Investing in green infrastructure in times of coronavirus

The coronavirus pandemic has left the global economy facing the prospect of recession and financial markets in turmoil, causing delays and suspensions for investment projects.

In this scenario of economic and financial uncertainty, BNamericas spoke with Hugo Contreras, director of water security for The Nature Conservancy for Latin America, about how the crisis will affect the financing of projects linked to climate change mitigation and the water and waste sector in particular.

BNamericas: The coronavirus contingency has led to financing decisions focusing on short-term liquidity, and water infrastructure works are expensive and long term. How can financing for these types of projects be coordinated with a contingency like this?

Contreras: Putting things in perspective, given the urgency of short-term decisions, we must think that these are the most important.

However, you have to think about the cycles that long-term investments have. Investments in infrastructure take place over a space of years, if not decades, and must be considered in that space of time. Traditionally, in the last century, societies faced emergencies with infrastructure such as dams, reservoirs, aqueducts, etc. But we have neglected the natural infrastructure. For example, in Panama we're working together with the IDB on a project against floods, which involves levees and other “gray” infrastructure works to retain water.

The IDB doesn't say "take a broader look at the problem," and we realize that Panama City is in the lower part of the Matasnillo river basin, and in the upper part there's deforestation, land use change, erosion and invasion of other water courses, which if not stopped will allow the water to continue reaching the lower part of the basin, and even faster in the future.

What we discovered is that with a series of reforestation projects, better management of land permits and better agricultural and livestock practices, we can improve the performance of “gray” infrastructure [levees, retaining walls, etc]. In other words, a structure that initially would last 15 years, now could last 20 or 30, and that generates a lot of savings for society.

In Santiago there are a series of wetlands in the lower Andes, which are close to the [the main water utility in the capital] Aguas Andinas water intakes. If they're lost, Aguas Andinas is going to require a more intensive treatment to provide potable water to Santiago and, with it, greater investment.

If instead of losing those wetlands, you invest to restore them, the initiative would cost a tenth of what it would cost to improve treatment plants.

The optimal combination of “green” and “gray” infrastructure is, for us, the best scenario going forward, and in a scenario of scarce financial resources, that investment becomes more attractive.

BNamericas: Do you think there's an opportunity to promote these kinds of projects once the markets stabilize?

Contreras: We're going to have to wait for the pressure on the markets to ease, of that there's no doubt.

For example, in São Paulo, in the midst of the water crisis they had in 2014 and 2015, we proposed to the water authorities that we had to work little by little. What they told us was that they were going to work on green infrastructure, but that it was not going to be announced because people wanted water now. Anyway, we have to start investing thinking about 10 more years.

BNamericas: And should those investments come from the public sector or can they be through public-private partnerships?

Contreras: That's precisely the question that we're asking ourselves in the 25 cities where we have water funds. It's a combination of the two. The water funds themselves are public-private partnerships. But the most important thing is to have a shared vision, otherwise it's impossible to have economies of scale.

In my opinion, the authorities have the responsibility to generate the appropriate incentives for public and private players to direct their investments based on a shared vision. An example would be to provide a space in the rates framework for Aguas Andinas to make green investments.

Water companies in Latin America have great difficulty investing money from rates in these kinds of projects, because they're traditionally not considered investments in infrastructure. It's necessary that the authorities assume this and change it so that all the players can participate.

BNamericas: Can green bonds be a useful tool in this scenario?

Contreras: Green bonds may be a very good option in the future.

In the United States, there are several cases of cities that issued green bonds to manage and reduce [forest] fires, and thus cut the costs of repair and cleaning that come later. They've seen that it makes more economic sense to pay to reduce fires than to pay more after cleaning up.

Green bonds will influence public policy in the future but if they're not accompanied by public policies they won't have a significant impact.

BNamericas: As a result of quarantine measures, water consumption and waste production have increased. How can water security and waste management measures be incorporated in a situation like this?

Contreras: One of the things that has become clear in this particular health emergency is that the authorities are asking people to wash their hands constantly. Water here is simultaneously the most important element and the least mentioned in the public discourse, with some exceptions, as in Mexico City, whose head of government [mayor Claudia Sheinbaum] said that one of her priorities will be water services.

In most pandemics, whether seasonal or short term, water plays a central role, especially when it strikes lower-resource populations.

In the long term, to this is added the challenge of climate change. Taking the example of Santiago or Mendoza [on the other side of the Andes in Argentina], we have cities that depend on glaciers for water supply, especially for agriculture.

Now we have climate change that's accelerating the thaw. In the short term we would have more landslides.

In this sense, we have to return nature to suitable conditions. A simple example would be a flood caused by melting ice. If there are only deforested plains, the water will run with nothing to stop it. With grasslands, you could manage that water and not have it as an obstacle. These ecosystems need to be adapted as one more infrastructure.

In this sense, what we do in the alliance of Latin American water funds and The Nature Conservancy in alliance with the IDB and the German government is, through the water funds, bring relevant players to the table to take joint actions to manage basins as an instrument to manage water collectively.

In Chile we're working with the Santiago-Maipo water fund. There are private players such as Aguas Andinas or mining and dairy companies that have realized that if actions are not taken jointly with the authorities, this image of water flowing uncontrollably from glaciers to livestock and agricultural areas, and in the end to the cities, will return.