean electricity plan that would cut carbon emissions in the sector by 80% by the end of the decade, tax credits for clean energy investments, and a polluter tax on imported fuels.
“Congress must take further action soon to confront the crisis directly and build a stronger, more just, and more competitive U.S. economy,” said Ceres’ Anne Kelly.
Even if the narrower bill doesn’t contain coveted climate priorities, such as a clean energy standard, it does include $73 billion for grid modernization, $55 billion for water infrastructure, $7.5 billion for EV charging stations, and $5 billion for zero-carbon school buses. There also are funds for flood control, forest and wildfire management, and next-generation modeling and mapping tools to predict floods and wildfires. And there’s $300 million for carbon capture and storage technology.
The bill reflects the Biden’s administration’s pledge to center historically underserved communities, including $65 billion to extend broadband networks to rural regions that lack it and more than $200 million to help tribal nations adapt to climate change.
Separately, the Federal Emergency Management Agency this week announced $5 billion in “resilience funding” to help communities prepare for extreme weather and climate-related disasters. In 2020 alone, the U.S. faced $100 billion in damages to homes, businesses, and public infrastructure due to disasters.
The bipartisan bill, wrote S&P Global Markets in an Aug. 3 note, “portends a new focus on stakeholder capitalism, with the timeframe now capturing the long-term implications to a greater a degree, and a broad suite of stakeholders, including communities, customers, and workers being considered in a way they haven’t in the past.”
Republicans opposed to the $1 trillion infrastructure bill have called it an expensive boondoggle. Yet more than $6 trillion is needed in U.S. infrastructure investment through 2029, according to the American Society of Civil Engineers.
Globally, an estimated $6.9 trillion will be required per year through 2030 to meet the global sustainable infrastructure demand needs according to the Climate Policy Initiative. Private investment will be key to scaling up climate solutions such as renewable energy, carbon capture and sequestration and nature-based solutions.
“It’s important for all investors to be thinking about how to put climate impact front and center for their portfolios,” said the Global Impact Investing Network’s Amit Bouri.
