The Great Recycling Crash

Recycling is in a crisis – in case you hadn’t noticed. One of the world’s signature pro-environment activities, growing steadily over decades, has crashed. “Is this the End of Recycling?”, asked a headline in The Atlantic last month.

Hundreds of cities across the US and Europe have canceled recycling programs, and/or limited the types of material they accept. Philadelphia is burning about half of its recycling material in an incinerator. Memphis’ international airport sends every collected can, bottle and newspaper from its recycling bins to a landfill. Akron, Ohio, and Arlington, Virginia, are two of many cities that have ended glass recycling. Minneapolis stopped accepting black plastics; Marysville in Michigan will no longer accept eight of 11 categories of items (including glass, newspaper, and mixed paper) for recycling, in order to cut costs; Sacramento halted collection of plastics labeled No. 4 through 7 for several months. Hardest hit have been small town and rural recycling operations. Kingsport, Tennessee, has shut down recycling, Phenix City, Alabama, stopped accepting all plastics, Deltona, Florida, suspended curbside pickup. Residents in smaller towns must now often travel to collection points if they want to recycle. Many more people have become forced to toss plastic and paper into the trash. Incineration is on the rise in Europe. In England, 665,000 more tons of waste were burned at waste-to-energy plants last year than the previous year. And Australia’s recycling industry is facing a crisis as the country struggles to handle the 1.3 million-ton stockpile of recyclable waste it had previously shipped to China.

What’s going on?

The National Sword Policy, that’s what.

China’s National Sword policy, enacted in January 2018, essentially closed the world’s largest market for recycling. China’s recycling processors had handled nearly half of the world’s recyclable waste for the past quarter century. 95% of the plastics collected for recycling in the European Union and 70% in the US were sold and shipped to Chinese processors. 40% of all recyclables in the US headed to China. As reported by Cheryl Katz in Wired, “Everyone was sending their materials to China because their contamination standard was low and their pricing was very competitive,” says Johnny Duong, acting chief operating officer of California Waste Solutions, which handles recycling for Oakland and San Jose. Favorable rates for shipping in cargo vessels that carried Chinese consumer goods abroad and would otherwise return to China empty, coupled with the country’s low labor costs and high demand for recycled materials, made the practice attractive.

The National Sword policy now directs that China will not accept many scrap materials, especially plastics, and others only if they meet a very strict contamination rate of 0.5 percent. In the US contamination rates of recyclables can reach 25%, and had been getting worse – in part due to the growth of recycling itself. China’s action came after many recycling programs had transitioned from requiring consumers to separate paper, plastics, cans, and bottles to today’s more common “single stream,” where it all goes into the same bin. As a result, contamination from food and waste has risen, leaving significant amounts unusable. Since January 2018, China’s plastic imports have plummeted by 99%, touching off the curbside and landfill crisis.

The effects of the policy took some months to become fully visible. Initially, displaced plastics and other materials began to be shipped elsewhere: Thailand, India, Indonesia, Turkey and Vietnam. But their much smaller land areas quickly encountered similar concerns that larger China had encountered, and they have all struggled to deal with the sudden increase in volume and imposed their own restrictions. Now there are no low-income takers for the waste of the US, Europe and Australia. And so more plastics are now ending up in landfills, incinerators, or likely littering the environment as rising costs to haul away recyclable materials increasingly render the practice unprofitable.

