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Managing uncertainty in the second National Infrastructure Assessment

This paper considers how infrastructure policymaking can best deal with an uncertain future.

Tagged: National Infrastructure Assessment

Executive summary

Infrastructure projects must be designed to be useful and effective over the course of their lifetimes, withstanding as far as possible the changes that occur over the years, decades, or even centuries of their use. Future projections and forecasts – for example, for the economy, population and environment – are often used to help plan infrastructure. But this has limited benefit in a highly uncertain world. Good infrastructure policy must instead be robust to a wide range of possible futures, both at a project and portfolio level.

Good infrastructure policy must be robust to a wide range of uncertain future events, to ensure that decisions taken now really do serve the needs of people in the future. When infrastructure policy is designed for a “central scenario” it targets a future that is unlikely to happen with actions that are unlikely to be right. Significant opportunities can be missed, and avoidable risks may materialise.1 This is a common failing of UK infrastructure policy and contributes to the country’s experience of start-stop infrastructure delivery. From their earliest stages policies must work in as wide a range of scenarios as possible.

The challenges presented by uncertainty are exacerbated by long lead times and the long lives of infrastructure assets.2 Even when sophisticated analysis of future uncertainties is done, it may be disregarded or misunderstood by the time options are put in front of decision makers.3

In the face of genuine uncertainty, processes for responding to unforeseen events are more important than increasingly sophisticated attempts at predicting them. Where prior experience can help us understand the likelihood and impact of future events, it is possible to take a risk management approach. But not all events have a recent historic parallel. Instead, sequencing projects, learning from the first steps, and adapting in subsequent ones (“adaptive frameworks”) can allow flexibility to respond to the unexpected.

Infrastructure proposals should be designed to perform well across many different scenarios of the future. Adaptive frameworks can address circumstances where uncertainty may resolve itself over time, providing forward momentum around a stable core while maintaining flexibility to follow a range of different adaptive pathways. Infrastructure plans as a whole should not be unduly biased towards one, or one set of, possible futures: they should seek to balance a set of robust investments, strategic bets and hedging activities that help to seize unexpected opportunities and insure against bets going wrong.

A pragmatic approach backed by experience

Designing for multiple possible futures significantly increases the chance that infrastructure will be useful and effective through its whole life. This can involve designing for one scenario and adjusting to improve performance in others, or looking for the common elements of policies that are optimised to each scenario in turn. The Commission’s study Engineered Greenhouse Gas Removals discussed the need for a strategic commitment to engineered removals because, in most scenarios, some engineered removals are needed to meet net zero.4 Rail Needs Assessment for Midlands and the North identified a stable core of investments that are likely to perform well in a wide range of possible futures.5

Not every project or policy will pay off in every scenario, so it is important to ensure a balance of risks across a wider portfolio. To do this, there must be a clear framework for deciding whether a project is part of a stable core of investment, a strategic bet or a hedging activity. The nationwide rollout of full fibre can be viewed as a strategic bet, whilst some major road schemes that are consistent with net zero have characteristics that place them in the stable core. Hedging activities are harder to identify in the infrastructure sector but are more common in military6 and public health sectors where resources are invested in preparing for inherently unpredictable events.

Adaptive frameworks are particularly useful for making firm delivery commitments in the face of an uncertain future. In some cases, it will be possible to incorporate flexibility for the future and, in others, to simply avoid closing down options earlier than necessary. The first Assessment discussed adaptive approaches to flood defence infrastructure: the Commission recommended flood defences are not built higher than needed for a world that is 2 degrees warmer, because they can be added to incrementally.7

The experience of high speed rail in France can be viewed as a successful adaptive approach to infrastructure planning. The first line was approved in 1978,8 and the second was announced when the first had been successfully delivered at an acceptable cost; only once the second line had opened did the French Government make a strategic commitment to a much larger high speed network.

The right approach to managing uncertainty depends on the specific policy, and a detailed understanding of what the future could look like. Developing a wide range of reasonably plausible scenarios of the future is an important but limited part of this. Many events could still lead the future outside this range and policymakers should be challenged to explore what future conditions would make their proposals unviable or unnecessary.

Scenarios should be based on relatively few key drivers, keeping the analysis simple and honest about the true scale of future uncertainty. The rest of the paper describes practical steps to do this.

A simple and honest approach to demand scenarios

Scenarios describe the possible future context within which infrastructure policy should be made. This is distinct from “policy pathways” towards a specified policy goal, which would capture the effects of new infrastructure policy.

