Commentary

The Future of Infrastructure

TradeTalks We speak with Sadek Wahba, Global Advisory Council for the Wilson Center, about the future of infrastructure and the importance of infrastructure investment. Wahba also shares what investors may want to understand about green energy investments.

The climate crisis and related trends such as urbanization will be major drivers. They require a new kind of highly technologized infrastructure – smart power grids, smart cities, 21st-century transportation systems. There will also be demand for renewable energy and for green forms of basic infrastructure materials such as asphalt, concrete and steel that in their conventional forms are carbon- and water-intensive.

All these changes require long-term investment, so there will also need to be fundamental changes in the way we invest in infrastructure, with the private sector playing a critical role. The debate at COP28 centered on whether we should transition or phase out fossil fuel and, in the end, participants decided to focus on transition.

I call it “transitioning to a practical phaseout of fossil fuel” – a shift to renewables but with the need for a continued role for fossil fuels until renewables can be provided economically and at scale.

What is the importance of infrastructure investment, and where are the opportunities for investors?

The scale and scope of our infrastructure needs – in particular for highly technologized, climate-resilient infrastructure – will require investment beyond what governments can provide. In the U.S., political polarization also makes it difficult to rely on continued government funding.

The Biden Administration’s Bipartisan Infrastructure Law, IRA and CHIPS Act were landmark legislations – but they are unlikely to be repeated anytime soon. The private sector will need to play a much larger role in infrastructure funding. The private sector has the funds available and is eager to invest – infrastructure projects historically have generated stable returns over a decades-long time horizon.

So there will be major opportunities for private investors such as public pension funds and even individual investors.

What’s the biggest trend shaping infrastructure investment today?

Energy policy and investment. Fossil fuels and renewables are not an either/or. Renewables as well as other technologies are the future, for economic as well as environmental reasons. But the complexity of the energy transition is such that fossil fuels will be with us for some time to come. For that reason, and because of current supply constraints, high energy demand from continued growth in emerging economies, and the seemingly insatiable appetite for energy to power data and AI, what’s truly needed is an “all of the above” climate strategy. This will shape infrastructure investments for the next decade.

Do you have any unique predictions on the outlook of U.S.- China trade relations?

Prediction is difficult if not impossible given the many factions involved on both sides, from those advocating cooperation to those seeking confrontation, and the complexity of balancing a wide range of interests. 2024 will be an election year in the U.S., and for China it will be a test of whether their economic stimulus plan can revive the Chinese economy.

So there is no desire on either side to create more tension. The meeting between President Biden and President Xi Jinping in San Francisco seems to have reduced tension, and I believe this will continue in a second Biden administration. Serious and thoughtful engagement should be pursued.

The right course is the Biden Administration’s policy of Invest, Align, Compete – that is, engage China, pursue cooperative projects where there is mutual benefit, compete vigorously in economic and technological terms – in the same way we compete on economic grounds with our closest allies – and confront firmly where our essential interests are at stake.

What area of the market do you feel there is to little optimism?

The public conversation around green energy investments can sometimes be too pessimistic. Some of this pessimism is understandable. There is frustration at the fact that it is easy to build a solar array, but connecting it to the grid is often cumbersome. Another example is the EV industry. The growth of EV car manufacturing has been extraordinary, but the pace of EV charger infrastructure has not kept pace. What gets often overlooked and drives down optimism is the lack of understanding that the same growth in energy demand that drives oil, gas and coal consumption will also drive the development and deployment of renewables and new technologies. Over time and once these new technologies can be deployed at scale, the superior economics of renewables and the advantages of decarbonization will prevail.

This interview originally appeared in our TradeTalks newsletter.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.