Sorting Trash in Vietnam: Photo: NHAC NGUYEN/AFP/GETTY IMAGES

Look a little farther below the surface, however, and you can find another cause. The American consumer. Not the answer in most press coverage? Let’s look at why China, or really anyplace for that matter, would accept the waste from other countries. As noted earlier in this piece, it’s never really been a great business. Economics have been marginal. What it’s really been about is China’s trade surplus. For decades China has been exporting goods the rest of the world wants, and running up huge surpluses, with consequent political pressure from many places to find something to import in exchange. For a while, the biggest something (after raw materials, of course) was trash. It’s probably no coincidence that the decision to curb these imports comes in a period of declining political relations with the US, especially around the issue of trade. On the other side, American consumers continue to consume more, and discard greater volumes. The cost of finding ways to dispose of America’s trash has been partly subsidized by China’s willingness to take it at low cost. We can see this even more from the fact that even before China’s ban, only 9 percent of discarded plastic in the US was being recycled, while 12 percent was burned. The rest was buried in landfills or simply dumped and left to wash into rivers and oceans.

What’s next? No easy answers, and maybe a silver lining for the waste management industry.

The big impact is on consumers, and it is just beginning to be felt. So far the cost is mostly in terms of environmental concerns, with advocates of more recycling instead seeing a decline. In some cases – particularly in smaller towns and rural areas, cost is appearing in terms of convenience: people are either having to drive farther, and/or having to do more pre-sorting of their disposable items. Over the previous decade, single-stream recycling (where all recyclable items are picked up in an office or at curbside in a single container) went from being used in about 30% of US communities to about 80%; this single stream model provides great convenience for users, but increases both contamination levels and sorting costs. Expect single-stream recycling to drop sharply. Some hard-to-recycle though convenient items are being restricted. In Europe, the European Parliament has banned the use of single-use plastics, such as plastic cutlery; Starbucks has taken a similar approach; plastic shopping bags also face more restrictions.

The impact of the great recycling crash is also only beginning to translate into economic costs for consumers. Some of that cost is arriving pre-consumer, as with environmental levies being instituted on plastics in Norway and the UK. More visibly, it is appearing post-consumer, as landfill stations and recycling companies raise their charges to consumers and to municipalities. In places like Berkshire County, in Massachusetts, the municipalities pass those costs onto consumers through higher fees and increased bag prices at transfer stations. This increase in costs is just beginning. The recycling crash is arriving as more waste is being created than ever. According to City Lab (see graphic below), the amount municipal solid waste in the US has grown an astonishing 5-fold since 1985. As Cheryl Katz noted in Wired’s review of recycling, “The United States still has a fair amount of landfill space left, but it’s getting expensive to ship waste hundreds of miles to those landfills. Some of these costs are already being passed on to consumers, but most haven’t—yet.”

Courtesy: City Lab, “China’s National Sword Policy”, Nicole Javorsky

What’s bad news for consumers and cities, having to pay more to manage waste, may be good news – more revenues — for the waste management business. Decades of reliance on China’s de-facto subsidized handling of global waste has meant little money being available for waste management infrastructure in Europe and the US. In general, trash hauling and landfills have been more profitable, and recycling a money losing segment for the same firms. Now more items are going to landfill rather than recycling, which will improve margins for waste managers. Higher recycling fees may help also, although these are offset to a large degree by higher costs. And this increase in revenues means private waste managers are more likely to find the capital needed to build more of the waste management infrastructure needed to address the current crisis.

Some of this new capital investment is becoming visible. Several paper mills in Canada and the US have announced new capacity to process recycled paper. Material recovery facilities are expanding capacity and operations. Some, like Oakland-based California Waste Solutions, are upgrading processes to improve the acceptability of materials to buyers, including in China and other Asian markets. Even some Chinese-based processors, now without raw materials after China’s new standards came into force, are building new plants in the US.

In the longer term, waste management is likely to become a more organized and a more dispersed activity. Instead of most waste going to a single market at de-facto subsidized costs, and sector revenues being insufficient for investment in better sorting, transport, and re-use facilities, we’re likely to see a world closer to equilibrium: revenues in line with the cost of building and operating recycling facilities, and both processors and end-buyers well-spread geographically, with transport costs curbing distances over which waste is transported. It will be more expensive and less convenient for consumers, which in turn may (one crosses one’s fingers) lead to the generation of less waste. It’s a silver lining. Of course right now, it’s a mess.

