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Developing Harmonised European Approaches for Transport Costing and
Project Assessment(HEATCO)
Project Presentation at Osservatorio Valle di Susa
Torino, November 6th 2007
Dr. Peter BickelIER, Universität Stuttgart
The consortium
Sudop Sudop Praha a.s., CZHerry Herry Consult GmbH, AT
NTUA National Technical University of Athens, School of Chemical Engineering, GR
EIT Universidad de Las Palmas de Gran Canaria, Departamento de análisis económico aplicado, ES
BUTE Budapest Univ. of Technology and Economics, Dept. of Transport Economics, HU
VTI Statens Väg- och Transport-forskningsinstitut (VTI), SE
Ecoplan Ecoplan, Economic Research and Policy Consultancy, CH
ISIS Istituto di Studi per l’Integrazione dei Sistemi (ISIS), IT
E-CO E-CO Tech as, NOCOWI Cowi A/S, DK
TNO TNO Inro, NLITS University of Leeds, Institute for Transport Studies (ITS), UK
UBath University of Bath, Dept. of Economics and International Development, UK
IER Universität Stuttgart, Institute of Energy Economics and the Rational Use of Energy (IER), DE
Project structureW
P1 C
oord
inat
ion WP3 Analyse existing practice
WP5 SurveysWP4 Develop harmonised guidelines
WP6 Case studies
WP2
Sup
port
Con
sens
us
WP1
Coo
rdin
atio
n WP3 Analyse existing practice
WP5 SurveysWP4 Develop harmonised guidelines
WP6 Case studies
WP2
Sup
port
Con
sens
us
Stakeholder Involvement• Organisation of two stakeholder workshops held in Brussels
on April 14th 2005 and March 30th 2006Usefulness of harmonised guidelines was generally acknowledgedNeed for transparency: report impacts and costs, do sensitivity analysis to explore uncertaintiesSome issues require further research (e.g. valuation of reliability)HEATCO guidelines complement RAILPAG guidelines
• Results of discussions and feedback guidelines• In a conference on May, 17th 2006 in Brussels the final
version of the guidelines was presented.
All information is available on the HEATCO webpagehttp://heatco.ier.uni-stuttgart.de
Existing practice: valuation of accident fatalities
LVLT
SK
HU
CZPT
ES
IT
DE
FR-road
FI UK
CH
NL
DK
SE
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
35 45 55 65 75 85 95 105 115 125 135
GDP/Capita in EUR2002, EU25-PPS
Mill
ion
EUR
2002
, EU
25-P
PS p
er fa
talit
y
FR
Main focus of harmonised guidelines
• General Issues
• Value of Time and Congestion
• Accident Risks
• Environmental Costs
• Costs and Indirect Impacts of Infrastructure Investment
General issues I
• Cost-benefit-analysis should be usedExpress impacts in monetary terms. For most non-monetary impacts the ‘willingness to pay’ approach is recommended
• Impacts, that currently cannot be monetised, should be reported in addition – however the guidelines focus on monetisable impacts
• Recommendation: minimum approach + suggested additions• Regular update of guidelines recommended• Use of “local” values (except trans-boundary impacts)• Use of factor costs (market price minus indirect taxes), price base
€2002, changes of real values for future years, purchasing power parity exchange rate
• Discounting: average of risk premium-free rates used in national transport project appraisal in countries affected (3% for sensitivity)
General issues II• Decision criteria: depending on context
- NPV (net present value)- BCR (benefit cost ratio)- RNPSS (ratio of NPV and public sector support)- FYRR (first year rate of return) – optimal opening year
• Project appraisal evaluation period: default 40 years (incl. residual effects); actual length if shorter project lifetime
• Uncertainty: sensitivity or scenario analysis; if resources and data available: Monte-Carlo simulation analysis
• Equity: at minimum present “winners and losers” table• Indirect socio-economic effects: if likely to be significant use
economic model; if out of scope do qualitative assessment
• Fall-back values provided for use in absence of local data• Congestion:
- minimum: inclusion of increased travel times- more sophisticated: inclusion of reliability and overcrowding
• Inter-temporal elasticity of 0.7 (sensitivity 1.0)
Value of time and congestion
€/tonne-hr or€/vehicle-hr
Mode(road, rail, sea, waterway, air)
Commercial Goods traffic
€/person-hr or€/vehicle-hr
NonePassenger – non-work
€/person-hr or€/vehicle-hr
NonePassenger – work (includes driver)
UnitsMinimum disaggregationTrip category
Accident risks
• Impacts considered:- fatality- serious injury- slight injury- material damages
• Cost components:- value of safety per se (WTP)- direct costs (medical etc.)- indirect costs (lost production potential)
• Correct risks for underreporting (if based on accident statistics) – e.g. fatalities * 1.02
• Fall-back values provided
Environmental costs
Categories covered with monetary values:• Air pollution (health, agricultural crops, man-made material)• Noise (health, annoyance)• Climate change (greenhouse gases: CO2, nitrous oxide
(N2O), methane (CH4), …)
• Value impacts, not pressures• Fall-back values provided
Impact Pathway ApproachPhysicalImpacts
Transport andChemical
Transformation
MonetaryValuation
PollutantEmission
Infrastructure costs
