For
Your Information
C.D. Howe Institute Communiqué #8
- Excerpts -
"Working group members pressed that government
should focus spending on 'framework' infrastructure or assets with
clear positive externalities -- for example, inter-regional power
transmission or demonstration-scale projects for new technologies like
small modular nuclear reactors, hydrogen production or carbon capture,
utilization and storage. The pandemic has also underscored the value of
digital infrastructure in enabling economic activity -- from
work-from-home to agricultural production to education -- particularly
in rural and remote communities. The working group emphasized the
deployment of broadband connectivity as a critical 'backbone' for
long-term national prosperity. While connecting outlying regions may
not be presently profitable for private investment, government should
consider support to accelerate capital outlays on digital
infrastructure for remote communities where long-term social benefits
exceed public costs."
"Working group members supported accelerated
delivery of infrastructure projects to support recovery, provided
spending is targeted effectively to boost productivity or align with
social and environmental policy objectives.... Working group members
see the post-crisis recovery as a key window for governments to
accelerate delivery of infrastructure projects that will enhance the
productivity and resilience of Canada's economy. ... As well, the size
of public spending to move the needle on aggregate demand would be
significant. For example, $20 billion in spending is equivalent to 1
per cent of Canada's GDP and any outlays in a small open economy
involve 'leakage' (i.e., purchases of imports)." [...]
"Government capital spending can substitute to
some degree for a downturn in private-sector non-residential
construction. Construction activity has significantly contracted during
the crisis, as shown by the 16 per cent decline in construction
employment between February and May 2020. While many job losses may be
driven by activity restrictions, dampened investment intentions also
play a role. Non-residential building permit applications have declined
dramatically: the seasonally adjusted value of permits plunged by 44
per cent from December 2019 to April 2020 (see Figure 1). This
pull-back anticipates continued weakness in non-residential
construction activity.
"Looking ahead, aggregate private capital
investment in key export-focused sectors (e.g., petroleum and
manufacturing) could remain depressed given an uncertain outlook for
demand. Commentators have also observed that pandemic-driven delays and
associated cost overruns may force construction firms into insolvency
and risk the failure of in-progress projects." [...]
"Canadian construction firms face a significant
risk of falling behind and displacement if they cannot seize this
moment to learn by doing and adapt to intensified competition.
Large-scale and sustained capital investment programs could provide
opportunity for Canadian engineering and construction firms to reinvent
themselves." [...]
"Historically, spending on public infrastructure
has delivered significant benefits for Canadian productivity. A study
by Gu and MacDonald (2009), published by Statistics Canada, estimated
that investment in public infrastructure had contributed to
approximately 10 percent of growth in labour productivity between 1962
and 2006 (see Figure 2). The period from the 1960s to early 1970s saw
significant government outlays on tangible, non-residential capital
(see Figure 3) -- particularly engineering construction (e.g., the
completion of the Trans-Canada Highway). The delivery of this public
infrastructure complemented intensive private-sector capital investment
and contributed significantly to the rapid growth in labour
productivity during this period.
"Working group members stressed that access to
high-quality and reliable infrastructure is a major factor in the
location decisions for many activities. For example, in developing new
processing or manufacturing facilities, companies are highly attuned to
access to transportation, power, digital connectivity and water. Such
infrastructure determines a region's competitiveness by influencing the
costs and speed of accessing upstream inputs and getting product to
downstream markets.
"Working group members stressed that aligning
infrastructure spending with economic benefit occurs at the project
level and requires rigorous evaluation of the returns on particular
projects. Public spending is economically justified where the net
benefits to society exceed the costs of the outlays. The private sector
is well equipped to deliver projects that will yield profits across the
life of the asset. In contrast, governments justifiably deliver or
contribute to capital investments when a project provides benefits for
society that exceed the net present value that would accrue to a
private owner.
"A potential opportunity for rapid roll-out of
spending may be a backlog of maintenance and repair on aging
infrastructure. Retrofits to extend useful service life of existing
assets should be more rapid to plan and execute than new projects. The
2019 Canadian Infrastructure Report Card, based on responses for the
2016 year through the Canadian Core Public Infrastructure Survey, found
a significant share of public infrastructure assets at significant or
advanced states of deterioration and approaching or beyond expected
service life. In particular, the survey found that 16 per cent of
roads, 12 per cent of bridges and tunnels, 11 per cent of wastewater
and stormwater pipes, and 16 per cent of roads and tracks for public
transit were in poor or very poor condition.
"Ramping up infrastructure spending could be
viable through repair and maintenance initiatives, for which
governments should have prioritized inventories and execution plans.
