Energy & Environmental Economics - Unibg An... · Users (both –rms and consumers) (Pro–ts and...

Energy & Environmental EconomicsAn example of cost-bene�t analysis: the Turin-Lyon tunnel

Università degli Studi di Bergamo

a.y. 2015-2016

(Institute) Energy & Environmental Economics a.y. 2015-2016 1 / 30

TAV / No TAV ? No

The issue of whether the new Turin-Lyon tunnel-railway line is desirable ornot has been and is a harshly controversial one.The purpose here is not to take a strong stance on the issue, nor toprovide a comprehensive review of all the point of views, which ofteninvolve political and ethical issues far beyond the scope of this course.The purpose is to review an o¢ cial and not at all easily readabledocument, the Quaderno n. 8 issued by Osservatorio per il collegamentoferroviario Torino-Lione (Dec. 2011), which contains the �rst explicitstatement of costs and bene�ts of the Turin-Lyon project, as they wereviewed by the Italian Government (Monti administration), of which theOsservatorio is an operating o¢ ce.


An outline of the project

The new Turin-Lyon railroad line (NLTL) will be 235 Km long and itis part of Lyon-Trieste-Budapest-Ukrainian Border branch of theTrans-Europe Railroad Network

NLTL is meant to replace the existing line ( Frejus line), dating backto the XIX century, but renewed and modernized in a number ofinterventions, also recently.

A key feature of the project is the so called "base" tunnel (57 km)linking Valle di Susa in Italy and the valley of Maurienne in France.�Base�means that the tunnel will be excavated at the level of theplain, to avoid the steep slopes of the old line. This explains thelength of the tunnel.


NLTL had been projected mainly for high-speed freighttransportation, although 200-220 Kmh, the expected speed does notcorrespond to the o¢ cial de�nition of High Speed (>250 Kmh)

The most recent project dates back to 2010. It is divided into twophases: the tunnel would be completed in the �rst one, while the restof the line would be completed later. According to the report (p.25)the most of advantages would depend on the tunnel.


The estimated total cost (the line Turin to Lyon, including the tunnel) is23,6 billions of e which correspond to 1,5% of Italy�s GDP in 2011The estimated cost of the tunnel is 8,5 billions, (Italy�s share is 4,9billions, more or less the same �gure estimated for the Messina bridge), inabout 10 yearsJust to add some term of reference, Italy spends11 billions per year tosupport photovoltaic energy and almost 90 billions in interests on all publicdebt.


The Frejus line

The existing Frejus line has relatively steep slopes (in comparison to theother train crossing places in the Alps) and its heigth on the sea level(1338 m) is the highest after the Brennero.Currently the line can support almost any kind of freight train (containercarriers, truck carriers). However, I realised there is a very technical debateon this subject.


The stakeholders (winners/losers) considered in the C/BAnalysis

Railway companies (Pro�ts)

Transportation �rms (road) (Pro�ts)

Users (both �rms and consumers) (Pro�ts and welfare)

Railway network operators (Pro�ts)

Road Network operators (Pro�ts)

States and Public administrations in general (Tax revenue, Additionalexpenses on top of the project cost)

The society at large (externalities)


Environment and the NLTL

The NLTL project lies in the �eld of transportation/infrastructural projectswith environmental implications, rather than in the �eld of purelyenvironment-oriented projects.The environmental implications are of two kinds

The environmental impact of the changes in the transportationsystem triggered by the completion of the project.

The environmental impact of the construction process

The analysis covers both kinds.


The transportation side of the problem

If one looks at the list of stakeholders and at the environmental impact, itis clear why forecasts of the demand for transportation (and of how it isgoing to change because of the project) are so crucial.The two scenarios compared are called "Reference Scenario" (without theNLTL) and "Project Scenario" (with the NLTL) Forecasts are based onrather sophisticated models of the demand for di¤erent transportationmodes in the Alps region, where the choice of the crossing point isrelevant The whole study on transportation is contained in a previousquaderno of the Osservatorio (the nr. 6) of about 380 pages !


The model

The model has a hyerarchical structure. First, �rms and individualschoose the transportation mode (car, truck, train, etc.), and then theelementary alternative (EA). For instance, given that train has beenchosen, an EA might be "Moving freight from Poland to Italy through theSan Candido pass by train " which probably competes with "Movingfreight from Poland to Italy through the Brennero pass by a high-speedtrain". Each EA has its description in terms of direct cost, travel time,uncertainty, probability of breaks and accidents, etc.