The Commission has looked at work published by other organisations to understand the full range of demand scenarios relevant to its sectors and will seek to reflect this range in its own analysis for the second Assessment. Scenarios relevant to the Commission’s sectors are routinely published by industry, government and academia. They are often based on large and complex models and between them represent fairly wide but reasonably plausible ranges.

In reflecting the ranges produced by other organisations, the Commission does not need to accept the input assumptions used to generate them. Any given level of demand can be achieved by many different combinations of input assumptions. Describing the full range of possible future scenarios for demand is far more important than the precise combination of inputs that generated each scenario.

For illustrative purposes, this report presents the findings of its scenarios review in relation to electricity demand and road demand. Trends in electricity demand illustrate many of the changes expected across the wider energy sector and road demand is such a significant part of transport that it tends to dominate trends here. The scenarios review for these two sectors found:

  • UK electricity demand could rise from around 300 TWh in 20229 to a range of 560-890 TWh by 2050.10 The wide range is driven by uncertainty about the generation mix (which affects the costs of electricity) and key policy choices over the role of electricity in decarbonizing transport and heating.
  • Demand for road transport in England could remain at similar levels to today, around 300 billion vehicle miles,11 or rise to as much as 450 billion vehicle miles by 205012 Most scenarios foresee an increase as the population and economy grow and electric cars make travel cheaper, but it is possible to imagine a world in which the historic link between economic growth and transport demand is broken and a significant shift away from commuting following the Covid 19 pandemic helps to keep demand steady. Transport demand is currently subject to particularly high levels of uncertainty because travel patterns changed significantly during the pandemic.

Understanding the scale of future uncertainty

The major drivers of infrastructure demand and supply have evolved significantly since the first Assessment and illustrate many of the challenges associated with predicting the future. This paper revisits work on population, economic growth, technology and environmental change, to demonstrate the need to design for a wide range of scenarios.

Projections of population and economic growth have been revised significantly downwards by the Office for National Statistics and the Office for Budget Responsibility. The most recent central projections of population are close to the lower bound of the set used in the first Assessment. Long term economic growth is now expected to be around 1.5 per cent per year13, down from a very stable historic average of around 2 per cent.14 Infrastructure policy must be designed to work across the full range of reasonably plausible future scenarios if it is to remain relevant in the long term.

Models of long term changes in the climate predict higher temperatures on average and more intense rainfall than previously, but also a wider range around the central case,15 showing that better information can reveal more uncertainties than were previously known. This underlines the importance of keeping options meaningfully open.

Technological change is particularly difficult to predict and can have a profound impact on infrastructure. Technology can change the need for a particular piece of infrastructure or lower the costs of operating it. And it can do the same for entire systems of infrastructure. Some technological changes are sufficiently near market and well understood that they can be reflected in scenarios, whilst others are not. Some technologies make behaviour change much easier when triggered by another event like the pandemic.16 Steam as a technology preceded steam trains by around a hundred years but steam trains, when they did arrive, had a significant impact on where people chose to live in the 19th century.17 Such high impact disruptors could take demand for infrastructure, or its costs, well outside the range of reasonably plausible scenarios. But what these technologies are and when they will have their greatest impact is near impossible to predict. Including hedging, or “preparedness” activities, alongside more standard infrastructure policy, can reduce the costs of adjusting to a radically different future.

Government policy that apparently has little to do with infrastructure can affect where and how much infrastructure is required. For example, the government’s skills policy18 has led to an expansion of the student population from two hundred thousand in 196019 to 2.7 million today,20 affecting population growth in university towns and the country’s industrial mix, changing both the scale and nature of infrastructure required in the UK. The impact of government policy outside of the infrastructure space is important context for the Commission to understand without seeking to influence. Remaining vigilant to this kind of change is an important part of ensuring the full set of possible futures is considered.

Next steps

As the Commission develops the second Assessment, it will produce scenarios of the future that reflect the wide range of uncertainty in the literature around infrastructure demand and cost. It will ensure a basic level of consistency between the range of scenarios in each sector, without introducing undue complexity.

The Commission will consider how to apply ideas about designing for multiple alternative futures, keeping options open, adaptive frameworks, and procedures that improve preparedness.

The rest of this paper describes in more depth the approach the Commission has developed to managing uncertainty, the review of energy and transport scenarios and the updated analysis of infrastructure drivers.

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Status:  Completed

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