Case for investment in transport infrastructure: More ways of quantifying the benefits

1. Case for investment in transport infrastructure: More ways of quantifying the benefits The presentation subtitle is set to Arial Regular manually in the Font menu. If not a subtitle, leave second line of title bold. Derval Cummins, AECOM Ireland's National Transport Infrastructure Conference, 20th June 2019

2. Content The case for investment in transport Role of the business case The basic benefits More innovative benefits Practical matters what will it cost and how do we do it when we’ve never done anything like this before • Driver frustration • Reliability • Agglomeration • Housing • Health • Heritage • …… Case studies from Ireland, Scotland and England

3. Why invest public money in transport? Connecting people to places gives them access to opportunities, which is good for their well-being and productivity, benefiting society and the economy. People • Food and other goods • Marketplaces • Friends and family • Schools and universities • Workplaces • Shops • Healthcare • Sports • Culture • … and many more services and opportunities

4. The case against? Transport infrastructure involves construction that may damage the built or natural environment Infrastructure construction may be costly, using money that could be used for another public good Cars, trucks, buses and trains consume energy Time spent travelling could be better used Communications and technology can reduce the need to travel How good is good enough?

5. Transport infrastructure needs years of analysis pre construction Time line for a typical road project Gate 2 Gate 3 Gate 1 Approval to commence Planning, Design and Statutory orders Approval of Business Case and to Submit Proposed Development to An BordPleanála Approval to Commence Construction Early Activities Tendering Contract Award Construction Land Acquisition Closeout Planning & Design Statutory Orders Business Case Get ABP Approval Progress Designs Prepare Tenders Start land acquisition 70 % to 80% of Project Cost 10% to 20% of Project Cost 5% to 10% of Project Cost 1% to 2% of Project Cost 3 to 5 Years 1 to 2 Years 2 to 3 Years 2 to 3 Years 8 to 13 Years Source: Transport Infrastructure Ireland

6. What is a Business Case? • A high level process to assess all investment decisions • Allows for objective comparisons of proposals for investment within and between projects and modes • Decisions taken on investment based on performance against objectives, as set out in the business case • Business cases are developed in line Government requirements for public spending Public Spending Code (PSC) Sept 2013 Common Appraisal Framework (CAF) March 2016 Project Management Guidelines Project Appraisal Guidelines (PAG) Oct 2016

7. Why are Business Cases Important? • Provides a framework for scoping and planning spending proposals • Facilitates scheme prioritisation and pipeline development • Key mechanism for securing funding for projects. • Helps to facilitate: • Internal and external approvals • Accountability for public funds • Recognisedbest practice (e.g. PRINCE2 and MSP) • Repository for information and evidence base • Post scheme evaluation

8. CAF Appraisal Stages Stage 1: Preliminary Appraisal Stage 2: Detailed Appraisal Stage 3: Implementation, Monitoring and Evaluation • Define the Objective • Clarify Scope • Assess Feasibility • Explore Options to Meet Objectives • Analyse Main Options • Financial Appraisal • Economic Appraisal • Risk Analysis • Conclusions • Planning and Design Issues • Evaluation Plan and Proofing • Appendices

9. In the UK, Department of Transport guidance is based on the Treasury’s Five case model approach Shows whether schemes: Are supported by a robust case for change that fits with wider public policy objectives – the ‘Strategic Case’ Demonstrate value for money – the ‘Economic Case’ Are commercially viable – the ‘Commercial Case’ Are financially affordable – the ‘Financial Case’ Are achievable – the ‘Management Case’

10. CAF emphasises optioneering… CAF Appraisal Criteria Quantitative & Qualitative Qualitative

11. …. the economic appraisal • Why? • Externalities: • Some costs are not borne by the user directly, but impact societye.g. pollution • Public Good: • Goods provided to benefit society without profit • Cost-Benefit Appraisal: • Is the solution effective? • Is the solution efficient? • Need a comprehensive measure of benefits for decision making

12. In the standard economic appraisal, time savings usually provide most of the benefits • “Non-standard” benefits • Reliability • Driver frustration • Agglomeration • Housing • Health • Heritage • Are they all welfare benefits? • Standard Benefits • Journey Time Benefits • Vehicle Operating Costs • Collision Reduction • Emissions

