The Economic Evaluation of Transport Projects Seminar Madrid, 15-16 November 2010

1. The Economic Evaluation of Transport ProjectsSeminarMadrid, 15-16 November 2010 Current debates on the cost-benefit analysis of transport projects in Great Britain. Chris Nash Institute for Transport Studies University of Leeds

2. Outline • Introduction • Current British Approach to Transport Appraisal • Optimism Bias • Value of Time • Wider Economic Benefits • Accessibility • Decision criteria • Distribution of costs and benefits • Conclusions

3. New Approach to Transport Appraisal (NATA) 1998 To be applied to all decisions: • Road investment • Public transport investment • Subsidies Move to 3.5% discount rate and 60 year time horizon

4. NATA objectives Environment Economy Safety Accessibility Integration Note. DASTS (2008) replaces accessibility with equality of opportunity and abandons integration

5. Transport Economic Efficiency Table User Benefits (time, operating costs, user charges, delays during construction) Private Sector Provider Impact (revenues, costs, grants and subsidies) Other Impacts Net Business Impact Total

6. Public Accounts Table Local Government Funding Central Government Funding (inc. impact on tax revenues) Total

7. Monetarised Costs and Benefits Table (adds in) Noise Local air quality Greenhouse gases Journey ambience Reliability Interchanges Option Values

8. Appraisal summary table Environment Noise   Local Air Quality Greenhouse Gases   Landscape  Townscape   Heritage of Historic Resources   Biodiversity  Water Environment   Physical Fitness   Journey Ambience  

9. Appraisal summary table CTD Safety Accidents    Security   Economy Public Accounts  Transport Economic Efficiency  Reliability    Wider Economic Impacts  Accessibility Option values  Severance    Access to the Transport System   Integration Transport Interchange    Land-Use Policy   Other Government Policies

10. Valuation of costs and benefits – key issues • Optimism bias • Value of time (esp business travel and small time savings) • Wider Economic Benefits • Accessibility • Decision Criterion • Distribution

11. Risk and OptimismBias Adjustments for Capital Expenditure Source: WEBTAG

12. Value of Time Savings for rail Passengers in the UK Source: DfT: WEBTAG Unit 3.5.6 (www.webtag.org)

13. Wider economic benefitsfrom generated traffic Causes? Agglomeration externalities Imperfect competition in output markets Labour supply Magnitude up to 30% of direct benefits?

14. Crossrail CBA (£mPV) Time savings 12832 Crowding 2889 Other transport benefits 372 Wider economic benefits 7161 Total benefits 23254 Total costs 13902 Less revenues -6149 Plus tax loss 1207 Cost to government 8960 BCR 2.6 (1.8 excl Wider economic benefits)

15. Draft WebTAG guideline Option values for commuter services

16. Decision Criterion and Value for Money NB Negative costs and positive benefits implies high value for money

17. Treatment of distribution Need to forecast final impact of costs and benefits (note - they may be passed on through land prices, wage rates, prices of goods in shops) Then apply weighting system NB Jubilee line extension to Docklands raised property values by £1.5b!

18. Quantitative Significance of Possible Weighting Systems Weights relative to mean income i.e. wi may just reflect differences in MUy or may reflect this and equity weights

19. Conclusions British transport appraisal is state of the art BUT • Problem of estimating costs • Still concerns about value of time • Uncertainty over wider economic benefits • Treatment of accessibility • Issue over capital rationing • Inadequate treatment of distribution • General treatment of uncertainty and robustness