Working group members highlighted that governments may tend to focus on
'ribbon cutting' for new projects and neglect the ongoing funding
required to maintain assets. If so, the depreciation of these assets
will diminish the productivity contribution from the earlier investment.
"The pandemic has also underscored the value of
digital infrastructure in enabling economic activity -- from
work-from-home to agricultural production to education -- particularly
in rural and remote communities. The working group emphasized the
deployment of broadband connectivity as a critical 'backbone' for
long-term national prosperity. While connecting outlying regions may
not be presently profitable for private investment, government should
consider support to accelerate capital outlays on digital
infrastructure for remote communities where long-term social benefits
exceed public costs.
"Working group members also agreed that the
recovery presents an opportunity for 'no regrets' acceleration of
investments in projects that will be required to meet anticipated
social service demands, such as affordable housing and long-term care
facilities. However, choices around projects must be made carefully and
avoid displacing the role of market forces." [...]
"Working group members agree that government does
have a potential role to play in the sort of 'framework' infrastructure
that enables decarbonization. Infrastructure that links markets is
distinct from assets used for commercial production. For example,
infrastructure for long-distance interconnection can help integrate
electricity markets between regions, increase the viability of expanded
renewable generation and reduce costs for power consumers. By providing
a critical link between producers and consumers, such transmission
infrastructure may provide wider economic benefits than would accrue to
a rate-regulated private owner. Government could provide the funding
needed to meet private hurdle rates for projects with public benefits.
Indeed, subsidizing the incremental social benefits of private projects
is the exact role that the Canada Infrastructure Bank (CIB) should
play. Additionally, government can play an important role in supporting
demonstration-scale facilities to pilot transformative new technologies
and provide learning-by-doing for future industry-wide deployment. The
development of steam-assisted gravity drainage (SAGD) by the publicly
funded Alberta Oil Sands Technology and Research Authority (AOSTRA)
provides an example...." [...]
"In the present context of facilitating Canada's
energy transition, working group members noted small modular nuclear
reactors, hydrogen production, and carbon capture, utilization and
storage (CCUS) as examples of pre-commercial technologies where
government could valuably support demonstrate-scale projects. As well,
working group members agree that adaptation to climate change is an
appropriate focus for public expenditures. Infrastructure that reduces
risks from extreme weather events presents a classic 'public good' role
for government. Climate change is expected to increase the physical
risks from variable weather patterns. For example, infrastructure to
mitigate floods and droughts will be important as communities
potentially face increasing variability in weather patterns.
"Canada's lack of any regular and comprehensive
assessment of strategic infrastructure needs is a gap in its ability to
effectively target spending. Such an assessment would aim to identify
broad classes of public investments to (1) enable incremental economic
benefits (e.g., through productivity gains) that exceed the costs of
delivery and upkeep; and (2) support those public services that align
with societal preferences and government objectives. The United Kingdom
has established a National Infrastructure Commission with a mandate to
publish a National Infrastructure Assessment once during every
Parliament. The Commission's inaugural assessment, published in July
2018, outlines a 30-year vision for the country's infrastructure needs,
and is complemented by additional studies on specific classes of
infrastructure and regional needs. Working group members agree that any
national strategy must be reconciled with the local and regional needs
that drive infrastructure priorities. As well, governments face major
questions about how working-life adaptations during the pandemic may
accelerate certain trends -- such as remote work for certain
occupations that could dampen use of regional transportation
infrastructure and place an additional premium on high-speed digital
connectivity...."
"Working group members agreed that infrastructure
building in Canada faces a disconnect between governments' fiscal
capacity and responsibility for infrastructure delivery. Working group
members believe that, given immediate budgetary stresses facing
provincial and municipal governments, the federal government likely
will need to increase transfers for infrastructure if local and
regional projects are to be delivered. Nonetheless, certain working
group members see an immediate opportunity for using federal funds to
'break logjams' between different municipal and provincial governments
that have slowed the delivery of certain projects."
For the complete Communiqué #8, click
here.
Note
Although dealing extensively with infrastructure,
no mention is made anywhere in the entire Communique #8 of the
necessity for the federal government to engage in nation-to-nation
relations with Indigenous peoples to gain their permission for
infrastructure or other projects that traverse or are located in their
territories. This absence in the communique betrays a colonial
mentality that is unacceptable in Canada.
This article was published in
Volume 50 Number 23 - June 27, 2020
Article Link:
For
Your Information: C.D. Howe Institute Communiqué #8 - Excerpts
Website: www.cpcml.ca
Email: editor@cpcml.ca
|