Populism Trumps Infrastructure Solutions (again)

Yes, this is a piece about a country in the Americas, and about a populist President, and about an unexpected snap decision which throws out something completely practical and useful, and about how politics can really screw up the delivery of infrastructure services.

No, it’s not about the US.

On February 4, Mexico’s new President, Andres Manuel Lopez-Obrador (AMLO for short), announced the cancellation of what would have been Mexico’s fourth long-term electricity auction.

From a practical point of view, this decision makes zero sense. Mexico has been struggling for several years with the difficult cocktail of slow economic growth, not enough jobs for a growing population, violence coming in part from insufficient legitimate economic opportunities, and widespread corruption coming in part from large, inefficient and politicized public companies – notably PEMEX and CFE — the government-owned oil and electricity companies. Underlying the economic slowdown has been the price of energy in Mexico: thanks to the dramatic drop in oil and (especially) natural gas prices across the border in the United States, Mexico’s cheaper labor costs ceased being a big advantage for manufacturing firms. Cheap labor relative to the US was now offset by expensive energy. The Maquila sector, the manufacturing firms set up in Mexico’s north to sell to the large US market, went from high growth to no growth. Over the last six years, bringing down Mexico’s energy’s costs, and so restoring Mexico’s cost advantages, has been a top national priority.

Mexico’s greatest success over the last few years, arguably, has been the beginning of delivery on its low energy cost strategy. Some aspects, notably cheaper domestic gas and better natural gas transport, has moved slowly. But in buying cheaper electricity, Mexico has enjoyed spectacular success. Building from a base of highly efficient wind farms installed in the last decade, Mexico’s solar auctions have delivered commitments from private firms to deliver solar power at some of the lowest costs on the plant. The first auction, in 2015, delivered commitments from large private generating companies for power at just over $0.04 a kilowatt hour, well below average system costs – not just for Mexico, but also for the US. In the third round of auctions, in late 2017, costs fell all the way to $0.02 a kilowatt/hour – or between 1/3 and 1/4 of the cost of most power in Mexico. Or between 15% and 20% of what a US consumer would pay for electricity.

The total amounts of power being purchased under the first auctions was relatively small, with about 3 GW of new solar connected to the Mexican grid at the end of 2018. At about 5% of Mexico’s total power capacity, this is not yet enough to force system-wide costs down and to enable the lower energy costs Mexico needs to regain some its advantages relative to its northern neighbor. To get there, more auctions for more capacity were the clear path. All laid out on a plate for the country’s new President, who could be soon on his way to claiming victory on Mexico’s big economic priority.

But it’s not to be. Saying you’re smarter than your predecessor, and bad-mouthing private providers, have proved more politically appealing than continuing to deliver on an infrastructure that was working, and working amazingly well. AMLO has announced that CFE, the government-run utility, will instead be asked to expand its power generation. In a world where now dozens of countries have achieved spectacular reductions in the cost of new electricity capacity, having a state-run utility in charge of installing low-cost solar and wind plants has worked… nowhere.

A sad day for Mexico. And a reminder that the biggest obstacle to infrastructure improvements for many governments is – the government itself.

The PG&E Bankruptcy: Five Questions

Earlier this week, on Tuesday January 29, Pacific Gas and Electric Corporation (generally known as PG&E) filed for bankruptcy in the Northern District Court of California. Headline news in all the financial press.

PG&E, which serves northern California, has the largest number of customers of any utility in the United States. The filing noted that PG&E had assets of $71 billion, against liabilities of $51 billion, but was facing an estimated up to $30 billion in further liabilities as a result of the major wildfires which have swept through California in the past two years. That number could wind up significantly higher, as PG&E faces possible liabilities in as many as 17 of California’s 21 wildfires from 2017, and an unknown number from 2018 wildfires which caused more losses in lives and property. Insurance cover? About $2 billion. Its stock has lost over $20 billion in value in the last three months.

