ECOPLAN 1 Case Study Switzerland: Railway Investment Fund Stefan Suter ECOPLAN, Economic Research and Policy Consultancy REVENUE Final Conference Brussels, 29 and 30 November 2005

ECOPLAN 2 Overview 1.Introduction (Background, questions) 2.Model implementation: MOLINOinGAMS 3.Scenarios 4.Main results 5.Conclusions

ECOPLAN 3 Transalpine freight transport 1 Introduction Key figures for the Swiss corridors:  31.5 mill. tons in 2003 (France: 33 mill.t. Austria: 39.4 mill.t.)  Share of transit transport: 77.8% (France: 31.5%. Austria: 88.1%)  Modal split: 66% railway (France: 20.2%. Austria: 25.1%)

ECOPLAN 4 Swiss Policy for Transalpine Transport 1 Introduction  Initiative for the Alps 1994: Shift from road to rail (from more than 1.2 mill. trucks / year down to 650’000!)  Consequence: High political support for rail transport  Instruments  Subsidies for Combined Transport  Distance-dependent Heavy Vehicle Fee (HVF) since 2001 on all roads  New Alpine Railway Tunnels  Railway investment fund  Alpine crossing exchange (concept, first discussions)

ECOPLAN 5 The new railway tunnels through the Swiss Alps 1 Introduction Two transalpine base tunnels (approx. EUR 10 billion):  Lötschberg: 34 km, opening 2007  Gotthard: 57 km, opening 2015+

ECOPLAN 6 The railway investment fund (“FinöV” fund) 1 Introduction Federal government determines level of revenues oversees fund management Debt limit: EUR 2.8 billion Federal Parliament approves credits for specific projects HVF (2/3) Fuel tax (< 25%) VAT (1‰) PPP High speed connections New Alpine rail tunnels Noise reduction Loans FinöV Fund Improvements of railway network

ECOPLAN 7 Questions 1 Introduction  What are the welfare implications of earmarking and cross- financing from the road to the railway sector in the case of given investments (tunnels)?  Would it be welfare increasing to extend railway and road capacity in the Swiss transalpine corridors?  Does welfare increase if transport pricing is adjusted taking into account congestion and environmental costs?  Should these charges be levied in addition to or instead of existing taxes and charges? What is the effect of “over- charging”?  What actors are the winners and losers of different RS?

ECOPLAN 8 Model overview 2 Model implementation: MOLINOinGAMS  MOLINOinGAMS: –Partial equilibrium model based on MOLINO –Implemented in GAMS  2 Modes: Railway and road  4 Users –Passengers low income –Passengers high income –Freight domestic (local, import, export) –Freight transit  Time horizon: 40 years

ECOPLAN 9 Geographical scope Investment: Extension of Gotthard tunnel from 2 to 4 lanes Road link: Gotthard (2015) (80 / 80 km): Peak vs. off-peak traffic ErstfeldBiasca Railway link: Lötschberg-Simplon (2007) vs. Gotthard (2015) (88 / 68 km) ThunBrig Erstfeld Biasca Investment: Railway base tunnels 2 Model implementation: MOLINOinGAMS

ECOPLAN 10 Pricing  Existing pricing –Railway: Track charges –Road: Vehicle taxes (regional gov.), Fuel tax, HVF (fed. gov.)  Existing taxation plus internalisation –Existing pricing plus exogenous charges (congestion, environmental costs)  Congestion charging –Marginal infrastructure and marginal external costs: Exogenous cost rates, implemented as tolls on the link –Congestion charges: Endogenous, only road (rail: large capacity reserves) –No full optimisation => not social marginal cost pricing 2 Model implementation: MOLINOinGAMS

ECOPLAN 11 Price changes over time: Example of road freight 2 Model implementation: MOLINOinGAMS

ECOPLAN 12 Accounting module Rail infrastructure operator (public) Rail infrastructure manager (public) Road infrastructure operator (public) Road infrastructure manager (public) Federal governmentLocal government Railway investment fund (Lifetime-balanced budget) Road investment fund (budget not balanced) Vehicle tax, fuel tax, labour tax HVF (1/3) HVF (2/3) Subsidy investment Subsidy operation 2 Model implementation: MOLINOinGAMS