13. Reliability benefitsReducing uncertainty about trip duration saves time (and stress) • Reducing average journey time is a benefit to travellers • Unpredictable variations in journey time are a separate, identifiable cost • Reducing this Travel Time Variability is a benefit • New Zealand, The Netherlands and UK recognise and measure this benefit based on standard deviation of travel time • AECOM worked with TII to develop and incorporate reliability benefits into PAG Variability in average weekday journey time on the M50 Source: M50 analysis, AECOM for Transport Infrastructure Ireland

14. The improvement in journey time standard deviation represents the reliability benefit Reliability benefitsM50 variable speed limits impact Source: M50 analysis, AECOM for Transport Infrastructure Ireland

15. Reliability benefitsBus journey time example Bus journey time reliability benefits Source: AECOM analysis for National Transport Authority

16. Driver frustration When drivers cannot overtake slower vehicles owing to a lack of passing opportunities, they are likely to become frustrated. This can lead to an increase in unsafe overtaking manoeuvres which can lead to collisions Source: Experimental and Stated Preference study of the factors that influence driver frustration on the A9, Neale Kinnear and Shaun Helman, TRL, Paul Murphy and Joanne Casey, AECOM, Judith MacDonald, Transport Scotland

17. Driver frustration benefitsCase study: A9 Scotland • Upgrade of 80 miles of single carriageway along the A9 between Perth and Inverness • £3 billion cost • 18-20 minute journey time savings on a 2 hour journey • Weak case with standard benefits

18. Driver frustration benefitsCase study: A9 Scotland • Primary research on driver frustration lead to monetisation of the benefit of safe overtaking opportunities - dualling

19. Agglomeration benefitsCan we combine Cork and Limerick to work like a city of 300,000? • Agglomeration is a spatial effect: • Firms derive a productivity benefit from locating in close proximity to individuals and firms. • Benefits are the product of: • Labour market interactions • Knowledge spill-overs • Strengthened linkages between suppliers.

20. Agglomeration benefitsCase Study: New York – Classic Krugman Example Origins New York was founded in 1624 – a fur trading settlement for Dutch West India Trading Company. Erie Canal opened in 1825, connecting Hudson River to the Great Lakes, Chicago, Toronto, Detroit and slashing transportation costs of freight (tonne) Buffalo - New York from $100 to $10. The importance of the Canal diminished in the 20th Century due to competition from motorways and railways, but New York continued to grow: Population • 1800: 60,000 • 1850: 590,000 • 1900: 3,802,000 • 1950: 12,296,000 • 2000: 18,900,000

21. Agglomeration benefitsDriven by population mass and key industry types. Practical indication of economic mass Methodology developed by AECOM, Edgar Morgenroth, Dan Graham (Imperial College) for TII measures the impact of transport projects in terms of productivity increases. It uses the concept of “effective density” and monetises the agglomeration benefits. The scale of the benefits depends on population mass and the existence of certain types of industry. • Map shows where people live in relation to employment in one of the major urban areas. Source: AECOM analysis, 2016 POWSCAR data

22. Housing benefits: UK practice In July 2017, the UK government published its Transport Investment Strategy (TIS) which sets out four main objectives which DfT investment decisions should focus on: • Create a transport network that works for users, wherever they live • Improve productivity and rebalance growth across the UK • Enhance our global competitiveness by making Britain a more attractive place to invest • Support the creation of new housing The housing market in the UK is not delivering the homes that people need. The Government’s Housing White Paper set out a range of proposals to boost housing supply and create a more efficient housing market and transport investment should support this.

23. Housing benefits: UK Housing Infrastructure Fund (HIF) Housing Infrastructure Fund (HIF) £5.5 billion to local authorities for infrastructure to unlock housing - target up to 650,000 new homes Marginal Viability Funding: to provide the final or missing piece of infrastructure funding to get additional sites allocated or existing sites unblocked quickly Forward Funding: strategic and high-impact infrastructure projects

24. Housing benefits: UK Housing Infrastructure Fund (HIF) Ministry of Housing, Communities and Local Government assess bids with support from the Department for Transport. A key change in the last few years in appraising transport schemes in context of unlocking homes is updated MHCLG Appraisal guidanceand DfTAppraisal guidance Benefits considered in HIF bids • Monetised housing benefits: Land Value Uplift (LVU), including additionality adjustments (deadweight and displacement) and using site-specific residential land values • Monetised external housing impacts: housing impacts not already captured in LVU, e.g. environmental impacts, transport impacts, health impacts (affordable housing) • Monetised infrastructure impacts (plus ‘other’): impacts of the infrastructure itself (not already captured in LVU), e.g. transport impacts • Other / non-monetised impacts

