Part 1: Introduction
1.1 Objective and Report Outline
The objective of this report is "to determine, at an aggregate and regional level, the nature and magnitude of the positive and negative links between infrastructure and the various components of sustainable development: social, economic, environmental and cultural." (see Annex 1). This report is one element of a three-part wider "stocktake" of infrastructure for the Ministry of Economic Development.4 The brief is to examine four infrastructure sectors - transport, energy, water and telecommunications infrastructure.5
As well as providing an outline of the structure of this report, this introduction examines a number of recent government statements about sustainable development, highlighting links to infrastructure.
The structure of this report is as follows:
- Part 1: Introduction
- Objective and outline
- Government statements concerning sustainable development
- Part 2: Framework and context
- Conceptual framework
- Incremental change and system innovation
- Key trends likely to affect infrastructure sustainability
- Part 3: Sectoral infrastructure and sustainable development
- Transport infrastructure and sustainable development
- Energy infrastructure and sustainable development
- Water infrastructure and sustainable development
- Telecommunications infrastructure and sustainable development
- Part 4: Key sectoral interactions
- Part 5: Priority infrastructure issues for sustainable development
- Part 6: Towards indicators.
1.2 Definition of Infrastructure and Its Context
This report is concerned with physical infrastructure, rather than "social" infrastructure (e.g. the education and health systems) or institutional infrastructure (e.g. the land use planning system).6
The essential concept of infrastructure is a simple one - infrastructure is a set of assets needed to supply certain desired services. For example, it is the capital stock needed to generate electrical services, or the land transport assets needed to supply (land) mobility and access services. Like other assets, the operation of infrastructure assets often involves externalities (effects on other parties) that have attracted regulation. Regulation is also necessary for other reasons, including the mitigation of natural monopoly characteristics (market power).7
However, in defining the exact limits of infrastructure vis-à-vis other assets, such as capital equipment, we need to be more precise. For a high level of consistency with other parts of the Infrastructure Stocktake, we use the following characterisation:8
- Infrastructure has high initial fixed costs (large, "lumpy" increments) and low marginal costs of supply
- There are high sunk costs and risks of assets being stranded as conditions change
- Assets serve a large or diverse set of users that collectively constitute a major portion of the local, regional or national economy
- Scale and regulatory hurdles create long lead times for installing new capacity.
Note that physical infrastructure with these characteristics meets a variety of economic, social, cultural and environmental needs. It also usually (but not always) involves networks, and there are important interconnections between the different systems, not only in terms of system design (e.g. road and electricity distribution networks) but also in terms of impacts (e.g. road design affects stormwater system performance).
Some contextual and qualifying remarks are necessary. We comment on the long life of infrastructure, the emergence of alternative forms of infrastructure as innovation and competition take place, and the importance of supporting conditions for infrastructure to make a maximum contribution to well-being.
Firstly, the long life of some infrastructure (e.g. around 100 years for buried pipelines and many urban design features) makes issues of scale, lumpiness and lead times more acute. For this reason, path dependence (discussed further below) is an important consideration in analysing and shaping infrastructure investment.
Second, innovation and technological change generally reduce the size of lumpy increments over time, such as in the areas of wastewater treatment, electricity supply, and combined heat and power. Similarly, new technologies (e.g. broadband telecommunications via cellular networks) can also create alternative forms of infrastructure. Social and behavioural change also creates, over time, new patterns of infrastructure use. It often takes some years for new systems, technologies or use patterns to create effective competition with established larger-scale systems.
Both the quality of investment and the supporting conditions for investment and usage are important, if the most is to be gained from infrastructure investment. Physical infrastructure is only one component in a system, and other elements are needed for it to function optimally. For example, social and institutional infrastructure or capital may (in economic terms) be complementary to physical infrastructure, or in some contexts, may be substitutes. It is likely, for instance, that the physical infrastructure of ICT can complement or augment social capital to some degree; conversely, the infrastructure of a roading system may have negative effects on social capital if extended beyond a certain point (i.e. they may become substitutes).
The importance of supporting conditions is illustrated in Figure 1.1 below, which shows "networked readiness" (a measure of ability to participate in and benefit from ICT developments) in relation to ICT spending for a sample of countries.9 It indicates that although New Zealand invests fairly heavily in ICT, one outcome indicator, at least, suggests a mediocre result. It underlines that market attitudes, the regulatory context and other contextual variables are important for investments to pay off.
In the rest of this report, we will emphasise the relationship between infrastructure and sustainable development in the round - that is, how infrastructure can contribute to economic, social, cultural and environmental outcomes.
Figure 1.1: ICT Spending Versus "Networked Readiness"
Source: Dutta and Jain (2003), in Cornelius et al (2003) pp288, 289.
