Why reform transport prices? An overview of European transport infrastructure charging policy and research Chris Nash, Bryan Matthews and Batool Menaz Institute for Transport Studies, University of Leeds

Outline 1.Introduction 2.Development of the Commission’s policy 3.Research into the principles of transport pricing 4.Criticisms of the approach 5.Studies of existing pricing practice 6.The implications of implementing the recommended policy 7.Problems in implementation

Development of EC Policy 1.Green paper “Towards fair and efficient pricing in transport” (CEC, 1995) 2.White paper “Fair payment for infrastructure use” (CEC, 1998) 3.White paper on Transport Policy (CEC, 2001) 4.Directive on Rail Infrastructure charges (2001/14) 5.Proposal to amend Directive 1999/62/EC on the charging of heavy goods vehicles

marginal social cost demand p* price volume q*

Marginal Social cost of Transport Infrastructure Use 1.Cost imposed by additional use on the infrastructure provider (mainly maintenance and renewals). 2.Marginal cost imposed on other infrastructure users, in terms of delays, congestion, accidents and opportunity costs. 3.Cost imposed outside the transport system: mainly environmental cost, but also some elements of other costs such as accidents.

Criticisms of the EC Approach a)Measurement is complex b)Equity is ignored c)Dynamic effects, including investment decisions and technology choice, are ignored d)Financing issues are ignored e)Institutional issues are ignored f)Price distortions elsewhere in the economy are ignored g)Administrative costs

The existing situation I 1.Road transport. Generally vehicle owners pay an annual fixed sum plus fuel tax. 2.Otherwise urban roads remain unpriced, (exception three Norwegian cities, London) 3.Some countries have supplementary tolls on motorways, or require purchase of a vignette. 4.Generally long distance public passenger transport, freight transport by all modes, ports and airports operated on a commercial basis.

The existing situation II 5.Switzerland distance based HGV charge in Germany proposes to introduce a distance based HGV toll for the use of Germany motorways in November Britain proposes to implement a distance based toll for the use of the entire UK road network in 2006.

Implications of marginal cost pricing Urban areas 1.Oslo: the car traffic reduction is estimated as 8-10% 2.Singapore: 15% reduction in overall traffic levels 3.London: average reduction of traffic of 17% in the first 8 weeks of the scheme

PETS models Changes in passenger prices (ECU/100 passenger km) (change compared to 2010 base situation) Case StudyCost Est.Car (2010)BusTrainAir Cross Channel Low High FinnishLow High Oslo-GothLow High LisbonLow High Source: PETS project results

PETS models Changes in passenger demand (% change compared to 2010 base situation) Case study Cost Estimates CarBusTrainAirTotal Cross Channel Low High FinnishLow High Oslo- Goth Low High _ LisbonLow High Source: PETS project results

PETS models Changes in Freight Prices (ECU/100 tonne km) (change compared to 2010 base situation) Case StudyCost Estimates HGVTrain Cross ChannelLow High FinnishLow High TransalpineLow High Source: PETS project results

PETS models Changes in Freight Demand (% change compared to 2010 base situation) Case StudyCost EstimatesHGVTrain Cross ChannelLow High FinnishLow High TransalpineLow High Source: PETS project results

Implementation issues - roads 1.Need to consider policy packages 2.Need to give consideration to how revenues are spent 3.Need to adopt a phased approach to implementation a)Road pricing in congested areas b)Reform charges for commercial vehicles, and particularly heavy goods vehicles

Implementation issues - rail For rail, implementation is easier 1.Problem of measuring congestion and scarcity costs 2.Marginal social cost well below average cost 3.Second best 4.Dynamic incentives

Conclusion (1) 1.Adoption by the Commission of the simple rule of marginal cost pricing is remarkable 2.In reality, complexities inevitably crowd in Institutional issues Budgetary issues The problems of equity The trade off between accuracy and complexity Phasing

Conclusions (2) In practice –the rail Directive takes marginal social cost as its base but allows for many exceptions –The proposed Road Directive takes average infrastructure and external accident costs as its base but allows differentiation according to environmental and congestion costs –No framework Directive covering all modes has yet been published.