This is the first bankruptcy of a major utility to be linked to climate change; indeed, it may be the first major corporate climate change-driven bankruptcy across all industries. While it is too early to tell how the bankruptcy will proceed, it is clear there will be major implications. And many warnings and lessons for utilities around the world. In this post, Infrastructure Ideas will look at five big questions arising from this event.

1. Will post-Chapter 11 life return to normal for PG&E? No.

The utility’s reorganization process under Chapter 11 bankruptcy will be complicated. Compensation for those affected by wildfires, estimated at $30 billion, could wind up substantially higher. Electricity rates were already raised in 2017 – to between 11.9 and 29.8 cents per kilowatt hour – in order to address liabilities from wildfires in earlier years, and there seems to be limited room for yet higher tariffs at a time of widespread condemnation of the utility’s performance. The Company is seeking to be released from paying renewable energy providers rates earlier negotiated under Power Purchase Agreements (PPAs): federal regulators ruled against the request, and PG&E is appealing in court. Such a release would complicate operations for wind and solar generators selling power to PG&E, and have widespread ramifications across many geographies. And some California legislators are taking the position that a large, integrated utility like PG&E no longer is appropriate for an age of more decentralized renewable energy production, that its gas and power businesses should be separated and the company split into a number of smaller, more localized utilities.

Whichever outcomes fall out of the bankruptcy and reorganization, one thing is clear. Life for PG&E will never be the same. It was already faced with complex challenges as a buyer of electricity, with on the one hand regulators mandating it to buy a growing share of intermittent renewable energy, and with wind and solar generators on the other hand constituting a much more varied electricity supply base, and with challenges as a buyer and seller of natural gas, where traditional long-term purchase contracts are increasingly a concern in the face of future uncertainty over fossil fuels. Now it also faces a future where the trigger events for its current bankruptcy are expected, unfortunately, to be ever more frequent. As The Economist pointed out in its coverage, with climate warming and extreme events such as severe droughts becoming more common, wildfire costs look set to be the norm in the western US, and many other geographies as well. So what is clear about PG&E’s future is – it’s not PG&E’s past: it is not the life of a stable, low-risk utility with predictable (and easily managed) problems. Rather, PG&E’s future is one of more erratic price risks, greater uncertainty about policy mandates, and recurring uninsurable risks.

2. Will other utilities face similar risks to PG&E? No. And yes.

One aspect of PG&E’s bankruptcy is relatively unique. Its exposure to wildfire-related liabilities is far greater than most utilities, in that its jurisdiction, California, is one of only two US states with strict fire liability for utilities (Alabama is the other). Investors in Southern California Edison may be nervous about a similar scenario, but the other 99% of utilities may well look at this, shrug their shoulders and say “well, good thing we’re not in California.”

Yet in the broader sense, yes, other utilities will face similar risks. As a specific case, PG&E was overwhelmed by rapid climatic changes as a prolonged drought dried out much of the state and decimated forests, dramatically increasing the risk of fire. While California’s legal environment is unique, the risk of wildfires is far from limited to the state – most scenarios show widespread higher wildfire risk across many geographies as global warming continues. Growing populations mean, virtually everywhere, that fire-prone areas are closer and closer to more homesteads than before. That in turn means ever larger wildfire costs, in terms of losses of lives and property. Many of those wildfires are caused, or exacerbated by power lines, as we’ve observed in Northern California – where as mentioned already PG&E is being charged with liability in 17 of 21 of the 2017 wildfires in its area. The situation faced by many utilities will be that people in their area will incur large losses due to wildfire, and utilities will always be “the deep pockets” from which people will seek to recover those losses – well beyond what can be insured.

