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Investing In Green Infrastructure: 7 Themes To Watch Out For


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In the present time, climate change is progressively inflicting cascading shocks on our environment, economies, and society. Sea levels are rising, weather patterns are evolving, and extreme weather events are occurring more frequently.

In light of sustainable environment-friendly infrastructure advancement, the business tycoon Bill Gates has rightly said, “We have to replace every single piece of infrastructure dedicated to doing things the old way with infrastructure dedicated to doing things in a new way—and that doesn’t happen instantly, especially considering the mind-boggling scale of the job”.

As nations attempt to rebuild their economies in a post-pandemic world, recovery tactics carry the potential for shaping the 21st century economy in ways that are clean, green, healthy, safe, and more resilient. Due to the current crisis, a significant, systemic shift towards a more sustainable economy that benefits both people and the environment is a key focus for governments globally. To accomplish index development objectives and build a low-carbon, climate-resilient future, the Organization for Economic Co-operation and Development (OECD) anticipates that an investment of around $6.9 trillion in infrastructure will be required annually up until 2050.1

Recognizing its value, nations are increasingly investing in green infrastructure projects and implementing policies that support a greener economy. For example, an executive order was recently signed in the US to enhance financial risk disclosure related to climate change which directs the government to take climate-related financial risk into account more comprehensively.

This article intends to describe the importance and growth potential of major green infrastructure industries.

1. GREEN TRANSPORTATION

Green transportation prioritizes the effective use of energy resources through the creation of energy-efficient modes of transportation and the transformation of the current transportation system into an eco-friendly one. A few examples of green transportation choices include hybrid and electric automobiles.

To convert the existing global transport systems to a more efficient electric fleet, administrations would be required to invest an aggregate additional $8.6 trillion. By 2030, it could sustain 3.6 million jobs, and by 2050, it could minimize 0.71 GtCO2-e (GtCO2-e = one billion tones of carbon dioxide), and much more with the use of clean electricity.2

Urban Transport Investment Returns

Urban Transport - Green Infrastructure-Green Transport (Source-Vivid Economics)

Source: Vivid Economics for the Coalition for Urban Transitions2


2. GREEN ENERGY

Green energy refers to the generation of electricity using renewable resources like wind, solar, geothermal, hydropower, biogas, biomass, or other such energy sources from household and other wastes. According to a combined annual analysis by Bloomberg NEF and the Business Council for Sustainable Energy, the investment inflow is 70% higher than it was five years ago and 11% higher than 2020.3 An estimated 14% of the $755 billion in private investments made globally last year went toward U.S. assets like wind and solar farms.3 After several years of modest advancement, clean energy investment is predicted to reach $1.4 trillion by the end of 2022.4

This boom is not only being propelled by investments in renewable energy but also by geopolitical factors. For example, because of the conflict in Ukraine numerous countries, including the EU, the US, and the UK, have lessened their reliance on Russian oil and gas and are investing in alternative green energy systems to support energy demand. The global energy market has been advancing at an average annual pace of 12% since 2020 and now makes for roughly three-quarters of the rise in global energy investment.5 As evident from the chart below, renewable power and energy efficiency continue to dominate the global annual clean energy investment mix.

Annual Clean Energy Investment

Annual Clean Energy Investment Green Infrastructure-Green Energy(Source-IEA)

Source: IEA6


3. GREEN FUEL

Another way to reduce the emissions of greenhouse gases is through the use of green fuels such as biodiesel fuel, hydrogen fuel, fuel cell, ethanol fuel, LNG, CNG, and the like.

Biodiesel, which is domestically manufactured from renewable resources such as animal fats, vegetable oils, etc., is a renewable alternative that can be used in existing diesel engines with no modifications. The demand for clean power generation with low or no emissions is driving the growth of this market. The global biodiesel market was worth $32.09 billion in 2021 and is expected to grow at a CAGR of 10.0% between 2022 and 2030.6 The global fuel cell market too is anticipated to increase at a 26% CAGR, from $2.9 billion in 2022 to $9.1 billion by 2027.7

4. POLLUTION CONTROL

Another way to reduce the emissions of greenhouse gases is through the use of green fuels such as biodiesel fuel, hydrogen fuel, fuel cell, ethanol fuel, LNG, CNG, and the like. Any method that minimizes or prevents pollution at its source is considered pollution prevention, according to the U.S. Environmental Protection Agency (EPA). These businesses engage in waste-water treatment, the production of pollution-controlling machinery such as automobile emission control systems and septic system sedimentation tanks, as well as the provision of any other good or service that lessens or eliminates the negative impacts of pollution on the air, water, and soil.

5. GREEN INFRASTRUCTURE EQUIPMENT

This category consists of companies that build products or provide services for the efficient installation, operation, and upkeep of renewable energy, including but not limited to manufacturers of smart meters, turbines, and PV panels.

Green Infrastructure In 2021, the market for smart meters was valued at $28.03 billion. By 2030, it is anticipated to grow to $65.6 billion, witnessing a CAGR of 11.5%.8 The increasing demand for smart electricity meters is propelling the growth of the global smart grid market. The market is estimated to experience a CAGR of 19.1% during the period 2021-2026 and reach $103.4 billion by 2026.9

6. WASTE MANAGEMENT

In terms of businesses that are paving the way for a greener future in the fields of waste management and recycling, investors have a wide range of choices with companies that are involved in the safe disposal, recycling, or treatment of hazardous and non-hazardous wastes such as industrial effluents, radio-active wastes, etc. Owing to the growing awareness amongst consumers, the waste & index management market is expanding steadily and more and more innovative companies are entering this industry. For instance, in 2020, Waste Management Inc. (WM) managed more than 15.5 million tons of recyclables, more than any other company in North America.11 The approximate size of the global waste management market, which was valued at $423.4 billion in 2021, is expected to reach $542.7 billion by 2026.11

7. GREEN CONSTRUCTIONS

The goal of green construction is to create and use the developed environment in a way that is as ecologically friendly as possible. Green buildings focus on reducing harmful environmental effects and even enhancing some good effects, from the design stage through the assembly stage and the efficiency of the facility after it is finished. These include dams, green streets & alleys, green roofs, permeable pavements, rainwater harvesting, manmade wetlands, sustainable drainage, etc. Before purchasing a home, consumers now check for a variety of government certifications (such as LEED, the Leadership in Energy, and Environmental Design) and ratings related to building construction. This is motivating real estate leaders to focus more on green constructions. By 2030, the size of the worldwide green construction market is anticipated to exceed $774 billion, growing at a CAGR of more than 11.8% during the subsequent eight years.12

CONCLUSION

Investing heavily in resilient and sustainable infrastructure is necessary to fulfil the Sustainable Development Goals by 2030 and achieve net zero emissions by 2050.

Seeking possibilities for implementing new technology or modifying existing assets is the challenging part. Additionally, businesses need to decide when to get rid of stranded assets, like fossil-fuel power plants, that are getting close to the end of their useful lives due to regulatory or market changes. Asset owners will need to comprehend how the energy transition will impact markets in the upcoming years, make choices based on climate policy and regulation, and pursue public-private alliances.

Investing in renewable and efficient technologies may be a smart financial move and a prerequisite for a healthy world now that institutional investors and governments are supporting "clean tech."

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