To build the future, change these 'stone wheels on a Tesla'
Pick any physicist out of a lineup and they likely will tell you they are running out of adjectives to describe the magnitude of the planetary roasting experiment we humans have instigated. Recently, physicists at NASA even declared that warming the atmosphere and oceans appears to be tipping the planet on its axis.
Over the course of a century, we have done the seemingly impossible: We have changed the physics (not to mention chemistry and biology) of the planet. Unfortunately, the trillion dollar costs of these changes — over $50 billion per year in the U.S. alone (PDF) — mean we don’t have the luxury of another century to reverse what has been set in motion.
Instead, we need to turn our attention to what can be changed effective tomorrow: How we prioritize and fund infrastructure projects.
Pick any civil engineer out of a lineup and they likely will tell you that each infrastructure proposal is already heavily vetted using an age-old technique called "cost-benefit analysis." What they won’t tell you is just how expensive, opaque and myopic those exercises are, nor admit their miserable track record in attracting picky private or patient government investors.
That’s because the use of traditional cost-benefit analysis techniques to appraise today’s infrastructure projects is like putting stone wheels on a Tesla. If tomorrow’s highways can generate solar power and its bridges can give a shout when they need maintenance, why are we using yesterday’s techniques to decide if and where to build them?
Thankfully, we are on the cusp of three — let’s call them "upgrades" — to the methods of the past.
1. Expensive vs. affordable
Conventional cost-benefit analyses typically cost hundreds of thousands of dollars because they required teams of over-tapped and highly specialized economists, professionals uniquely unlikely to discount their services.
Now, we can take advantage of ridiculously cheap cloud computing power to scour the literature for new valuation studies or run hundreds of parallel statistical simulations in a matter of seconds.
Effectively, we turn instead to an "economist-in-a-box." As in the early days of computer-aided design, some specialists may fear for their jobs, but a more likely outcome is that the software will democratize cost-benefit analyses, creating a larger overall market.
2. Opaque vs. transparent
Because infrastructure projects tend to be among the most expensive on Earth, they are magnets for corruption. Seoul’s high-speed rail project was estimated to cost $5 billion but rang up to a sweet $18 billion in part because ministries were massaging the costs downwards and the benefits upwards, with no outsiders able to check or replicate their math.
When the government of Korea centralized and made transparent their evaluation process for all infrastructure projects, they shaved a cool $60 billion (1 percent of the GDP) out of the budget.
3. Myopic vs. comprehensive
Cost-benefit analyses have helped counter our human instinct to discount the future, finding ourselves surprised when upgrade or demolition bills come calling. But they are still often too narrowly focused on purely financial costs and benefits, leaving us the likely future recipients of a different type of bill: trips to the hospital due to increased air pollution, for example.
The U.S. Department of Transportation is leading the way to expand the set of calculations (PDF) to include things such as the value of travel time, emissions or the social cost of carbon. The tea leaves suggest they steadily will make that list even more comprehensive, as the U.K. and Germany have done, and as the White House called for recently in its Memorandum on Incorporating Ecosystem Services into Federal Decision-Making (PDF).
A growing chorus
Now that these three sorely needed upgrades are within reach, private sector investors are beginning to voice their impatience, and chorus is growing.
In 2014, the CEO of JP Morgan Asset Management’s Infrastructure division, representing 110 global institutional investors and $1.6 trillion dollars in assets, stated publicly, "We will not invest in any infrastructure project that does not include long-term triple-bottom-line analysis (meaning financial, social and environmental) from early planning into operations."
In 2015, the world’s largest asset manager, $4 trillion BlackRock, declared itself an impact investor. And in 2016, two arbiters of the financial markets — Moody’s and S&P — made major moves into ESG, with Moody’s declaring it will factor into credit ratings whether a firm’s assets comply with the Paris Climate Agreement targets, and S&P Dow Jones acquiring Trucost, the leading database of environmental risks.
Last week, Impact Infrastructure, in partnership with us at Autodesk, announced the first automated tool for cost-benefit and triple bottom line analysis of buildings, augmenting its existing product covering green infrastructure. Autocase for Sustainable Buildings is the first tool to automate cost-benefit and triple bottom line analysis for buildings. It cuts the cost of such work by 99 percent, making it applicable to projects large and small.
And Mahesh Ramanujam, the incoming CEO of U.S. Green Building Council announced a new LEED credit for "triple bottom line analysis," just to sweeten the deal.
Hey, it’s enough to make one optimistic about the possibility of blending public and private sector monies to finally prioritize projects on the basis of their value to society. With $16 trillion needed by 2030 to avoid many times more in climate change-related costs, we’ll need every penny.