1.3 Relevant Government Statements on Sustainable Development
The New Zealand Government's most general statement on sustainable development ("sustainability") is the Programme of Action (POA),10 which sets out a number of high-level principles. The Growth and Innovation Framework (GIF)11 also makes some comments about the relationship between growth and innovation on the one hand, and sustainability on the other.
As far as sector-specific guidance goes, the POA includes sections on energy, freshwater and cities. Other sustainability-linked statements relating to the four sectors covered in this study are:
- transport: the New Zealand Transport Strategy
- energy: the Government Policy Statement on Electricity, and the National Energy Efficiency and Conservation Strategy (NEECS)
- telecommunications: aspects of the Growth and Innovation Framework (GIF).
All of these statements sit alongside an approach to the role of government articulated in the following recent statement of the Prime Minister:
We seek to promote the concept of sustainability across economic, social, and environmental policy. We want policies and funding to be sustainable over the long term. This path has required us to define a new role for the state, which sees us chart a new way between the hands on and hands off excesses of the past. We see the role of government as one of leadership and strategy; and of using its ability to facilitate, partner, co-ordinate, broker, and fund to promote the development of a stronger economy.12
1.3.1 Sustainable Development Principles
The ten principles for sustainable development in the POA provide important guidance as to the interpretation of sustainable development in New Zealand. These have varying application to infrastructure issues, although most are to some extent relevant. The nine most applicable principles, and an interpretation of their relevance to infrastructure, follow.13 Some of these implications are elaborated later in this report.
- Consider the long-term implications of decisions
This is particularly critical given the long-term nature of most infrastructure, and hence the "lock-in" nature of investment in infrastructure assets. The risk implications of long lead-times for adjusting to changing demands are central. As noted in other jurisdictions, if a coherent long-term perspective is absent, there can be an excessive focus on short-term costs and too little attention paid to the prospect of longer-term "win-win" situations.14 This principle also suggests the importance of building flexibility into infrastructure design and, in terms of ensuring consistency in tests for investment, careful consideration of cost-of-capital rules for state-owned enterprises and regulated private monopolies.15 - Seek innovative solutions that are mutually reinforcing
Infrastructure policies which advance more than one dimension of sustainability, for example both economic and social outcomes (e.g. policies supporting more "livable" cities), are of special interest, as are solutions which avoid or minimise trade-offs. - Use the best information available to support decision making
Decision making on infrastructure systems, including policy decisions, should include comprehensive information on future supply and demand responsiveness, on the full costs of production and use of resources such as energy and water, on the intangible impacts of system design, and on linkages to other infrastructure policies and design trends (e.g. the links between road design and stormwater system design) - Address risks and uncertainty, and take a precautionary approach
Many infrastructure decisions involve high levels of risk and uncertainty about future returns, and changing conditions, and can sometimes present issues of social environmental costs whose future magnitude is unclear. In line with the precautionary principle, lack of knowledge should not be an excuse for lack of action to protect vulnerable social/cultural groups, or the environment, or be an excuse for ill-considered action.16 Risk and uncertainty mean that infrastructure should be designed so as to be resilient or adaptable to a variety of conditions, but cost will preclude designing for resilience in the face of all possible circumstances. Social and environmental considerations are relevant in deciding who (e.g. which social groups) or what (e.g. which parts of the environment) bears risk. - Work in partnership with local government and others; be transparent and participatory
Under the Local Government Act 2002, local authorities have clear and overarching sustainable development responsibilities.17 Infrastructure investments of national significance must also take into account local government's obligations under the Resource Management Act to promote sustainable management and avoid, remedy or mitigate effects. In general, sustainability requires the active input and support of local communities of interest, and attitudinal changes to accompany behaviour more consistent with sustainable outcomes. - Consider the global implications
The most salient global implications of infrastructure investment in New Zealand relate to our emissions of globally polluting greenhouse gases, and our ability as a society and economy to be globally connected. Less directly, in order for New Zealand to meet (and be seen to be meeting) its obligations under multilateral agreements, including multilateral environmental agreements, New Zealand may sometimes need to put in place certain types of economic infrastructure18 (though more usually, institutional infrastructure). - Decouple economic growth from pressures on the environment
Continued technological innovation to provide more efficient infrastructure will be necessary, though not sufficient, for "absolute" decoupling (not simply slowing the rate at which pressures on the environment develop, but absolutely reducing them). - Respect environmental limits, and promote integrated management of land, water and living resources
There are a few situations of strict limits, e.g. ozone depletion, in which any "activity" beyond a threshold exacts a huge environmental cost.19 But in most cases, environmental limits take the form of rising damage as activity grows - for example ambient air quality and carbon emission impacts from poorly designed transport infrastructure and systems, and ecological damage to some river systems from which water is abstracted for irrigation and hydro energy use. Integrated management requires a strategic overview of a region's resources and recognition of the impact of the use of one resource on other resources or objectives. For example, a new road may have either positive or negative implications for urban form and access, and consequently for energy use, social deprivation, public health, and so on. - Work to empower Māori in development decisions affecting them
Many water and other natural resource use decisions are of particular interest to Māori, as are natural systems such as the climate system. Māori should be closely involved with infrastructure choices that have implications for the wellbeing of their communities. Infrastructure decision-making should take into account the holistic approach of Māori to the natural environment, including its social and cultural linkages.
