How Innovative Revenues for Infrastructure can Fundamentally Reshape Infrastructure Funding
Take a step into a metro station today and there’s no doubt you’ll find countless advertisement banners. It turns out these advertisements play an important role in getting needed infrastructure funding for mass transit projects. We call these funding mechanisms Innovative Revenues for Infrastructure (IRI).
Funding infrastructure is a challenge for many countries because of high upfront costs and uncertain demand, as experienced during the COVID-19 pandemic. Governments in developed countries may choose to subsidize infrastructure—but this option is limited for cash-strapped developing countries. Moreover, a warming climate is leading to a higher rate of flooding and wildfires, increasing costs due to repairs and investments in climate-resilient assets. As it stands, PwC estimates the global infrastructure funding gap to be a whopping $3.9 trillion per year.
IRI as a novel funding mechanism
IRI builds on conventional infrastructure funding through land value capture (LVC) and commercial value capture (CVC), novel mechanisms that can raise critical funds. They are more resilient in practice as they depend less on government budgets and more on demand for services, while opening another source of revenue.
CVC is not limited to mass transit, it can also be applied to a variety of infrastructure from tourism and energy to telecommunications. For example, in wastewater treatment, CVC opportunities may include selling biogas for electricity, recovered phosphorous and nitrogen for fertilizers, or biosolids for biochar production or as compost for agriculture.
In urban transit development projects, CVC can be used to enhance infrastructure funding including locating retail and residential areas at or near the transit hub. For example, in India, residential and commercial properties have been developed around the Hyderabad outer ring road, enhancing its value by providing more opportunities for CVC.
Further resources on CVC
To better guide countries and interested stakeholders in assessing opportunities for CVC, the World Bank has developed a set of guidelines with assistance from PwC that aim to provide a framework to implement CVC opportunities. They encourage governments and project owners to be creative and develop solutions suitable to each country and project context. Intended to be aspirational and operational rather than detailed and exhaustive, the guidelines are relevant to those looking for alternative ways to increase public infrastructure funding or build a better business case for an infrastructure project.
