Ricci, 20 November 2003 Pricing relevance of external costs calculation: recent results Andrea Ricci - ISIS Istituto di Studi per l’Integrazione dei Sistemi International Symposium on Road Pricing Key Biscayne - November 19-22, 2003

Ricci, 20 November 2003 This presentation Why external costs are relevant to pricing Some recent results from EU studies Sensitivity of costs (and charges) to situational factors Deriving charges at country/network level Implications of the recent EU directive (proposal) on HGV charging

Ricci, 20 November 2003 Definitions Externalities are changes of welfare caused by economic activities without being reflected in market prices External costs are those borne by individuals other than those who have induced them (e.g. society as a whole). They remain such until they are incorporated in prices (internalisation)

Ricci, 20 November 2003 Pricing relevance of external costs Price levels are critical to CBA –revenues –acceptance/success –macro economic implications –etc. The EU perspective (research and policy orientation): getting prices right –cost based prices: the users pay principle –MSC-based => knowledge of real (social) costs, including externalities –priority to HGV Evidence from EU projects –RECORDIT (HGV) –UNITE

Ricci, 20 November 2003 Results from RECORDIT External costs calculated over more than 9000 km of road network (segments of variable length) Air pollution, Noise, Accidents, Congestion, GHG, LCA …and Infrastructure Costs (wear and tear) Mostly bottom-up (IPA), EU-wide reduction target for GHG Current payments (taxes and charges) Charge derivation at corridor/segment level Generalisation at country level

Ricci, 20 November 2003 Infrastructure charges Marginal infrastructure costs Taxes Marginal external costs Social charge Existing situation MSC pricing Social charge = Marginal external costs - Taxes - Net infrastructure payments Derivation of charge

Ricci, 20 November 2003 Genova - Manchester

Ricci, 20 November 2003 Barcelona - Warsaw

Ricci, 20 November 2003 Air pollution costs (€cents/v.km) Urban Road Car Petrol EURO 2 Car Diesel EURO 2 HGV Euro 2 Inter urban Car Petrol EURO 2 HGV Euro 2 UNITE CASE STUDIES OTHER STUDIES

Ricci, 20 November 2003 Noise costs (€cents/v.km) Urban Cars -day Cars -night HGV –day HGV –night Inter urban Cars -day Cars -night HGV –day HGV –night UNITE CASE STUDIES OTHER STUDIES

Ricci, 20 November 2003 Congestion costs (€cents/v.km) Urban areas Interurban Passengers cars Freight UNITE CASE STUDIES OTHER STUDIES

Ricci, 20 November 2003 Sensitivity to situational factors Amsterdam - Bilbao NL Amsterdam- Roosendaal B Roosendall- Lille FR Lille- hendaye ES Hendaye- Bilbao 22,2 16,0 26,6 26,8 22,6 15,3 -1,7 40,9 44,9 31,3 25,0 67,6 Taxes & charges Ext. costs Extra charge

Ricci, 20 November 2003 Sensitivity to situational factors Amsterdam - Bilbao NL Amsterdam- Roosendaal B Roosendall- Lille FR Lille- hendaye ES Hendaye- Bilbao 22,2 16,0 26,6 26,8 22,6 15,3 -1,7 40,9 44,9 31,3 25,0 67,6 Taxes & charges Ext. costs Extra charge However, on the “Paris” section (ca. 80 km): FR Paris section 13 39,352,3

Ricci, 20 November 2003 Charge derivation at country level (MSC based)

Ricci, 20 November 2003 HGV charge derivation: 3 scenarios Scenario 1: –Full internalisation of all (MSC) externalities (air pollution, noise, accidents, global warming, congestion) –Only wear and tear of infrastructure (no investment recovery) Scenario 2: –Only accident costs are internalised –All infrastructure costs are passed on to the users: wear and tear + costs of provision of infrastructure (flat rate: 15 €cents/v.km) Scenario 3: –as Scenario 2, but –flat rate of 10 €cents/v.km)

Ricci, 20 November 2003 Charge simulation: S1 Vs S2

Ricci, 20 November 2003 Charge simulation: the 3 scenarios

Ricci, 20 November 2003 Conclusions External costs matter, and they can be calculated High variability reflects sensitivity to situational factors Need to capture all important cost drivers in price setting mechanism Simplified approach (EU directive) may provide an acceptable approximation Current pricing practice is largely distorting

Ricci, 20 November 2003 For more information  UNITE (  RECORDIT (  or ask:  Andrea Ricci: