At a speech to the Competition and Consumer Workshop 2021 of the Law Council of Australia on 27 August 2021, the Chair of the ACCC, Rod Sims, proposed a single new formal process for assessing the effects of mergers on competition.
Philip Williams, competition and dispute support lead at Frontier Economics, has been an expert witness in numerous merger matters that have appeared before the courts. He discusses this proposal in the attached note.
DOWNLOAD FULL PUBLICATIONInfrastructure Australia today released the 2021 Australian Infrastructure Plan, which provides Australia’s green, grey and blue infrastructure sector with a 15 year roadmap to drive economic growth, maintain and enhance our standard of living and improve the resilience and sustainability of Australia’s essential infrastructure.
The 2021 Plan provides Infrastructure Australia’s reform pathway to respond to the 180 infrastructure challenges and opportunities identified in the 2019 Australian Infrastructure Audit. There are a number of key themes in the plan. We highlight and discuss several of these below.
The inclusion of waste and social infrastructure (such as green and blue infrastructure) for the first time, alongside energy, transport, telecommunications and water.
The need for place-based decision-making, including the need to holistically plan blue, green and grey infrastructure.
Recognition of the need for a consistent approach to valuing the economic, social and environmental benefits of blue, green and grey infrastructure (which has also been recognised by NSW’s Department of Planning Industry and Environment). Frontier Economics has discussed this in two recent bulletins: Greening our cities: from vision to value and Greening our cities: from vision to reality.
The need to embed sustainability and resilience into infrastructure decision-making, including the importance of a consistent all-hazards, systems approach to resilience planning and quantification of the costs, impacts and benefits of resilience investment.
Recognition of the need for clear management and governance of the water cycle, including stormwater and waterways.
The need to remove targets, mandates and subsidies for certain types of water, including recycled water. (For a look at how to encourage uptake of recycled water initiatives, and barriers, Frontier Economics undertook a review for Infrastructure NSW.)
It is a comprehensive plan addressing all aspects of infrastructure. It puts forth a compelling vision of Australia in 2036, that includes liveable, attractive and resilient communities with social infrastructure supporting a strong, healthy and prosperous nation.
The urban economics team at Frontier Economics advises across these areas. For more information or to discuss a project, please contact us.
Once thought of as purely an environmental issue, climate change is now recognised as a major threat to economies and financial markets around the world. As a result, public and private sector organisations are being asked to provide public disclosures of how current and future climate risks will impact their operations.
Recognising the increased need for climate change impact reporting with a greater focus on financial analysis, Frontier Economics and sustainability services consultancy Edge Environment are very excited to be partnering with each other to offer clients advice that combines in-depth environmental expertise underpinned by solid economic analysis and modelling.
“The requirements for climate disclosure reporting have been increasing around the world in recent years. We have seen climate change shift from being primary an environmental or “green” issue to one with legal, governance and financial implications” said Dr Mark Siebentritt, Edge’s Commercial Director and one of its climate risk analysis experts.
“We are seeing many of our clients step up their analysis of climate risk. This is in response to commentary by financial regulators in Australia about the need for companies to address what is now regarded as a foreseeable and material risk. Change is also coming through international markets with some countries like England and New Zealand headed toward mandatory climate risk disclosure reporting.”
One of the key challenges of climate risk disclosure reporting aligned to frameworks like the Taskforce on Climate Related Financial Disclosures (TCFD), is the need to better understand the financial implications of climate change.
“The impacts of climate change on the financial statements of an organisation is complex. Companies can find it challenging to do this as there are many drivers that need consideration. For example, take the impact of extreme heat on a property portfolio. You first need to understand the risk of such extreme weather in different climate change scenarios. Then you need to understand the physical impacts of extreme heat, this may include increased energy costs, damage to the property and even consideration of whether the property is unhospitable in extreme heat. Finally, you need to place a financial value on these physical impacts. Climate risk specialists and financial experts working together can give companies these insights” said Ben Mason, economist at Frontier Economics.
“A key risk companies are often interested in is around energy supply transitioning to renewables and the impacts on energy prices. We have energy network models and have provided shadow carbon price advice to various clients.”
Building on our expertise in TCFD reporting, Frontier Economics is expanding into ESG related advice more broadly. Ensuring decisions are based on sound and rigorous economics is critical for companies navigating this complex area.
Background
Edge Environment and Frontier Economics have worked across a broad range of climate risk projects, including within the property, infrastructure and government sectors. Together, this partnership provides a unique opportunity to better understand both financial risks and opportunities for Australian and New Zealand businesses.
About Edge Environment
Edge is a specialist sustainability advisory company focused on Asia-Pacific and the Americas. Its teams are based in Australia, New Zealand, the United States and Chile. Edge exists to help its clients create value from tackling one of world’s most fundamental challenges: creating truly sustainable economies and societies. Edge does this by combining science, strategy and storytelling in a way that gives our clients the confidence to take ambitious action, and do well by doing good.
About Frontier Economics
For more than twenty years, Frontier Economics has contributed sound economics to many important debates and decisions in Australia, New Zealand and the Asia-Pacific. Governments, regulators and businesses use our economic advice to inform policy development, market design, regulation and investment. Frontier Economics prides itself on delivering quality, independent economic input that can lead to better decisions and better outcomes for our clients.
A clear view of the outcomes we want in our urban landscape is key to unlocking funding for green infrastructure. COVID-19 has highlighted, more than ever, the importance of green infrastructure and open space – as for many of us these features of our urban environment have been an important source of refuge during the challenges we’ve faced over the last year. Green infrastructure (or blue-green infrastructure) refers to the tree canopy, parks, waterways, vegetation, wetlands and lakes in our cities. It delivers enormous benefits to our community, and it is much more than just pleasant ‘greening’. Green infrastructure can make our cities cooler, healthier, more ecologically sustainable and attractive places to live and work.
Given the rate of development in our cities, the pressures on our urban environments and the adjacent natural environments, and the importance of integrating green infrastructure with other forms of infrastructure early in the development process, there is an urgency to improve the provision of green infrastructure. This requires a step-up in funding.
In a previous bulletin, Greening our cities: from vision to value, we observed that we need to actively embed consideration of green infrastructure into our planning and decision-making processes, and that a key element of this is identifying and accurately valuing the costs and benefits of green infrastructure.
This bulletin explores why greater clarity about the specific green outcomes (or standards) we need as a community is a key step in securing efficient and sustainable sources of funding for green infrastructure. As much as possible, policy and funding certainty for green infrastructure needs to be in place ahead of the growth and development that is occurring across major metropolitan areas.
In high-level strategic plans for cities and urban areas, governments are now recognising urban nature as genuine infrastructure that delivers valuable services to the community and which merits policy and planning priority. They recognise that the natural green (and blue) assets of a city can deliver real public benefits, including mitigating the urban heat island effect, protecting and restoring ecological health, promoting active lifestyles, and providing beautiful places to live, work and play.
A clear government policy vision for green infrastructure is a good (and necessary) start. To transfer this vision into reality, however, requires:
The clock is ticking. With climate change, higher levels of population and development, and increasing urban encroachment on the natural environment, there is an urgent need to improve the supply of green infrastructure in many cities. In particular, it needs to be planned, delivered and truly integrated with development and other forms of infrastructure, rather than being supplied as an afterthought (as often seems to be the case).
Western Sydney, for example, is continuing to undergo significant development via the Western Parkland City initiative. Green infrastructure is critical to ensuring this new region is productive, liveable and sustainable. Failure to adequately plan, integrate, fund and deliver green infrastructure would consign future generations of people living and working in the Western Parkland City to missing out on the substantial benefits that flow from green infrastructure.
Below we outline some important steps for turning the vision for green, highly liveable urban areas into reality.
A range of stakeholders including developers, utilities and various levels of government will be involved in planning, funding and delivering critical green investments in our cities.
Providing certainty to these stakeholders ahead of investment and development occurring that there are sustainable frameworks for funding green infrastructure is crucial for ensuring this infrastructure is delivered effectively and efficiently.
Clear and certain funding frameworks can ensure that:
Government policies and city plans often set out general or high-level objectives or targets for amenity and improved environmental outcomes. However, greater clarity is often required about the specific environmental, amenity and other green outcomes we want and need as a community.
Such green outcomes (or standards) should be set after robust analysis of their economic, social and environmental costs and benefits, and the costs and benefits of alternative outcomes.
