Workshop with EU Member States: Work Package B Session 4a – Cost-benefit analysis for transport investments 3 February 2011

2 Frontier Economics Content 1A – The strengths and weaknesses of the ex ante CBA methodologies observed 1B – The effectiveness of ex ante CBA as a tool supporting decision-making Part 1 EX ANTE CBA Part 2 EX POST CBA 2A – The utility of ex post CBA 2B – Ex post CBA as tool for impact evaluation

3 Frontier Economics 1A – Strengths and weaknesses of the ex ante CBA 1B – Effectiveness of ex ante CBA as a tool supporting decision-making EX ANTE CBA

4 Frontier Economics Scope of ex ante CBA Scope of ex ante studies focuses on the main impacts Environmental impacts, wider impacts and impacts on other modes are often excluded 1A

5 Frontier Economics Overview of ex ante analysis EC Guidelines Choice of marginal values Unit costs Good compliance with EC guidelines In some instances significant divergence from HEATCO unit values (e.g. for time savings) Unit costs are not available except in the main at a Level 1 Adherence to guidelines, but are guidelines sufficient? 1A

6 Frontier Economics Demand forecasting Demand forecasting is the foundation for a CBA Dominance of sketch models Scope limited in terms of network, time periods, modes. No details available on model validation Significant journey time errors were present in one ex ante CBA Forecasting simplistic Based on external growth factors in the main Only 5 studies considered re-assigned traffic Only 4 studies included induced traffic Demand forecasting 1A

7 Frontier Economics Sensitivity tests omitted Sensitivity tests undertaken Risk analysis Future economic growth Changing traffic growth Changing fuel prices Cost overruns/underspend Varying the discount rate Growth in marginal values over time Operating cost values changing over time Change in project scope (more or less interventions included) Project delays/early completion Length of the appraisal period Future population growth Additional development Impact of other transport infrastructure schemes Impact of pricing policies Risk analysis has been undertaken, but not all risk bearers identified 1A

8 Frontier Economics 1A – Strengths and weaknesses of the ex ante CBA 1B – Effectiveness of ex ante CBA as a tool supporting decision-making EX ANTE CBA

9 Frontier Economics Pros and cons of using ex ante CBA Pros Prioritisation Efficient use of resources Financial viability Choice between alternatives/options Optimise timing Pros Ensures transparency Cons Lack of alignment with policy objectives Too much transparency Pros Focuses on easy to measure direct impacts Cons A lack of understanding of CBA by officials and politicians Partial analysis Modal comparisons difficult TechnicalPoliticalPractical 1B

10 Frontier Economics Use of CBA in the 10 case studies Limited role of these 10 CBAs in Member States decision-making Why is this the case? Compliance with EC CF application requirements (9) Ensure value for money (6) Choose alignment (2) Choose design standards (2) Prioritise elements of national transport strategy (1) Allocate budget and optimise timing (0) 1B

11 Frontier Economics Part 1: Ex ante CBA - Questions 1A – Strengths and weaknesses of CBA Reasons for divergence of unit values used from HEATCO? Why doesnt ex ante CBA play a more significant role in strategic decision-making? 1B – CBA as tool to support decision- making Obstacles to more developed demand modelling and risk analysis? Need for additional guidance / regulation (e.g. externalities)?

12 Frontier Economics 2A – Utility of ex post CBA? 2B – Ex post CBA as tool for impact evaluation EX POST CBA

13 Frontier Economics POPE – Englands Highways Agency ex post programme The merits of an ex post programme Objective Have impacts of highway schemes materialised? What lessons can be learned? Method Before data collection 1 yr and 5 yr after opening studies Findings: Has improved transparency and accountability Improved practice and development of new techniques (includes bi-annual meta- analysis) Strengthened evidence base Ex post CBA is seen as an asset by UK transport authorities 2A

14 Frontier Economics What is the utility of ex post CBA? Definition of counterfactual Background impacts can dominate transport impacts Simultaneity in the opening of transport investments Definition of counterfactual Institutional memory loss Indirect effects take time to feed into land use and the economy Majority of benefits still occur in the future (there is a need to forecast) Needs a monitoring programme 2A Challenges and requirements faced with ex post CBA

15 Frontier Economics 2A – Utility of ex post CBA? 2B – Ex post CBA as tool for impact evaluation EX POST CBA

16 Frontier Economics Is ex post CBA an appropriate tool for impact evaluation? Pros Cons Alternatives Focuses on direct impacts and externalities Monitoring programme is more straight forward than alternative ex post methods Gives a single indicator of a projects worth that avoids double counting CBA output may not align with policy objectives Suffer from the same challenges and requirements, and may be more difficult to undertake 2B

17 Frontier Economics Part 2: Ex post CBA - Questions Potential benefits and costs of an ex post evaluation framework in your country? Do you think that such a framework would be financially viable? Is ex post CBA a good methodology to capture relevant impacts? Should it be complemented or replaced by other methodologies? Timing of ex post evaluation? 2A – Utility of ex post CBA? 2B – Ex post CBA as tool for impact evaluation

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