Wildfires are of course not the only climate-related issue facing PG&E, or other utilities. Policy mandates and the deterioration of the coal market are forcing many to overhaul their energy sourcing. The growing share of wind and solar power in their purchasing initially raised costs; now the purchase costs of renewables are dropping rapidly, but a growing share of intermittent power brings greater technical challenges. Hydropower resources are becoming more unpredictable. And the risks of policy discontinuities in the energy sector are highly likely to rise as emission reductions miss their targets and global temperatures rise. For now, none of those risks have the same existential magnitude as exposure to wildfire-caused losses, but that may change. For utilities in general, as for PG&E, the future is surely much less stable than the past.

3. Should PG&E investors be upset at PG&E management? Yes

Lawyers will argue at length about the extent of PG&E’s responsibility for the California fires. Management will naturally claim these as “acts of God” beyond its responsibility. But investors who are part of the $20 billion plus reduction in market value which accompanied the bankruptcy filing are upset at management, and rightfully so. PG&E’s handling of fire risk has been very unimpressive. Leaving aside the technical aspects, and how much more it could have cleared rights of way, or better monitored the early onset of fires, or more quickly cut power to lines in affected areas, PG&E completely failed to manage the non-technical side of its new risk.

The new reality for utilities, as demonstrated in this case with PG&E, is a much more unstable and unpredictable risk environment. In such an environment, a “traditional” large utility attitude – being insular and assigning no value to relationships with consumers and most constituents – is completely exposed to blame – and the risk of financial liability – from the unexpected. By contrast a utility which invests in relationship management, and is seen as a “partner” rather than an adversary by consumers and local populations, can expect better treatment in both the court of public opinion and the court of assigning unforeseen costs. PG&E was the former, and investors are right to be upset that it failed to become more of the latter. Asking the bankruptcy court to allow $130 million in management bonuses is the perfect illustration.

4. Should non-PG&E utility investors be concerned about this bankruptcy? Yes.

As noted above, the specifics of responsibility assignment for wildfire costs is unique to PG&E’s context. But many utilities face similar future unpredictability in costs, revenues and policy risks. The costs of extreme weather events – hurricanes, flooding, and wildfires – are more often beyond the scope which insurance will cover. Few or no utilities will go through an identical bankruptcy to PG&E’s, but many will face large-magnitude uncertainties completely different than their historical risk profiles. New climate related risks should concern all utility investors.

As a Bloomberg headline framed it, “PG&E shows utility stocks aren’t boring anymore”.

5. Should wind and solar companies be concerned by the PG&E situation? Yes.

Like investors, wind and solar companies also have a big stake in the stability of utilities, in this case as their source of revenue. PG&E has already asked the bankruptcy court to reject a ruling by regulators that would force them to keep honoring renewable energy supply contracts. Whether the court sides with PG&E or not, wind and solar providers are facing a reality that their main buyers are themselves increasingly unstable, and so that their own revenue streams are at greater risk. This risk could be existential – in hopefully rare cases – but at a minimum is likely to make it yet more difficult for YieldCos and similar financing structures used by renewable companies.

The climate change pain of utilities will be shared. PG&E’s bankruptcy is a first act. There will be more. But Bloomberg has it right: at least the electricity business can no longer be called boring.

Infrastructure Predictions for 2019

To kick off 2019, Infrastructure Ideas offers ten predictions for global infrastructure trends and markets, reprising our kick-off to 2018 (Infrastructure Predictions for 2018, and 2018 in Review).

