Big Infrastructure Investments Have Uncertain Impact on Greenhouse Gas Emissions

Large-scale investments in energy-intensive infrastructure -- such as power plants, industrial facilities, road systems, and urban development -- can increase energy use and greenhouse gas emissions in the long run. That is, unless the plant, highway network or other facilities are shut down early or undergoes costly retrofit, according to a new working paper by Jon Strand, Sebastian Miller and Sauleh Siddiqui. These investments, of course, initially may be made with cost savings in mind. But they would require costly actions later on, such as replacing the infrastructure or retrofitting, to drastically reduce their long-term greenhouse gas emissions. For efficient planning, policy makers must consider tougher constraints on greenhouse gas emissions and higher energy prices in the long run. Otherwise, infrastructure investment is too energy and carbon intensive to make sense. Lower-cost retrofit options can curb future emissions and reduce costs. But policy makers need to account for a “rebound effect,” since they would encourage more energy intensive options on infrastructure and thus partly offset the impact. Therefore, the key to reducing long-term emissions is through cutting the cost of low-carbon investments.