Case study Oslo: PT optimisation under different rules for revenue use

1. REVENUE final conferenceBrussels29th - 30th November 2005 Case study Oslo:PT optimisation under different rules for revenue use Jon-Terje Bekken Institute of Transport Economics, Oslo

2. Based on 3 different analyses • Process evaluation • The context of toll roads in Norway • The political compromises behind them • Acceptability analysis • Attitudes among citizens • SP analysis of politicians and planners • Model scenarios • Optimal packages • Restrictions on revenue use

3. Process evaluation • What are the characteristics of the contents and the organisation of the packages? • What are the impacts of the organisation of the packages on the political goals and priorities in the region?

4. Summary of process evaluation The most important findings from the process evaluation: • There are strong restrictions on Revenue use: • Modes • Regions • Earmarking of revenue necessary for a political compromise • All participants have a right to veto the proposed schemes • focus is kept on positive measures • “fair” regional distribution of the revenue

5. Acceptability • Acceptability among the voters • No case for a referendum • Preferences among decision makers • Politicians focus on acceptability and compromises • Administration propose schemes with focus on efficiency?

6. Acceptability of the Oslo packages - population

7. Average score 0 1 2 3 4 5 6 7 8 9 3.9 Increased road tolls Politicians 5.8 Administration Increased tolls in rush hour 3.8 5.8 3.4 Reduced parking in city centre 5.4 3.3 Increased parking fees in city centre 5.2 3.4 Car free city centre 4.10 6.6 Increased frequency 6.8 6.1 Reduced fare 6.1 The probability to recommend different measures

8. Preferences among politicians and administration General findings: • Support for the package approach • Important with central Government funds • Inconsistency between expected effect of measures and recommendations • Politicians sceptical towards restrictive measures – opposite with administration How to find a political acceptable package

9. Summary acceptability The most important findings from the acceptability surveys were: • The attitude towards the toll ring increasingly positive over time. • The public acceptance of a prolongation of the toll ring is strongly dependent on the revenue use (earmarking) • The administrative level is more likely to recommend restrictive measures compared to the political level. • Both the political level and the administrative levels are more positive towards packages compared to the public. • It is important that the central Government also contributes to the packages for the actors to agree.

10. Model scenarios • Scenario A/Oslopackage 1: Low toll fare (1 euro) Fixed subsidy level for public transport and fixed capacity constraints in the peak period. • Scenario B/Oslo package 2: Additional toll fare (+0,25 Euro) and PT fare (+0,1 euro) targeted on capacity increase in peak period. Fixed subsidy level but flexible capacity in the peak period. • Scenario C/Oslo package 3: SMCP (around 4 Euro) and optimal subsidy level for PT in the region.

11. Revenue use

12. OPTIMIZATION MODEL: • Socio-economics • Business economics PT Trips Initial • External conditions for the transport market • Population/demography • Costs of car use and parking • PT fares and service provision • Income level • Urban sprawl/density Socially effective • Optimized factors: • Service provision and fares • Level of subsidy • Demand for PT and car traffic Car journeys Initial The relationship is based on a UITP database with additional cities Market effective Max W= (ticket revenue-operating costs) + user benefits - external costs Car ownership Initial Production effectiveness Exogenous framework conditions Optimization FINMOD • Framework for optimization • Degrees of freedom for optimization • Restrictions on revenue use

13. 60 % 50 % 40 % 30 % 20 % 10 % Relative differences in fares from Oslo package 1 0 % -10 % -20 % -30 % MC car 4,26 MC car 0 25%mcpf MC car 0 15%mcpf 25%mcpf Capacity peak non-capacity peak Off peak SMCP for PT – change in fare level No constraints on revenue use

14. 200 % 150 % 100 % 50 % 0 % Relative differences from Oslo package 1 -50 % -100 % MC car 4,26 MC car 0 25%mcpf MC car 0 15%mcpf 25%mcpf off peak frequency peak frequency Off peak vehicle size Additional peak vehicle size SMCP for PT – optimal revenue use No constraints on revenue use

15. No constraints on revenue use 250 200 173 157 150 123 100 Changes from Oslo package 1 ( mill €) 50 0 -16 -50 -100 -101 -115 -150 MC car 4,26 25%mcpf MC car 0 25%mcpf MC car 0 15%mcpf Profit Passenger benefit External benefit Total social benefit SMCP for PT – costs and benefits

16. Fixed total subsidy 160 % 146 % 145 % 134 % 140 % 120 % 100 % 80 % 57 % 60 % 44 % 43 % 27 % 40 % 21 % 21 % Relative differences from Oslo package 1 13 % 13 % 20 % 0 % No transfers between Transfers between Transfers between -20 % modes modes allowed modes, Internal optimisation Fare level Capacity peak (euro/trips) Off peak Network km (1000/hour) off peak Network km (1000/hour) peak SMCP for PT - with restrictions on revenue use

17. 250 % 200 % 150 % 100 % 50 % 0 % Bus Tram Metro Bus Train Average -50 % Oslo city Akershus region All modes -100 % fare level capacity peak fare level off peak frequency peak Total number of trips SMCP for PT – Optimal allocation of revenue on different modes

18. Summary of optimisations • Oslo package 2 • a total social benefit of 211 mill euro compared to Oslo package 1 and • 10 percent more PT passengers • Oslo package 3 • a total social benefit of 322 mill euro compared to Oslo package 1 and • 33 percent more PT passengers • The SMCP of PT • should reduce the capacity peak fare level under the toll fare regimes of Oslo package 1 and 2, • should increase if road pricing were introduced in the toll fare regime of Oslo package 3. • The optimised subsidy level • is 115 mill euro higher in the Oslo package 1 scenario • Is 103 mill euro higher under the Oslo package 2 scenarios, due to the increased toll fare. • If road pricing is introduced (Oslo package 3), there will be no need to increase PT subsidies.

19. Summary of optimisations (2) The main points to draw from the model scenarios of Oslo in terms of welfare are: • There are social benefits from increased subsidies for PT (Oslo package 2) • There are only small benefits from allowing transfers of revenue between the different modes and regions • Oslo package 2 is a step in the right direction, but only a small improvement compared to Oslo package 1. • A road-pricing scheme is superior to the other scenarios • The result from the scenarios is very sensitive to the level of MCPF (marginal cost of public funds). The result is also sensitive to the internalisation and the level of external costs associated with car traffic.

20. Overall key points Oslo • The current fare setting regimes of Oslo package 1 and 2 are not based on any first-best pricing rules • The estimations are sensible of the marginal cost of public funds • Oslo package 2 is a small step in the right direction – compared to Oslo package 1 • There are positive cost benefit ratio from increased subsidies for PT and reallocation between modes. • The road pricing scheme is a “superior scheme” • Earmarking up front necessary to make Oslo package 2 viable • Focus on efficiency after the scheme has been politically accepted