Energy
1. Wind and solar power keep growing and getting cheaper… and lagging aspirations. Wind and solar continued to dominate the new power market in 2018, and global infrastructure investment, accounting for close to 2/3 of all new power capacity additions worldwide. Global investment in these renewables exceeded $200 billion in 2018, and now is over $3 trillion since 2004. This is good news for consumers and for renewable energy advocates, even more so that wind and solar are now chosen by utilities and governments as much for their favorable economics as for emissions policies. While we have yet to see offers of electricity at under 2 cents a kilowatt-hour, and the march of “world-record pricing” slowed down in 2018, we are seeing more and more countries installing new renewable capacity at between 2.5 and 5 cents a kilowatt-hour – compared to the cost of new coal-based electricity at about 8 cents. Cheaper renewable energy has gone from unheard of to exceptional to becoming the “new normal.” Expect more of this in 2019. But also expect increased concern that “it’s not enough.” In spite of these trends, the decline in worldwide greenhouse gas emissions continue to look far off what is needed to slow global warming, and emissions in the US are widely reported to have increased substantially in 2018. The problem? New capacity is too small compared to overall electricity production – even if 100% of new capacity were to be wind and solar. So along with continued growth of solar and wind installation, expect the underlying pressure to “do more” (read, accelerate the retirement of existing fossil-fuel fired electricity plants) to continue to build.
2. New records in energy storage. The easiest of all 2019 predictions. Energy storage technology is at a similar stage of development to where solar power generation was five years ago: prices falling off the cliff, and the scale of demand jumping monthly. Already in late December 2018 we saw awards of what would be the second largest solar-plus-storage development in the world, Hawaii Electricity Company’s procurement of 262 MW of solar with 1,048 Megawatt hours of storage (at a price 42% below the previous year’s procurement). Wood Mackenzie projects revenues in the US storage market to top $1 billion for the first time in 2019. Look for numerous solar-plus-storage projects across the world to beat the cost of greenfield coal power (about $0.08/ kilowatt-hour), and overall energy storage capacity growth between 50-100% over 2018.
3. Hydropower starts to take on water. There have been mixed perceptions of hydropower as a source of energy in recent years. Large-scale hydropower developments continue to attract widespread opposition from civil society, while smaller-scale run-of-the-river projects typically enjoy broader support, including from many concerned with climate change. Expect in 2019, and onwards, to see more governments, sponsors and financiers walk away from hydropower, especially large-scale projects. Driving this change will be not so much historic environmental and social concerns, but rather declining relative competitiveness. The declining competitiveness is in turn driven by both higher relative costs (as costs of wind and solar alternative technologies continue to drop, while construction costs of dams do not), and by rising risk perceptions. The travails of Chile’s 500 MW and now $3 billion Alto Maipo project, beset by major cost overruns and delays, are the latest example of large-scale, apparently well-managed and designed projects, which encounter bad outcomes. The one area of hydropower likely to see growth? Pumped water storage: China State Grid just announced investment plans for $5B of new pumped storage hydro plants.
4. Intensified pressure on coal-fired plants. In spite of a favorable US Administration, 2018 saw a record number of coal-fired generation plant closures in the US, mainly as a result of economics (as opposed to emissions concerns), with nearly 12 GW of coal plants retired. Economics of lower-efficiency aged plants will not get any better, as renewables-plus-storage costs continue to decline. And continued bad news on global emissions and climate concerns will certainly increase political pressure in many states and countries to increase the proportion of energy sourced from renewables. 2019 is probably early to see climate change funding being directed towards acceleration of fossil-fuel plant retirements, but one can expect to see the issue begin to be debated, and likely to become a reality within a 5-year horizon.
5. The year of climate lawsuits. Lawsuits related to climate change have been around for several years, with a mostly low profile. Look for this to change in 2019. On January 8, the US Supreme Court declined to hear an appeal from ExxonMobil of a lower court judgment forcing the company to turn over internal documents to the Massachusetts Attorney General. This opens the way to lawsuits against Exxon on the grounds of working against climate change regulations while knowing of the likely impacts of climate change. A similar suit is proceeding in New York State. Much like the game-changing billion-dollar verdicts which eventually came, and eventually bankrupted the centuries-old tobacco industry, these suits may be on the verge of going from minor nuisances to existential threats for many fossil fuel companies. And don’t expect these to be aimed only at producers – utilities also face uncertain legal issues here. Current rumors of potential imminent bankruptcy filing by one of the US’ largest utilities, PG&E, have driven its stock down 20% in days. The issue? Legal liability, estimated at around $30B, for having been a factor in California’s recent wildfires. Expect legal risks to become a much bigger issue in the energy sector.

