guide2008_en

Non-market goods

Some goods that have no market will be given great importance in the economic evaluation of transport infrastructure projects, i.e. the value of time, the environmental effects, the value of avoided accidents.

The value of time: time benefits often represent the most important element of a transport project benefits. Some European countries provide the evaluators with national estimates of the time value by purpose and sometimes by mode, in particular for passengers. In the absence of these reference estimates, it is possible to derive the values of time from the users’ actual choices, or to re-adjust and to re-weight the estimates from other studies on the basis of income levels.

With a few exceptions, the time value of goods transport is generally low and it should be calculated on the basis of the capital lock-up.

In general, since the values attributed to time are critical, the recommendation is to clearly report the values of time adopted and to check for consistency between the values used in the demand estimate and the ones used in the evaluation.

The passengers’ value of time generally distinguishes between trip purposes, and in some cases transport modes, and is largely dependent on income. The value of non-working travel time (including homework commuting) vary, in most countries, from 10% to 42% of the working time value. Savings in non-working travel time typically account for a large proportion of the benefits from transport investments.

Environmental externalities generally depend upon the travel distances and exposure to polluting emissions (except for CO2, which is a ‘global’ pollutant). In order to monetise the environmental effects, in the absence of local values, it is possible to apply the shadow prices inferred from the scientific literature (‘benefit transfer approach’, see Annex F) to the physical estimates of pollutants. The methods, which are intended to evaluate the external costs related to the prevention of accidents, will be referred to the average danger levels according to transport mode. For example, with respect to road traffic, the average cost by vehicle-km or by passenger-km is generally calculated on the basis of the costs of all road accidents.

DIVERTED TRAFFIC WELFARE CHANGES

The welfare changes of diverted traffic should consider whether there is a modal shift or not:

-when the diversion is between different routes but within the same transport modes, as in the motorway case study, the benefits are estimated on the basis of the changes in total users costs, and the new and the existing links are considered as perfect substitutes;

-when the diversion is between different modes, as in the railway case studies, the benefits are estimated on the basis of the change in surplus of the two markets, road and rail. It is important to note that the relevant prior generalised cost against which the change in travel costs is assessed, are those for the mode to which users have switched, not the costs associated with the mode used in the BAU scenario. In the case of a totally new infrastructure the measurement of the benefits depends on the nature of the new mode, its placement in the mode hierarchy and transport network and should be derived from the users’ willingness-to-pay.

In case no local values are available, the HEATCO11 study can provide default values for the most relevant non-market goods. Another relevant source for ranges of values is the recently completed handbook on estimation of external costs in the transport sector within the study IMPACT.12

11HEATCO project (URL: http://heatco.ier.uni-stuttgart.de/).

12http://ec.europa.eu/transport/costs/handbook/index_en.htm

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Table 3.3 HEATCO estimated values for casualties avoided (€2002 Purchasing Power Parity, factor prices)

Source: HEATCO, Deliverable 5 (2004); JASPERS for Bulgaria and Romania.

Economic impact assessment

Transportation projects may have an impact on the economic structure of the regions. This is a controversial issue from the theoretical viewpoint and the only conclusions that seem to be universally acknowledged are that the impacts can be both positive and negative. In the presence of market distortions, the increased accessibility of a suburban area or region may result in a competitive advantage, but also in a loss of competitiveness if the industry is less efficient than in the central regions. In this case, the increased accessibility may force the local industry to go out of business. It is therefore necessary to proceed with great caution when assigning these kinds of benefits to the project and, in any case, they should be excluded from the calculation of profitability indicators.

The routine procedure for evaluating these benefits in terms of an income multiplier/accelerator might be seriously biased. Actually, these multipliers may be applied for any public expenditure. It is therefore necessary to calculate the differential between the multiplier for the investments in the transportation sector and the multiplier for other sectors. This is a method that does not appear to be advisable, except for some special cases.

In any case, if there are no major distortions in the transport-using sectors, i.e. markets are reasonably competitive, the use of transport costs and benefits (costs and time savings, externalities, etc.) could be considered an acceptable approximation of the final economic impact of the transport projects.

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One of the key values is the expected time saving. Evidence from case studies14 shows that when the base case is a conventional line (with operating speed of 190 km/h for distances on the range of 350-400 km) a typical HSR yields 45-50 minutes savings. Compared with a conventional train running at 160 km/h, a high speed train will save some 35 minutes on a journey of 450 km. Where the existing infrastructure is of poorer quality or is congested, the time savings may be substantially greater. Additional capacity is only of value if demand is exceeding the capacity of the existing route. Where the effect is to divert traffic from other modes, the benefits are given by the net user benefits plus net reduction in externalities minus the net cost of the change of mode. There is also clear evidence that running rail infrastructure less close to capacity benefits reliability; it may also lead to less overcrowding on trains. Generated traffic leads directly to benefits for users, which are generally valued at half the benefit to existing users according to the ‘rule of half’.

There has been much debate as to whether there are wider economic benefits that are not captured in a traditional cost-benefit analysis. The conclusion is that HSR may yield additional benefits, although the effects are extremely variable and difficult to predict and are likely to be much less important than the direct transport benefits of HSR.

Economic net present value

The case for building a new HSR infrastructure depends on its capacity to generate enough social benefits to compensate for the high construction, maintenance and operation costs. Whether HSR investment is socially profitable depends on local conditions, which determine the magnitude of costs, demand levels and external benefits such as reduced congestion or pollution from other modes. Given the costs, the expected net social benefit of the investment in HSR relies heavily on the number of users and its composition (diverted and generated passengers), and the degree of congestion in the corridor affected by the investment. HSR projects require a high volume of demand with a high willingness-to-pay for the new facility.