1.3.2 The Growth and Innovation Framework's High-Level Statements
At a high level, the GIF takes environmental and social goals explicitly into account. The GIF states that "the government does not believe we can put on hold social and environmental progress" and "Not only will social and environmental policy continue to be given high priority in their own right, but the choice of economic policy instruments will be influenced by their interaction with social and environmental factors. Sustainability will be paramount"20 (emphasis added).
This is a clear statement that the government does not see economic development as preceding, or being a precondition for, or being more important than, social or cultural development or environmental protection. The dimensions should, implicitly, all be advanced together. Where infrastructure development encounters short-term tensions between dimensions of well-being (e.g. between social well-being and economic development), there is no presumption that economic development should have priority.
1.3.3 The New Zealand Transport Strategy
The Minister of Transport placed considerable emphasis on sustainability in his foreword to the Government's transport strategy (December 2002):
[The strategy] is about creating a sustainable transport system that is also affordable, integrated, safe and responsive to our needs.21
The strategy's statement of principles lists sustainability and integration (alongside the principles of safety and responsiveness), with prominent themes being resilience/ flexibility and an integrated mix of modes:
- Sustainability: To ensure that transport is underpinned by the principles of sustainability and integration, transport policy will need to focus on improving the transport system in ways that enhance economic, social and environmental well-being, and that promote resilience and flexibility. It will also need to take account of the needs of future generations, and be guided by medium- and long-term costs and benefits.
- Integration: Transport policy will help create an efficient and integrated mix of transport modes. To facilitate integration, co-operation and collaboration between stakeholders will need to be encouraged. Transport policy will also need to ensure the efficient use of existing and new public investment.
Significantly, the transport strategy notes that the changes of recent decades, while increasing efficiency, "by and large ignored the broader linkages between transport and other issues such as regional development, urban form and social cohesion" (emphasis added). Addressing these issues is a central challenge.
The factors to be considered when funding transport or developing transport policy have been broadened by the NZTS, and are listed as the five key objectives of the strategy:
- Assisting economic development
- Assisting safety and personal security
- Improving access and mobility22
- Protecting and promoting public health
- Ensuring environmental sustainability.
The strategy emphasises the need to progress all five outcomes in parallel,23 but significantly more emphasis is given to social and environmental issues than has been the case in previous transport policy statements.
The social and environmental nature of the interlinkages is also reflected in the identification of transport in various other government strategies - for example (apart from the GIF and the NEECS) transport is a significant element in the New Zealand Tourism Strategy, the New Zealand Health Strategy, the New Zealand Disability Strategy, the New Zealand Injury Prevention Strategy, and the Positive Ageing Strategy.24
In terms of offering a new insight into infrastructure needs, perhaps the most significant statements in the New Zealand Transport Strategy are:
- transport network investment in the past has lacked a strategic focus, and the strategic focus needed is on safety, reducing severe congestion,25 supporting passenger transport, walking and cycling, and supporting regional economic development26
- "the sector cannot endlessly build its way out of all its problems, or rely solely on developments such as energy efficient vehicles"27 (emphasis added)
- as transport infrastructure generally has a long life, achieving the right standards of access at the design stage is crucial.28
Other significant points in the Strategy, in terms of infrastructure, include:
- economic development and transport growth need not be directly related in the long run - i.e. they can be decoupled29
- all costs (and benefits) of transport will be incorporated into transport decision making, including project evaluation, and be fair and transparent to users.30 This includes a commitment to detailed investigation of costs and investigation of congestion pricing in major urban areas31
- integration of walking, cycling and public transport has an important role in creating quality urban environments
- innovations in rail and barging (as well as roading) will play an important role in regional sustainable development
- funding and administrative arrangements for land transport in the new Land Transport Management Act will address strategic priorities and focus more on land transport as a whole rather than just on roads
- public-private partnerships for constructing infrastructure will be allowed under appropriate conditions32
- work is underway on simplifying the management of the road network.