Warsaw to Milano

Train Truck

By plane

Brennero by Train San Candido byTrain

San Candido byTruck

Brennero by Truck


Forecasting transportation choices

To simplify, suppose that, within one mode (say, railroad) there are justtwo elementary alternatives, A and B, and that the utility of elementaryalternative i depends on two characteristics only, time needed (t i ) andprice (pi ) The utility attached to using EA A and B are respectively

V A = β1tA + β2p

A;V B = β1tB + β2p

B

Suppose then that the probability that a user chooses the EA A is

Pr(A) =eβ1t

A+β2pA�

eβ1tA+β2p

A�+�eβ1t

B+β2pB�

while Pr(B) is 1� Pr(A).


The point lies in estimating the values of the β0s . This is done usingdata on prices and times and data on actual frequencies of use of thedi¤erent elementary alternatives. Basically the same assumptions andprocedure are adopted in estimating the probability that a user choosesone or the other mode (railroad vs motorway).This method is known as hyerarchical logit modelOnce you have an estimate of the β0s you can use them to answer thequestion: if a new alternative emerges, with price pC and travel time tC ,which is the probability that users shall shift to the new alternative?


The Forecasts

With data on the characteristics x 0s and the frequences (to approximatethe probabilities) the coe¢ cients β0s can be estimated (hyerarchical logitmodel)

By 2030, completion of the NLTL project entails:an increase of railroad tra¢ c in tha Alps area by around 16%A decrease by 22% of heavy vehicles on the roadA 184 % increase of railroad tra¢ c on the "branch" of the networkincluding the projected lineA 40% increase of passenger tra¢ c on the "branch" of the networkincluding the projected lineThe supporters of NLTL then expect the project to crowd out road tra¢ c,and also railroad tra¢ c on other itineraries. Obviously, the signi�cance ofthese shifts also depend on total volume of tra¢ c forecasted. Someauthors stress that expectations from this viewpoint are exceedlinglyoptimistic.


Once you know how tra¢ c will change across modes and elementaryalternatives, it is possible to estimate how this would impact on pro�ts of

Railways operating on the new alternative

Railways operating on other alternatives

Operators on other modes (motorway operators, airlines, etc.)


Estimating the bene�ts for consumers

The standard way of measuring additional bene�ts for consumers is theusing consumer�s surplus.

PP0 PP1

Q1

Q0


It is important to realize that transportation has an explicit cost (theticket for planes and trains, the cost of gas and tolls for roadtransportation) and an implicit cost, the cost of time spent by traveling.Then the demand curve must be estimated against overall cost. Thismeans that must be able to assign a money value to time. Suppose wealready did this (we shall discuss how later)With a linear demand curve, consumer surplus reduces to computing thearea of a trapeze

(Q0 +Q1)P0 � P12


Consider two transportation modes: airplane (A) and train (T ). Total:400 passengersReference scenario:Plane: cost 120 e + 1 h travel (if the value of time is 20e /h)= 140 eTrain: cost 50 e + 4 h travel =130200 passengers choose the airplane and 200 choose the train. The 200travelling by plane are willing to spend at least 140 for the plane and lessthan 130 for the trainProject scenarioPlane: as aboveTrain: cost 60 e + 3 h travel =120Suppose that now 180 passengers still choose the plane and the remaining220 choose train( those switching from plane to railroad are willing to payfor the train between130 and 120 euro)


Two methods for evaluation

1. Cost comparisonFor the 200 who choose the train in both scenarios, the bene�t is:(130-120)*200=2000For the 20 switching from plane to train (140� 120) 20 = 400For those sticking to plane: no changeTotal 24002. Consumer SurplusThe evalution is the same as before for those who did not switch fromtrain to plane or viceversa.Instead, it is considered in this case that amongthe 20 switchers, some would be willing to pay for the train at least 120,others no more than 130 (Otherwise they would have chosen train also inthe reference scenario ). Computing a simple arithmetical average, we getas a welfare gain

� 120+1302 � 120

�20 = 100

Total 2100. This is equivalent to measuring consumer surplus with alinear demand curve. The trapezoid area is computed as follows

(220+ 200)102= 2100

Ma¢ i shwos that in C/B analysis of the government they use the �rstmethod, thus overestimating the welfare gain.