Figure 3.1 reports the minimum level of demand from which a positive economic net present value could be expected when new capacity does not provide additional benefits beyond time savings from diverted and generated demand.

Figure 3.1 First year demand required for ENPV=0 (α=0.2, θ=3%)

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The time horizon for project analysis is usually around 30 years.

Investors and operators may be different, so the financial analysis will generally be conducted from the viewpoint of the infrastructure owner. If required, the analysis may initially be carried out separately for the owners and operators and then in a consolidated way.

3.1.3.5Economic analysis

The main benefits and costs are as follows:

3.1.3.6 Risk assessment

Critical factors

-Transport demand

-Investment and operating cost overruns

-Coordination with complementary projects (investments on the connecting links)

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3.2.1.1Project objectives

The general objectives are usually related to local and regional development and environmental management. Specific objectives involve:

-the development of a modern local and regional waste management sector;

-the reduction of health risks linked to an uncontrolled management of municipal and industrial waste;

-the curbing of raw material consumption and the planning of the final phases of material production and consumption cycles;

-the reduction of polluting emissions such as water and air pollutants;

-innovation in technologies for waste collection and treatment.

To highlight the general and specific objectives, the project should define carefully the following characteristics:

-the population covered by the projects, tons of waste collected and treated by type of waste (hazardous waste, municipal waste, packaging waste);

-type of technologies implemented (methods of treatment);

-economic impacts on the local economy (in terms of revenues and employment17);

-risk reduction due to the implementation of the waste management strategy;

-savings in raw material consumption (such as, for example, metal and metal compounds, reclaimed and/or regenerated solvent, glass, plastics, fuel and other products of recovery operations18);

-reduction in air, water and soil pollutants and types of environmental damage to soil and groundwater avoided.

3.2.1.2Project identification

Typology of the investment

The main types of waste management facilities are19:

-investments in facilities for the collection, temporary storage and recycling of waste (whether collected separately or not), such as municipal collection centres;

-compost production facilities;

-investment in facilities for physical and chemical treatments, such as oil waste treatment facilities;

-household and industrial waste incineration plants and incinerators (with or without combined heat and power);

-landfill sites.

A map of the plant proposed will be attached to the project for a better comprehension of the local economic and environmental impacts. Some information on the area covered by the waste collection will also be included. In addition, data are needed on the origin of waste: local, regional, national or country of origin (for waste imported from another European or non-European country).

17While, obviously, this is not a primary objective of the project.

18Annex II B of the Directive 2006/12/EC of the European Parliament and of the Council of 5 April 2006 on waste lists the recovery operations as they occur in practice.

19See also the aforementioned Annex II A of the Directive 2006/12/EC.

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Figure 3.2 Waste management systems from waste source to final disposal or removal

Biological treatment Recycling

facility

Regulatory framework

The project selection process will comply with general and specific legislation on waste management and with the principles, that guide the EU’s policy in the sector (see box).

The main principles are:

-the Polluter Pays Principle (PPP)20: implies that those who cause environmental damage should bear the costs of avoiding it or compensating for it. For the project, attention will be paid to the part of the total cost which is recovered by charges supported by polluters (the holders of waste).

LEGISLATIVE FRAMEWORK

Waste framework

-Hazardous Waste Directive (Council Directive 1991/689/EEC as amended by Council Directive 1994/31/EC) and by Commission Decision 2000/532/EC

-Directive on environmental liability with regard to the prevention and remedying environmental damage (European Parliament and Council Directive 2004/35/EC)

-Directive on Waste (European Parliament and Council Directive 2006/12/EC)

Specific Waste

-Disposal of waste oils (Council Directive 1975/439/EEC)

-Protection of the environment, and in particular of the soil, when sewage sludge is used in agriculture (Council Directive 1986/278/EEC)

-Directive on batteries and accumulators and waste batteries and accumulators and repealing Directive 1991/157/EEC (European Parliament and Council Directive 2006/66/EC)

-Packaging and packaging waste (Council Directive 1994/62/EC as amended by European Parliament and Council Directive 2004/12/EC)

-The disposal of PCB/PCV (Council Directive 1996/59/EC)- Directive on end-of life vehicles (Council Directive 2000/53/EC)

-Directive on waste electrical and electronic equipment (WEEE) (European Parliament and Council Directive 2002/96/EC as amended by European Parliament and Council Directive 2003/108/EC)

-Directive on the management of waste from extractive industries and amending Directive 2004/35/EC (European Parliament and Council Directive 2006/21/EC)

Processes and facilities

-Reduction of air pollution from existing municipal waste-incineration plants (Council Directive 1989/429/EEC)

-Reduction of air pollution from new municipal waste-incineration plants (Council Directive 1989/369/EEC)

-Incineration of hazardous waste (Council Directive 1994/67/EC)

-Directive on the landfill of waste (Council Directive 1999/31/EC)

-Directive on port reception facilities for ship-generated waste and cargo residues (European Parliament and Council Directive 2000/59/EC)

-Directive on the incineration of waste (European Parliament and Council Directive 2000/76/EC)

Transport, Import and Export

-Rules on shipments of waste (European Parliament and Council Regulation (EC) No 1013/2006 as partially amended by European Parliament and Council Regulation (EC) No 1379/2007 and by European Parliament and Council Regulation (EC) No 1418/2007)

waste collector or by an undertaking as referred to in Article 9 and/or (b) the previous holders or the producer of the product from which the waste came» (Art. 15, Directive 2006/12/EC).

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