25. Housing benefits: issues with inclusion in the economic appraisal Drawbacks Can lead to favouring investment on areas with high property values What happens to land values elsewhere? Rising property values isn’t necessarily a good thing! Can double counts the other benefits Increase in the value of land or existing property is not a socio-economic or benefit Can confuse economic impact with welfare impact On one hand It helps transport authorities, local authorities and other public sector bodies to understand how transport investment increases land or property values – for negotiation with developers on contribution. Although reliance on third party contributions can create additional priority risk and can skew prioritisation of investment

26. Health benefits: UK innovation in discounting Health Impacts In 2018 the guidance was updated to apply a 1.5% discount rate for health impacts • Quality Adjusted Life Years • Removes the ‘wealth’ component of the standard discount rate • Basis that the welfare or utility associated with additional years of life will not decline as real incomes increase. • Infrastructure or interventions that improve health outcomes produce higher net present values of benefits, all else being equal. • DfT’s active mode appraisal toolkit (2019) now applies the 1.5% discount rate in assessing the health impacts of schemes that affect walking and cycling (non-health impacts are still discounted at 3.5%). Green Book sets out a discount rate of 3.5%, consisting of two components: • Time preference (preference for value now, all else being equal) • Wealth preference (assumes increase in per capita consumption, with future consumption having a lower utility)

27. Might the same rationale be extended to impacts relating to climate change, biodiversity etc. ? • “The effects of GHGs emitted today will be felt for a very long time. That makes some form of evaluation or aggregation across generations unavoidable. The ethical decisions on, and approaches to, this issue have major consequences for the assessment of policy.” Stern Review • 2006 Stern Review on the Economics of Climate Change estimated a relatively low discount rate (on average 1.4%) in the calculation of the possible economic damage caused by future climate change • The determination and application of discount rates in general is subject to some uncertainty, argument and controversy – see feedback to the Stern report and Cost-Benefit Analysis, Environment and Climate Change, NESC, November 2018

28. Heritage benefits: Stonehenge example • In December 2014, the Department for Transport committed to building a tunnel of at least 2.9 kilometres beneath the World Heritage Site at Stonehenge. • Since increased to 3.3 kilometres following public consultation and discussion with heritage stakeholders. • The expected range of costs is £1.5 billion to £2.4 billion • Upgraded road section to be open to traffic by December 2026. • Objectives: • To reduce congestion along the A303 between Amesbury and Berwick Down in Wiltshire • To improve the setting of the World Heritage Site • In combination with other projects along the route, to support economic growth in the South West of England. https://www.youtube.com/watch?v=BB6PDa-DuWc&feature=youtu.be https://www.youtube.com/watch?v=BB6PDa-DuWc&t=2s

29. Heritage benefits: Stonehenge example

30. Heritage benefits: Stonehenge example • National Audit Office • Significantly lower benefit–cost ratio than usual in road schemes. • “Given our experience of cost increases on projects of this kind, this ratio could move to an even lower or negative value” • Important to ensure that the project meets its strategic and heritage objectives, and that Highways England manages the project well • UK Government commitment to the Scheme • Appropriate to appraise the heritage impacts in valuing the scheme benefits • Uncertainty in the assessed benefits   • Work in alternatives and refining the design to achieve consensus commended Economic appraisal Benefit cost ratio of 1.15:1 75% of the benefits are heritage benefits Cost Costs increased but the scheme has the support of the heritage organisations Previous attempts to construct a tunnel at Stonehenge have been cancelled due to escalating costs and disagreements between stakeholders.

31. More practical matters: is it affordable? Issues with costs • Requirement for cost certainty • Pre-commitment to projects by Government What will it cost? Is it affordable? Where is the funding coming from?

32. More practical matters: does it work commercially? • Specification • Procurement strategy • Sourcing options • Payment mechanisms • Pricing framework and charging mechanisms • Risk allocation and transfer • Contract length • Human resource issues • Contract management

33. More practical matters: it is going to be properly managed? Is it deliverable? Will it deliver its benefits? Can costs be controlled • Evidence of similar projects • Programme/project dependencies • Operational aspects • Governance, organisational structure and roles • Programme/project plan • Assurance and approvals plan • Communications and stakeholder management • Programme/project reporting • Implementation of work streams • Contract management • Risk management strategy • Benefits realisation plan • Monitoring and evaluation • Contingency plan

34. Thank You derval.cummins@aecom.com 20 June 2019