Overview
Successful implementation of the pricing reform, as put forward in the White Paper, is a complex issue. This requires first cross-modal research on cost calculation to ensure a coherent approach and level playing field in support of the European legislation currently being prepared and put in place.
Policy makers and the public also need further and more detailed information on the benefits of pricing. One way of demonstrating these are through real-life demonstration projects. These should be carefully designed to tackle both the technical and socio-economic complexities and to address acceptability problems, which can be particularly striking in urban areas.
GRACE addressed Task 3.4.1.4.8 of the SUSTDEV-2002 Work Programme 'Costs of transport infrastructure use', by facilitating the implementation of transport pricing systems that reflect the costs of infrastructure use in order to support the development of sustainable transport systems.
This project expected to benefit from the results achieved by two FP5 projects: MC-ICAM and UNITE.
MC-ICAM has contributed to the identification and understanding of possible barriers to the implementation of marginal cost pricing and to the identification of optimal and feasible implementation paths (including an estimation the benefits that can be derived from the implementation), by carrying out theoretical and methodological analyses, studies on barriers and constraints, and modelling case studies.
The UNITE project has provided:
- a comprehensive set of marginal cost estimates relevant to transport contexts around Europe;
- pilot accounts for all transport modes in all EU countries, Switzerland, Estonia and Hungary (which show the social costs - the cost of infrastructure, accidents, environmental damages, delays and the costs of supplying transport services - and the revenues from taxes, charges and subsidies of transport for two analysis and one forecast year);
- a framework for integration of accounts and marginal costs, consistent with public finance economics and the role of transport charging in the European economy.
The objectives of this project were:
- to undertake new case study research to address gaps in the existing level of knowledge of marginal social costs in road and rail transport (particular attention will be given to specific aspects, namely infrastructure wear and tear, road congestion, rail scarcity costs, accidents, air pollution and global warming, noise nuisance and environmental costs in sensitive areas), as well as in air and waterborne transport (particular attention will be given to all cost categories);
- to develop and refine the methods of using transport accounts to monitor the implementation of transport pricing reform in an enlarged Europe (in particular to apply results from the case studies to split between fixed and variable costs, to close gaps in the accounts, especially for air transport and waterborne transport and to provide qualitative and quantitative inputs for the generalisation of marginal cost case studies - cost drivers);
- to undertake innovative research on the issue of the appropriate degree of complexity in transport charges, to provide guidance on the effective trade off between pricing systems that give appropriate incentives by portraying variations in marginal social cost in time and space in detail and pricing systems that are easily understood and acted upon.
- to provide clear guidance on the marginal social cost of the different modes of transport in specific circumstances and on simple and transparent methods for determining charges (this will involve bringing together results of previous research on costs, cost drivers and cost functions and the production of a software tool designed to enable derivation of costs and charges even in situations where detailed analysis does not exist);
- to refine the use of models to address the broad socio-economic impacts of pricing reform (particular attention will be given to modal shares, accidents, sensitive areas, regional economics and equity issues);
- to draw clear conclusions and recommendations for policy and for research in the field of transport infrastructure costs and charges.
The objectives were pursued within a set of seven inter-related groups of activities, one per objective, each led by internationally recognised experts in the field and involving a highly experienced team.
Each group of activities produced a document with the results and achievements relating to its specific project objective. The title of these documents were:
- 'Marginal cost case studies for road and rail transport' (first objective);
- 'Marginal cost case studies for air and waterborne transport'(second objective);
- 'Monitoring pricing policy using accounts (third objective);
- 'Optimal complexity of transport pricing' (fourth objective);
- 'Generalisation of marginal social cost estimates' along with the accompanying software tool (fifth objective);
- 'Socio-economic impacts of transport pricing reforms' (sixth objective);
- 'Policy conclusions on marginal social cost pricing' (seventh objective).
Funding
Results
The main outcomes of the project were as follows.
