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Pricing relevance of external costs calculation: recent results

Understand the importance of external costs in pricing, recent EU study results, MSC-based pricing, charge derivation, and implications of the EU directive. Explore MSC pricing, charge scenarios, and conclusions on pricing practices.

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Pricing relevance of external costs calculation: recent results

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  1. International Symposium on Road Pricing Key Biscayne - November 19-22, 2003 Pricing relevance of external costs calculation: recent results Andrea Ricci - ISIS Istituto di Studi per l’Integrazione dei Sistemi aricci@isis-it.com www.isis-it.com Ricci, 20 November 2003

  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 Ricci, 20 November 2003

  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) Ricci, 20 November 2003

  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 => knowledge of real (social) costs, including externalities • priority to HGV • Evidence from EU projects • RECORDIT (HGV) • UNITE Ricci, 20 November 2003

  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 Ricci, 20 November 2003

  6. MSC pricing Existing situation Marginal external costs Social charge Taxes Marginal infrastructure costs Infrastructure charges Derivation of charge Social charge = Marginal external costs - Taxes - Net infrastructure payments Ricci, 20 November 2003

  7. Genova - Manchester Ricci, 20 November 2003

  8. Barcelona - Warsaw Ricci, 20 November 2003

  9. Air pollution costs (€cents/v.km) 0 6.5 13.0 19.5 26.0 32.5 39.0 45.5 52.0 UrbanRoad 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 Ricci, 20 November 2003

  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 Ricci, 20 November 2003

  11. 0 4.3 8.5 17.0 34.0 67.5 135.0 270.0 540.0 Urban Urban areas Interurban Passengers cars Freight UNITE CASE STUDIES OTHER STUDIES Congestion costs (€cents/v.km) Ricci, 20 November 2003

  12. Taxes & charges Ext. costs Extra charge Amsterdam- NL 44,9 22,6 22,2 Roosendaal Roosendall- B 31,3 15,3 16,0 Lille Lille- FR 25,0 -1,7 26,6 hendaye Hendaye- ES 67,6 40,9 26,8 Bilbao Sensitivity to situational factors Amsterdam - Bilbao Ricci, 20 November 2003

  13. Sensitivity to situational factors Amsterdam - Bilbao Taxes & charges Ext. costs Extra charge Amsterdam- NL 44,9 22,6 22,2 Roosendaal Roosendall- B 31,3 15,3 16,0 Lille Lille- FR 25,0 -1,7 26,6 hendaye Hendaye- ES 67,6 40,9 26,8 Bilbao However, on the “Paris” section (ca. 80 km): Paris FR 52,3 39,3 13 section Ricci, 20 November 2003

  14. Charge derivation at country level (MSC based) Ricci, 20 November 2003

  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) Ricci, 20 November 2003

  16. Charge simulation: S1 Vs S2 Ricci, 20 November 2003

  17. Charge simulation: the 3 scenarios Ricci, 20 November 2003

  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 Ricci, 20 November 2003

  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@isis-it.com Ricci, 20 November 2003

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