• Capital costs for the infrastructure project• Residual value • Optimism bias• Running costs:
- Costs for maintenance, operation and administration- Changes in infrastructure costs on existing network
Infrastructure costs – optimism biasTendency to underestimate construction costs• Cost escalation occurs in almost nine out of ten projects• Actual costs on average are 28% higher than estimated/forecast costs• Cost overrun seems to be a global phenomenonRecommendation• Make side-analysis, where optimism-bias uplifts are applied• If feasible continue appraisal• If not feasible
- Benchmark cost estimates to realised costs of similar projects- Justify why cost estimates are lower- Revise construction cost estimate
Why 'only' side analysis?• Complex issue• Part of uplifts can be attributed to benefit-generating improvements
Overview case studies
Fehmarn Belt fixed linkTransnational (DK/DE)Road, rail, passenger + freightStatus: planning stage
A120 Stansted – BraintreeNational, improvement of accessRoad, passenger + freightStatus: in operation
Bussoleno-Torino rail linkNational, new freight rail link Rail freightStatus: planning stage
Skarfia, part of Pathe routePart of south – north road link Road, passenger + freightStatus: under construction
General assessment framework I HEATCO UNITED KINGDOM DENMARK GREECE ITALY Appraisal period
Planning and con-struction + 40 years
60 years 50 years No official guidelines
Planning and construction + 40 years
Discount Rate National values of risk premium-free rate and sensitivity testing at 3%.
3.5% for the first 30 years, 3.0% for the remaining 30 years
6% DK 3% D = 4.5% Project
3% not defined, but commonly used
5%
Unit of account Factor Costs Market prices Market prices No official guidelines
Market prices. shadow prices
Currency
Euro GBP Euro Euro Euro
Marginal costs of Public Funds
MCPF = 1 and use a cut-off value of RNPSS = 1.5
MCPF =1 (all UK) (RNPSS = 1.5 in England only)
20% shadow prices
No official guidelines
Not considered
Scenario Definition
Reference scenario as “do-minimum”
Reference scenario as “do-minimum”
Reference scenario as “do-nothing”
No official guidelines
Reference scenario as “do-nothing”
Decision criteria
NPV, BCR, RNPSS NPV, BCR NPV, BCR, IRR No official guidelines
NPV, IRR
Treatment of future risk and uncertainty
Sensitivity analysis at a minimum, Monte Carlo simulations as a more sophisticated approach.
UK provides less prescriptive advice and just recommends undertaking a risk analysis.
The robustness of the result was assessed on the basis of a number of sensitivity and risk analyses.
No official guidelines
Sensitivity analysis
General assessment framework II HEATCO UNITED KINGDOM DENMARK GREECE ITALY A i l Pl i d 60 50 N ffi i l Pl i d
pp yEquity issues (inter-generational)
Winners and losers tables at a minimum, distributional matrices as a more sophisticated approach.
Disaggregation of impacts between stakeholders categories and modes to identify winners and losers
No official guidelines.
No official guidelines
No disaggregation of impacts between stakeholders categories.
Treatment of indirect socio-economic effects
Qualitative assessment at a minimum. Use of Spatially Computable General Equilibrium Models when possible.
Framework approach to appraisal based around the five core objectives: environment, safety, economy, integration, accessibility. Wider economic impacts form a sub-objective of the economy objective
Qualitative assessment.
No official guidelines
Not included
Price Base 2002, constant prices, + PPP adjusted prices
2002 2003 2002 Constant prices
Treatment of values over time
Adjustment on the basis of national GDP growth rates (elasticity =1), except for global warming and VTTS (0.7)
GDP growth rates GDP growth rates No official guidelines
Not included
Conclusions – general I
• Need for harmonisation confirmed in workshops and comments received
• Usefulness of guidelines agreed• Starting point for assessment of cross-border
projects• Orientation for countries without established
guidelines• Provision of concrete fall-back values• HEATCO focus: consistent framework for monetary
valuation of benefits + provision of fall-back values
Conclusions – general II
• Broaden the scope of assessment e.g.- include trans-boundary effects of air pollution- noise impacts: survey to allow application of
annoyance functions• Beyond the scope of HEATCO e.g.:
- valuation of journey quality & reliability- accident risk models
HEATCO guidelines are not meant to be static, but open to updates and extension
Conclusions – application of guidelines
• Ex-post application of HEATCO guidelines difficult if required input data
• not provided for original assessment or• not accessible because traffic model not running
under new computer operating systems• Situation should be better for ex-ante evaluation
effects on models (provision of input data driven by HEATCO needs)?
Conclusions – the way forward
• Critical issue: plausibility of input data and assumptions:
- traffic demand- optimism bias
• Address modelling framework- delimitation of analysis- e.g. congestion caused by accidents
• Address important issues- indirect effects- journey quality and reliability, …