Present- value costs and bene�ts

ItalianParameters

FrenchParameters

NetworkOperators 21 21,5Railroadcompanies 6,3 6,1Railroad"Motorways" 1 1AirwaysCompanies 1 0,1RoadTransportation firms 9,5 9,2States 7 6,7Users 30,5 31,6

0,7 1,2


Structure of users�bene�ts

ItalianParameters

FrenchParameters

ItalianParameters

FrenchParameters

InternationalPassengers 0,5 2,7

Tollsavings 10,6 10,2

NationalPassengers 0,4 0,4

Gains intime andreliability 7,4 7,1

LogisticCompanies 29,7 28,5

Cost ofrailroadtransportation 25,2 24,2

Including

Cost ofRailroad"Motorways" 3 3

Reductions ofroad fleets 39,9 38,4 Total 30,6 31,6


Evaluation of time

In principle, time should be evaluated as an opportunity cost (for instance:for persons, in terms of working hours lost; for �rms in terms of fastdelivery premium or in terms of avoided penalties for delays) In practice,conventional valued are used, such as:France: 22,16 e /hour (for passengers); 19,59 e/h for freightItaly: 17,96 e /h (passengers); 24,81 e/h for freightIn general, it should depend on the type of passenger and on the type offreight, not on the type of transportationIn the Osservatorio analysis the opportunity cost of time is assumed to besmaller for train relative to plane (overestimating the bene�ts of train)


The "Carbon Balance" (to 2072)

CO2 Emissions are computed distinguishing among phases of the project:

Planning phase 110 t CO2 per million e of the planning budget +emissions due to excavation of explorative tunnels

Building phase: as a proportion to weight of the building materials;

- fuels consumed on the building site- production of railroad vehicles- emission reductions due to avoided production of heavy road vehiclesi

Operation phase:- EmissionS related to the production of electric power for railroadtransportation

- Emission reduction due to reduction of tra¢ c on other transportationmodes.


t CO2ePlanning phase 91900Studies and Exploration 91900Building phase 12967000Infrastructure 9664100Production of railroadvehicles 7398800Avoided production of roadvehicles 4095900Operation Phase 97046700Maintenance 105000Energy for railroad(passengers) 247300

Energy for railroad (FREIGHT) 22392600Further investments 182000Reforestation 90000Modal shift (reduction inroad traffic) 119883600Final balance 83987800


Time distribution of the "Carbon Balance"

:See pag 253: towards the end of the period. Moreover: Italy emits eachyear more than 490 MtCO2e, then the overall carbon balance (-84MtCO2e) in sixty years is at best neutralMoney values for CO2 emissions: 0,006/0,008 e per gram of CO2e .Very high values ! To be discussed in later lectures.


Total external bene�ts

Parametri"italiani"

Parametri"francesi"

InquinamentoAtmosferico 0.6 0.6Effetto serra 0.9 3.1Inquinamentoacustico 0.4 0.3Sicurezza 8.3 8congestione trafficoaereo 0.3 0.3congestione trafficostradale 1.3 1.5Totale 11.8 13.8

As a whole the project is expected to produce positive externalities, mostlyconsisting in accident probability reduction (between 12 and 14 billionseuro)


Bene�ts from accident reduction

Quaderno 8 is rather obscure on this subject. It simply cites a HEATCOReport ( Harmonised European Approaches for Transport Costing)providing reference values for evelaution of accidents)


The overall balance

Parametri"italiani"

Parametri"francesi"

Benefici Privati netti(VAN, mld) 0.2 1.2Benefici Sociali netti(Esternalità) (VAN,mld) 11.8 13.8

12 15


Some preliminary conclusions

After a very summary analysis of the document, it is possible to drawsome tentative conclusions

The document is really complex, especially for the many refererencesit makes to other sources and documents both national and at the EUlevel.

Transportation economics lies at the core of the naalysis, since tra¢ cforecasts determine both private and social bene�ts (through theexternalities)

The private bene�t balance seems rather small and therefore rathersensitive even to small changes in the assumptions and in the context.


Without externalities (CO2 reduction and accident probabilityreduction) the value of the project would be very questionable. I stillhave some doubts about the money value attributed to emissions.

Just to have an idea of the magnitudes involved, Italy�emissions in2009 amounted to 400 millions of tCO2e. The project brings about areduction of 83 mtCO2e over 60 year, concentrated in the last part ofthe periodo. NLTL can be at most de�ned CO2- neutral.

The success of the project depends crucially on attracting freight andpassengers from other lines and other modes. Externalities dependentirely on the modal shift

The overall cost of the project is not actually discussed, although it isan experience with large projects that ex-post costs signi�cantly di¤erfrom forecasted values (see the Eurotunnel)


Energy & Environmental Economics - Unibg An... · Users (both –rms and consumers) (Pro–ts and...

Documents

Transcript of Energy & Environmental Economics - Unibg An... · Users (both –rms and consumers) (Pro–ts and...