The Commission noted that City Plans recognise the importance of green open spaces for community health, well-being and urban cooling, but they often only include high-level ‘motherhood statements’.
It cited a lack of clear and precise objectives (and subsequent allocation of responsibility and accountability) for urban amenity and enhanced environmental outcomes as a key impediment to investment in integrated water cycle management.
It stated that until high-level aspirations are turned into more precise objectives, there is not a strong basis for normal project (and hence funding) assessment processes. These processes typically begin by identifying a specific problem that needs to be solved or objective that needs to be achieved, and then involve identifying and evaluating options to solve this problem or achieve the required objective at least net cost or greatest net benefit.
The NSW PC found that, in terms of local infrastructure for new development areas, roads and drainage often take precedence over amenity and open space when funding is short. This is because the former are often considered ‘essential’ to unlock development. The implication being the latter is often considered discretionary.
The NSW PC also found that current open space standards for new development are outdated.
In Australia, both the NSW and Australian Productivity Commissions have recently recognised that a lack of clarity around required green outcomes can act as a significant impediment to adequate funding of green infrastructure and hence achievement of green outcomes.
Greater clarity around required green outcomes would focus attention on how we as a community achieve these outcomes, including the specific governance, regulatory and funding arrangements that are required. In particular:
Once required green outcomes have been determined, they should be integrated into relevant policy documents, planning instruments and, where applicable, other legislative and regulatory requirements.
This should assist in putting green infrastructure on an equal footing with traditional or ‘grey’ infrastructure and help to ensure that green infrastructure is considered upfront and integrated with development and other forms of infrastructure rather than provided as an afterthought.
This upfront consideration of required green outcomes, and hence integration of green infrastructure with other forms of essential infrastructure (e.g., transport, water) can be particularly important for efficiently achieving amenity and environmental outcomes.
The Australian Productivity Commission has noted that water infrastructure, for instance, can offer opportunities for enhancing urban amenity and environments (in addition to the traditional water and wastewater services that it provides). For example:
Similarly, the NSW Productivity Commission has observed that more efficient delivery of open space “will be achieved by shifting to performance-based benchmarks and a requirement to consider efficient land needs during the strategic planning process. This could, for example, include the dual use of land around creeks for both drainage and passive open space.”
There are strong economic efficiency and equity reasons for allocating the costs required to achieve green outcomes to those in the community that create the need to incur the expenditure (i.e., ‘impactors’) and/or those that benefit from this expenditure (‘beneficiaries’). In some instances, however, it may not be possible or practical to recover costs from specific groups of impactors or beneficiaries, in which case the broader community (taxpayers or ratepayers) may have to pay.
Clarity about required green outcomes is an important step in determining who is creating the need to achieve, or benefiting from, these outcomes, and therefore in establishing secure and sustainable sources of funding for green infrastructure.
If, for example, specific green outcomes are required to service or accommodate a new development (e.g., in relation to open space, waterways management, etc), which would not be required in the absence of that development, the local council should have a mandate to require developers to fund the capital costs of supplying green infrastructure for the development to achieve these outcomes– along with other essential infrastructure routinely funded or provided by developers for new development.
Similarly, if a water utility whose prices are regulated was required by its operating licence or similar regulatory instrument to meet specific green outcomes (e.g., in terms of stormwater and waterways management), then it should have assurance that it would be able to recover its costs, via its prices to its customers or charges to developers, of delivering servicing solutions that efficiently achieve these green outcomes. Notably, it would not likely have the same level of assurance, and hence funding certainty, if its statutory green objectives/requirements were less well defined.
Where it is appropriate for government to fund green infrastructure (on behalf of the broader community), greater clarity about required green outcomes can:
Greater clarity about required green outcomes can also enable us to better assess the adequacy of existing funding mechanisms in meeting the scale and pace of development and investment required.
Providing greater clarity about required green outcomes (or standards) can be challenging. However, it is important for improving governance, regulatory and funding arrangements for green infrastructure, and necessary if these green outcomes are to be achieved.
Along with best-practice regulatory design principles, valuation of the full costs and benefits to society of the environment and amenity outcomes related to green infrastructure can play an important role in both setting these outcomes and in assessing the range of options available to achieve them. As we discussed in a previous bulletin, there are a range of techniques that can be employed to undertake such valuation.
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