A key part of the new Land Transport Management Act, as noted above, is a broader set of objectives for Transfund and Transit, requiring social and environmental (as well as economic) factors to be taken into account in decisions on funding and implementation of transport projects.33
In terms of the relationships between infrastructure sectors, the following statements in the NZTS are also significant:
- transport-related energy consumption should be minimised
- transport policy will recognise the role of communications technology.
1.3.4 Energy - the POA, the GPS on Electricity, and the NEECS34
The 2003 Programme of Action (POA) sets out the following goal for energy: "to ensure the delivery of energy services to all classes of consumer in an efficient, fair, reliable and sustainable manner"35 (emphasis added). Three particular outcomes are set out:
- Energy use to become progressively more efficient and less wasteful
- Renewable sources to be developed and maximised
- Consumers to have a secure supply of electricity.
The POA's principles for sustainable development also clarify how the Government means to interpret the last phrase in its prior Government Policy Statement (GPS) on electricity (issued 2000, revised 2002):
Industry arrangements should promote the satisfaction of consumers' electricity requirements in a manner which is least-cost to the economy as a whole and is consistent with sustainable development. (emphasis added)36
The following specific objectives, set out in the draft GPS on electricity governance issued in September 2003 (and largely the same as those included in the earlier GPS) also have implications for the sustainability of the electricity sector:
- energy and other resources are used efficiently;
- risks including price risks relating to security of supply are properly and efficiently managed. In particular the Government wants the Electricity Commission to use reasonable endeavours to ensure security of supply in a 1 in 60 dry year, without assuming any reduction in demand from emergency conservation campaigns, while minimising distortions to the normal operation of the market;
- barriers to competition in electricity markets are reduced for the long-term benefit of end-users;
- incentives for investment in generation, transmission, lines, energy efficiency and demand-side management are maintained and do not discriminate between public and private investment;
- the full costs of producing and transporting each additional unit of electricity are signalled so that investors and consumers can make decisions consistent with obtaining the most value from electricity;
- delivered electricity costs and prices are subject to sustained downward pressure;
- the electricity sector contributes to achieving the Government's climate change objectives by minimising hydro spill, efficiently managing transmission losses and constraints, promoting demand-side participation and energy efficiency and removing barriers to investment in new generation technologies, renewables and distributed generation.
The 2001 National Energy Efficiency and Conservation Strategy (NEECS) arose out of the requirements of the Energy Efficiency and Conservation Act, 2000. The Act established the legislative basis for EECA as a Crown entity with an ongoing role to promote (including by regulation) energy efficiency, energy conservation and renewable energy across all sectors of the economy.
The Act also mandated development of a NEECS which promotes a sustainable energy future.37 In exercising its responsibilities, including developing the strategy, EECA has to take into account sustainability principles, specifically:
- the health and safety of people and communities, and their social, economic and cultural well-being;
- the need to maintain and enhance the quality of the environment;
- the reasonably foreseeable needs of future generations; and
- the principles of the Treaty of Waitangi.
This is a future-oriented and broad set of sustainability tests which EECA must apply in advising the government and carrying out its operations.
1.3.5 Water
There is no stand-alone, central government water strategy in place at this point, but regional councils have adopted regional plans that include water resource management objectives. Some councils have also adopted specific water plans.
However, the overarching goal of the POA, in respect of the quality and allocation of fresh water, is "adequate, clean fresh water for all." The POA seeks also to achieve the following three desired outcomes:
- freshwater is allocated and used in a sustainable, efficient and equitable way;
- freshwater quality is maintained to meet all appropriate needs; and
- water bodies with nationally significant natural, social or cultural heritage values are protected.
1.3.6 Telecommunications
Telecommunications is not one of the initial action areas in the POA, but the GIF does identifies information and communications technologies (ICT) as an important component of the government's framework for social development, growth and innovation.
The GIF notes that communications networks are essential for social connectedness, which underpins social cohesion, as well as for an effective economy. It notes that networks, ranging from social networks to physical networks (such as those provided by telecommunications), are vital. It states:
well developed communities which offer all New Zealanders access to opportunities and networks are an essential part of, and precondition for, an effective economy. That requires that communities have the human, physical, institutional and technological infrastructure to allow them to operate effectively.38
The Government's November 2000 e-commerce strategy not unexpectedly identifies as part of the role of government the task of "facilitating the development and protection of infrastructure,"39 but the strategy also makes a significant link to social access to telecommunications in at least two statements:
- The Government will work to ensure that all New Zealanders have access to life-long learning opportunities to develop ICT skills for the 21st century.
- The Government will … ensure cost-effective, timely, and innovative telecommunications services on an on-going fair and equitable basis.
The Government's "digital opportunities" strategy includes extending broadband to remote rural areas, as well as providing opportunities for young New Zealanders in less advantaged communities to develop ICT related skills, funding community based ICT projects, and helping local communities develop ICT "community hubs".40
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