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Cities are hubs of talent, innovation, and progress. They create most of the world’s wealth, 70% of the global GDP. According to the UN, they also pump out 75% of global carbon emissions. In 2006, they consumed two-thirds of the world’s energy. Urbanization and growth in developing economies will cause that to rise to three-fourths by 2030.

Smart cities are supposed to resolve this tension between urban productivity and consumption. What is a smart city? The term conjures images of sterile, technotopias (technocratic utopias), but those experiments have largely failed.

The European Commission (EC) has tackled the smart-city concept from every angle. It is petitioning member states and European businesses to commit to its Smart Cities Global Initiative. What does the EC hope to accomplish?

Improve Europe’s aging infrastructure

For one thing, our European infrastructures are old. The EC reports that Europe’s most vibrant cities are undermined by outdated infrastructures. They are straining under modern demands, and in need of repair. Unfortunately, no city or nation has the public funds to rebuild.

Reduce greenhouse gases

We also know that our global emission-reduction goals since the 1997 Kyoto Protocol have not been met. Instead of less, we are emitting 13 billion tonnes more greenhouse gases than in 1990. Carbon neutrality is a chief challenge for our cities.

Digitize urban infrastructures

Urbanization makes all of this more urgent by increasing the density of our cities. The UN expects a global urban population of 6.3 billion by 2050—the number of people on the earth just a decade ago.

In addition to physical upgrades like bridges, rails, roads, and renewable energy, we are digitizing the infrastructure. The scope of our cities is so big, that we need this cloud oversight to make them efficient. Sensors, cameras and wireless networking will become part of our new infrastructure. In big cities, these will connect physical elements to a central IT command center. This creates a multitude of new risks.

The true smart city will arise organically around needs and desires in existing cities. The goal is to achieve sustainable socio-economic development with optimal efficiency and minimal waste. Ultimately this should lead to a post-carbon economy which offers the highest possible living standard for all citizens.

Prosperous, egalitarian, efficient, carbon-neutral.

The Smart-City Challenge

All of these potential gains look good, but achieving them won’t be easy.

Governments are still constrained by the economic slump. Even without that, the scale of transformation at hand is beyond the reach of government treasuries. That’s why PPPs (public-private partnerships) are on the rise. PPPs will supply the funds and manpower to renovate our cities, but they do create their own challenges.

Before signing contracts, governments and private partners should use modeling to understand the potential consequences. If a private provider fails, what happens to the public service he offers?

Water, waste, energy, and transport need to be affordable to every citizen. On the other hand, if private companies cannot make these services profitable, the firms fold. This also hurts the public, if government is forced to buy back the service or physical structure. A delicate balance must be struck between keeping services affordable to average citizens and making them work as businesses.

Governments will need to be faster and more dynamic. Change will be constant, and all of these partner services will need to be coordinated into a seamless, municipal infrastructure controlled by IT. It will present one of the greatest challenges ever faced by governments around the world.

Insurers will be the guarantors of smart-city development. PPPs will rely heavily on insurance to cover overlapping risks and protect investments on both sides. The challenges to insurers will be the same as to government: constant change and field of unknown risk. The lack of historical data for new technology and PPP arrangements will require insurers to be technically adept and flexible.

It is the ideal moment for the smart city. It will be rife with risks, but rich in rewards. In a series of upcoming articles we’ll have a look at some of them.