One of the topics under discussion at The Economist Sustainability Summit on 15 November 2018 in Kuala Lumper is this question “ Millions of rural workers have been brought out of poverty as they left farms for factories. But the cost of urbanisation has been congested roads, unbreathable air and poor sanitation. Major infrastructure projects offer investors little in the way of short-term returns.

Governments in emerging Asia must work to attract more private investment in circular initiatives such as connectivity and the Internet of Things, and be more sophisticated in planning cities and offering alternatives to motorised transport. Businesses and financiers need to adopt long-term green investment outlooks, with a focus on the repurposing of water and building materials. But with budgets tight, regulations lax and growth targets strict, how will this be accomplished?”

I have to admit urbanisation, mass migration, cities and urban infrastructure is not one of my strong points. So endeavouring to write this article left me speechless and inarticulate. It seems like we have been attempting to address the issue of livable cities for ever, and still cities grow ever outward like cancer cells on our planet attempting, rather poorly, to absorb more and more people.

Luckily there is an abundance of high quality material available coming from global institutions such as the World Bank, Asian Development Bank, World Economic Forum, even international NGO’s such as World Wildlife Fund weighed in on some very heavy topics of financing. All offering a range of solutions, innovations and numerous opinions on ‘what needs to be done’.

All these reports sit alongside a growing number of financial institutions (private and public) that have recognised there is money to be made from all this necessary economic activity as cash strapped governments lack the monetary capacity and long-term political cycle to manage all the growth and demands from citizen for better living conditions.

The fact is cities are exceedingly complex organisms and change is going to take a very long time, whether we have this luxury or not isn’t really up for debate. Most cities are a mix of their history and future aspirations, with this destiny usually fitting into the historical layout once designed by long dead urban planners.

Within the context of the Circular Economy here is a list of how we are going to accomplish circular cities for future generations.

Waste-as-a-Resource: The world is already moving towards recyclable resource recovery out of the waste stream and with new plastics and packaging agreements with ambitious targets to push this momentum along. See Asian Plastics & Packaging Agreement from Circular Economy Asia.

Recyclable and Reusable Buildings: With building temperature control offered as a service, plumbing and electrical components all leased under maintenance contracts ready to be returned to the manufacturer at end of use-cycle, buildings of the future take on a whole new dimension. See Kaer (air-conditioning-as-a-service)

Food, Water and Energy: Renewable energy is already well underway in many countries around the world. While we recognise it will be some time before the use of fossil fuels will be replaced, renewable energy has created many thousands of new jobs and investment opportunities contributing to its continued progress. Food from urban farming has been on the drawing board for several years now and is gaining impetus from chef’s to academics to engineers and social entrepreneurs as the push for sustainability to reduce GHG’s and mitigate climate change is becoming all too obvious to ignore. Water is still problematic and may remain so years to come even as consumer awareness on our water footprint increases.

Circular Industrial Centers: In China, the Beijing Chaoyang Circular Economy Industrial Park is a business cluster aiming for the reuse and remanufacture of unwanted resources.

The Park is composed of a waste-to-energy plant, a construction waste treatment center, a food waste processing center, and office buildings. Dust carts carry municipal waste to the waste-to-energy plant, and the electricity generated there is then transmitted to charging stations for electric vehicles and connected to the grid. Residual ash from the combustion is transported to the construction waste treatment center and remanufactured as construction materials; bio-residuals from the food waste processing center is used for organic agriculture. The waste heat generated from other plants provides heating and hot water to office buildings in the Park through underground pipes. It is estimated that the reuse of waste heat saves RMB 233 million annually and the energy generated from combustion and transmitted to grid has contributed to around RMB 120 million of monetary benefit.

Yet the question posed at The Economist Sustainability Summit centres on infrastructure not the Circular Economy. The infrastructure investment gap – the difference between the investment needed and what is currently being spent – averages 2.4% of projected GDP. The gap is almost 5% in Indonesia and more than 6% in some countries in the Pacific.

A dearth of funds for infrastructure investment translates to urban planning bottlenecks. It discourages coordination between transportation, land, and planning entities, whose cooperation is necessary for the development of well-planned cities, but whose competition for funds may prevent any such symbiosis. The need for innovation in public financing of urban infrastructure projects is staring us in the face.

Last year, experts from the People’s Republic of China (PRC), India, Indonesia, the Philippines, and Thailand came together at an ADB workshop to kick off a study on one such innovation: land value capture (LVC). LVC hinges on a simple concept: infrastructure adds value. This is particularly the case for areas undergoing rapid urban growth, where infrastructure development – such as improving transport connectivity – drives up land prices, creating an opportunity to significantly raise revenues.

When the public sector secures the windfalls from its own infrastructure investment, it not only reduces the burden on municipal budgets, but can also advocate for sound urban planning so city growth maximizes social welfare. When we talk about LVC, semantics often becomes an issue. The connotation of “capture” is one of a zero-sum game, where the government competes with private developers to grab as much added value out of public investment as possible.

However, when the public and private sectors collaborate to innovatively finance urban development and well-planned cities, the result is net positive. Take the case of Shenzhen, the first city in the PRC to use the Rail plus Property (R+P) LVC model. R+P – also used in Hong Kong, China; Japan; and Singapore – leverages partnerships between the public sector, transit companies, and developers to coordinate planning and financing of new transit stations and adjacent real-estate developments.

In Shenzhen, the government used traditional finance (municipal budget and bank loans) for the initial phase of its metro project, then switched to more innovative financing methods after project costs increased tenfold in the metro expansion phases. Flexible risk- and profit-sharing arrangements ensured that both costs and benefits were shared among the government and various metro companies.

The evidence of benefits suggests a win-win situation: average home values within walking distance of metro stations increased by 23% at 400 meters and 17% at 600 meters. This speaks to the added value that residents gain from increased accessibility and increases revenues of property developers who have paid into the R+P system to help finance the public transport infrastructure.

By fostering public-private partnerships through LVC+, the public sector can invest in social inclusion and accessibility without sacrificing the efficiency of mass transit systems. In turn, the private sector is incentivized to invest in quality of development—including green spaces and pedestrian zones—around mass transit so that returns are maximized and cities become more livable.[1]

Image: 1st image: Iclei Green Circular Cities Coalition / 2nd image: Turning Waste to Resources: A worker turns kitchen waste into agricultural fertilizer and animal feed in a company in the Circular Economy Industrial Park in Chaoyang District, Beijing on July 28, 2010 (Luo Xiaoguang)

This article is the second of a series of three, first published on LinkedIn on 30 September 2018 for The Economist Sustainability Summit in Kuala Lumpur, Malaysia 2018.