Pricing relevance of external costs calculation: recent results

1
Pricing relevance of external costs calculation
recent results
International Symposium on Road Pricing Key
Biscayne - November 19-22, 2003

• Andrea Ricci - ISIS
• Istituto di Studi per lIntegrazione dei Sistemi
• aricci_at_isis-it.com
• www.isis-it.com

2
This presentation

• Why external costs are relevant to pricing

• Some recent results from EU studies

• Sensitivity of costs (and charges) to situational
  factors

• Deriving charges at country/network level

• Implications of the recent EU directive
  (proposal) on HGV charging

3
Definitions
Externalities are changes of welfare caused by
economic activities without being reflected in
market prices

External costs are those borne by individuals
other than those who have induced them (e.g.
society as a whole). They remain such until they
are incorporated in prices (internalisation)
4
Pricing relevance of external costs

• Price levels are critical to CBA
• revenues
• acceptance/success
• macro economic implications
• etc.

• The EU perspective (research and policy
  orientation) getting prices right
• cost based prices the users pay principle
• MSC-based gt knowledge of real (social) costs,
  including externalities
• priority to HGV

• Evidence from EU projects
• RECORDIT (HGV)
• UNITE

5
Results from RECORDIT

• External costs calculated over more than 9000 km
  of road network (segments of variable length)

• Air pollution, Noise, Accidents, Congestion, GHG,
  LCA

• and Infrastructure Costs (wear and tear)

• Mostly bottom-up (IPA), EU-wide reduction target
  for GHG

• Current payments (taxes and charges)

• Charge derivation at corridor/segment level

• Generalisation at country level

6
Derivation of charge
Social charge Marginal external costs - Taxes
- Net infrastructure payments
7
Genova - Manchester
8
Barcelona - Warsaw
9
Air pollution costs (?cents/v.km)

0 6.5
13.0 19.5 26.0
32.5 39.0 45.5
52.0
Urban Road Car Petrol EURO 2 Car Diesel EURO
2 HGV Euro 2 Inter urban Car Petrol EURO
2 HGV Euro 2
UNITE CASE STUDIES OTHER STUDIES
10
Noise costs (?cents/v.km)

0 7.0
14.0 21.0 28..0
35.0 42.0 55.0
80.0
Urban Cars -day Cars -night HGV day HGV
night Inter urban Cars -day Cars
-night HGV day HGV night
UNITE CASE STUDIES OTHER STUDIES
11
Congestion costs (?cents/v.km)
12
Sensitivity to situational factors Amsterdam -
Bilbao
13
Sensitivity to situational factors Amsterdam -
Bilbao
Taxes charges
Ext. costs
Extra charge
Amsterdam-
NL
22,2
22,6
44,9
Roosendaal
Roosendall-
B
16,0
15,3
31,3
Lille
Lille-
FR
26,6
-1,7
25,0
hendaye
Hendaye-
ES
26,8
40,9
67,6
Bilbao
However, on the Paris section (ca. 80 km)
Paris
FR
13
39,3
52,3
section
14
Charge derivation at country level (MSC based)
15
HGV charge derivation 3 scenarios

• Scenario 1
• Full internalisation of all (MSC) externalities
  (air pollution, noise, accidents, global warming,
  congestion)
• Only wear and tear of infrastructure (no
  investment recovery)

• Scenario 2
• Only accident costs are internalised
• All infrastructure costs are passed on to the
  users wear and tear costs of provision of
  infrastructure (flat rate 15 cents/v.km)

• Scenario 3
• as Scenario 2, but
• flat rate of 10 cents/v.km)

16
Charge simulation S1 Vs S2
17
Charge simulation the 3 scenarios
18
Conclusions

• External costs matter, and they can be calculated

• High variability reflects sensitivity to
  situational factors

• Need to capture all important cost drivers in
  price setting mechanism

• Current pricing practice is largely distorting

• Simplified approach (EU directive) may provide an
  acceptable approximation

19
For more information

• UNITE (www.its.leeds.ac.uk/projects/unite)

• RECORDIT (www.recordit.org)

• www.isis-it.com

or ask

• Andrea Ricci aricci_at_isis-it.com