Cities, Transport and other
6. Urban infrastructure keeps center stage. Overall infrastructure investment disappointed in 2018. The much-touted trillion-dollar US infrastructure plan went nowhere, Europe remained fiscally constrained, the occasionally large markets in the Emerging World (Turkey, Brazil, Argentina) were largely closed due to domestic economy issues, and potentially large markets (Indonesia, Nigeria, South Africa, India beyond power) remained potentially, not actually, large. China kept investing major amounts, though almost all of it Chinese capital. But one place where capital flowed in rapidly growing sums was cities. Venture Capital investments in urban technology have outstripped those in pharmaceuticals and Artificial Intelligence, a pair of “hot” fields, the last three years. Money is going primarily to new mobility technologies, as covered previously by Infrastructure Ideas. And increasingly cities are also spending more capital on infrastructure: to deal with new mobility technologies, to fill the gaps left by declining sovereign-level infrastructure financing, and to address continued population growth. Look in 2019 for these trends to continue, and for some landmark city financings in the US and elsewhere.
7. Charging infrastructure starts to mature. The number of electric vehicles on the roads continues to grow exponentially. 2018 saw, for the first time since hybrid vehicles similar to the Toyota Prius were introduced, US sales of electric cars catch up with sales of hybrids. Cost advantages for EVs over combustion-engine vehicles will continue to grow, and continue to fuel (pun intended) rapid growth in EV sales. Demand for vehicle charging infrastructure is being driven by a combination of consumer demand and, in many places, city emissions-related policies. Look in 2019 for the charging business to begin to shake out, with today’s many small providers gradually being replaced by a handful of dominant players. Regulators in US states (Michigan, California and New York) are pushing for the infrastructure to be built by companies other than utilities, opening an interesting new infrastructure space for investors.
8. Buses outdraw subways. People continue to move into the world’s cities by the millions. Getting them around is increasingly on the mind of policy-makers, particularly in the largest and fastest-growing cities, all in the developing world: getting them to where there are jobs to reduce political and other risks tied to unemployment, and getting them out of the traffic jams which get more spectacular by the year. Over 2/3 of the world’s new mass transportation projects – under construction or under development — are in emerging market cities. Subways and light rail have had their vogue, but are more and more encountering problems analogous to those of large hydropower dams: large cost overrun and delay risks, while costs of alternatives are going down. In this case the alternatives being bus rapid transit (BRT) systems. The combination of improved design experience, as more and more and cities develop new systems, and new technologies – electronic money and security management, along with rapidly falling costs of electric buses – is making BRTs more and more attractive to urban policy-makers. Look in the 2019 for the abandonment of flagship subway projects in several countries.
9. New technology comes to water. The energy and transportation sectors have been heavily disrupted by new technology over the last decade. Look for the water sector to be impacted next. The combination of nanotechnology and drones will make possible a massive improvement in the ability of water utilities to find and fix leaky pipes in their hundreds of miles of underground pipes – both finding the location of problems and (in many cases) fixing them will become dramatically faster and cheaper. This will have a big impact on the costs of water utilities, while the cost of the nana-drones are already fairly low, and dropping. Look for a rush from utilities to invest in this technology.
10. A lot of talk will stay talk, not action. On several fronts, we can expect 2019 to bring… not much. Most of these involve government action, either of individual governments or involving multigovernmental accords. Don’t expect a US infrastructure plan. Don’t expect talk to turn to action for major infrastructure policy reforms in large Emerging Markets such as Argentina, Indonesia, Nigeria, or South Africa. Don’t expect a major international accord on climate change regulation (though maybe by 2020…). And don’t expect emerging market infrastructure to become a far more attractive asset class (though maybe by 2022-2025).