1) Cost Estimation and Charge Calculation
The project did extensive new research on cost estimation across modes and cost categories.It has also developed a user-friendly software tool that enables the user to specify a situation they are interested in and to derive a reasonable approximation of the relevant external costs.
The cost estimation work has analysed a series of case studies. These case studies have in general shown that there is no standard methodology for marginal costs estimation, and that the methodological approaches available are strongly influenced by data availability issues and by the type of transport mode under examination.
Other findings specific to case studies focused on road and rail modes were the following:
- Optimal charges for the use of transport infrastructure will be below average maintenance and renewal costs for road, and a long way below for rail, wherever there is spare capacity and little environmental impact.
- Most of the evidence suggests that charges should be higher for low quality, less heavily used infrastructure (the low quality nature of the infrastructure makes it more susceptible to damage).
- Environmental charges for noise and air pollution should vary with the characteristics of the vehicle.
The main findings concerning case studies focused on port, inland waterways and airports were the following:
- Efficient charges for ports and inland waterways will comprise a wear and tear charge for the use of locks, plus congestion, scarcity and environmental charges.
- Airports produce substantial environmental costs which are not usually internalised in charges.
- If capacity is expanded in line with demand, and operators reserve blocks of capacity on long run contracts (e.g. in ports), long run marginal cost pricing may be more appropriate.
2) Accounts and the Monitoring of Pricing Reforms
This project suggested a range of methodological improvements of transport accounts to enable their use as monitoring tool for transport pricing reform. The main conclusions were:
a) To be useful in connection with pricing policy, transport accounts need to:
- split infrastructure costs into fixed and variable;
- split accident costs into internal and external;
- be based on detailed databases showing capacity utilisation ratios for individual secti
Technical Implications
The project identified a number of possible topics for further research.
T1: It is recommendable to do research on 'The treatment of renewals in estimating marginal wear and tear costs'.
T2: It is recommendable to do research on 'Variation of elasticities of wear and tear costs with traffic volume and infrastructure quality'.
T3: It is recommendable to do research on 'Risk elasticities and their implications for the marginal external costs of accidents'.
T4: It is recommendable to do research on 'Practical ways of determining congestion and scarcity costs for rail, water and air transport'.
T5: It is recommendable to do research on 'Optimal pricing given road users misperception of costs'.
Policy implications
P1: The marginal cost approach provides information for efficient pricing in different traffic situations. Even though pricing policy in transport involves consideration of multiple objectives and constraints, an important starting point for policy is the pattern of efficient prices by mode, area type and route type. The marginal cost case studies provide relevant information to help populate that approach. However, it is unrealistic to expect a comprehensive set of marginal costs to be derived from such an approach on its own. In practice, we need to rely on social accounts data as a generic source of information, and to derive approximate or 'average' marginal costs information from such data using such evidence on cost/output relationships as can be found in the literature. It is the use of case study and accounts data together which is likely to be the most practical means of generating practical marginal cost estimates which feed into pricing policy.
P2: The creation and maintenance of a set of consistent social accounts for the transport sector is particularly valuable for monitoring the impacts of policy, including pricing policy. To achieve consistency across modes and countries is a formidable task to which the UNITE project has made a contribution.
P3:In practice, pricing policy may involve balancing a mixture of considerations. Efficiency is clearly one but notions of equity, fairness, cost recovery and revenue raising are others. Thus, second-best questions such as how to set efficient prices in relation to marginal cost in the transport sector while achieving a given budgetary result, or how to set transport sector prices in relation to marginal cost given distortions in related sectors elsewhere in the economy are clearly relevant policy issues which may draw on both marginal cost and accounts information and which the integration strand of UNITE has addressed.
P4: The information both from marginal costs and accounts may provide relevant inputs to other decisions such as decisions on investment and to non-price regulation. The interrelationship between pricing and efficient investment is an issue of considerable policy interest, both in an economic sense and in relation to the case for Trust Funds and other ways of ring-fencing revenues for transport investments. Such issues are likely to be particularly relevant for the accession countries.