ECOPLAN 13 Pricing of transalpine transport 3 Scenarios: Regulation schemes - Existing pricing (exogenous) - Existing taxation plus internalisation (exogenous) - Congestion charging (endogenous congestion charge) Road fund Pricing / taxation Investments Railway Fuel taxHVF Public Treasury Track charges Railway fund Local/national taxes Use of revenues 2 new trans- alpine tunnels Extension of existing tunnel to 4 lanes Road

ECOPLAN 14 Use of HVF/toll revenues and investment No cross-financing (2/3 road investment fund, 1/3 local government) Equal distribution (1/3 rail and 1/3 road investment fund, 1/3 local gov.) Status quo (2/3 rail investment fund, 1/3 local government) Green lobby solution (3/3 rail investment fund) Road fund Pricing / taxation Investments Railway Fuel tax Public treasury Track charges Railway fund Local/national taxes Use of revenues 2 new trans-alpine tunnels (2007 and = benchmark) Extension of existing tunnel to 4 lanes (2015) HVF RP 3 Scenarios = Regulation schemes

ECOPLAN scenarios 3 Scenarios = Regulation schemes

ECOPLAN 16 Price changes (vs. benchmark) (average prices, ) 4 Main results Freight PassengerRail Freight PassengerRoad Congestion charging Peak Off peak Existing tax. plus internalisation Sub modeMode Increase of price (toll, charge, tax)Decrease of price (toll, charge, tax)

ECOPLAN 17 Earmarking of HVF/toll revenues (existing pricing, investment only in railway tunnels) Benchmark 4 Main results

ECOPLAN 18 Earmarking of HVF/toll revenues (existing pricing, investment only in railway tunnels) Key messages:  Once investment is decided, use a tax with low marginal costs of public funds (MCF) to finance the investment  Heavy vehicle fee: Low MCF, “Pigouvian-type of tax”  For given investment: Increasing earmarking improves result (“transport money is cheaper than tax money”) Neglected: Benefits of an alternative use of the transport money Political reasoning: NART and HVF = ONE package 4 Main results

ECOPLAN 19 Investment in rail only or in rail and road? (earmarking: status quo. i.e. 2/3) 4 Main results Change of total social welfare (present value, in %) New railway tunnels New railway and road capacity Existing pricing regimeCongestion charging Benchmark

ECOPLAN 20 Investment in rail only or in rail and road? (earmarking: status quo case) 4 Main results Key messages:  Investment in both modes (limited switch from road to rail, low elasticity of substitution) Important limitations: - Alpine-specific and growth impacts: Neglected - No analysis of alternative road investments - Misinterpretation = “Gotthard road tunnel is most urgent”  Too low road transport prices increase pressure to invest: Potential welfare gains under the existing pricing regime are higher than with “Congestion charging”

ECOPLAN 21 Pricing rules (earmarking: status quo case) 4 Main results Change of total social welfare (present value, in %) Existing taxation plus internalisation Congestion charging New railway tunnelsNew railway and road capacity Benchmark

ECOPLAN 22 Pricing rules: Decomposition of effects (earmarking and investment: status quo case) 4 Main results -2'500 -2'000 -1'500 -1' '000 1'500 2'000 2'500 Change of total discounted welfare (mill. EUR) Welfare transport Welfare federal gov. Welfare local gov. Total welfare change Existing taxation plus internalisationCongestion charging

ECOPLAN 23 Different pricing regimes (earmarking: status quo case) 4 Main results Key messages:  A joint view of the welfare effects from pricing and revenue use is needed  Distributional effects between government levels matter  Best case (full earmarking, existing pricing plus internalisation, investment in both modes): Relevant welfare gain (EUR 215 / capita)

ECOPLAN 24 Equity: Domestic versus transit road freight trsp. 4 Main results Change of discounted total welfare (%) Domestic freight transport Transit freight transport Existing taxation plus internalisation New railway tunnelsNew railway and road capacity Congestion charging Existing taxation plus internalisation Congestion charging

ECOPLAN 25 4 Main results Key messages:  Freight transport benefits from increased pricing AND road investment  High relevance of time gains through investment (could also be through rail investment, e.g. rolling motorways)  Transit freight traffic benefits more than domestic freight transport (smaller price increase for transit than for domestic, assumption on truck weight is decisive = specific case) Equity: Domestic versus transit road freight trsp.

ECOPLAN 26 Policy recommendations 5 Conclusions  Using revenues from road pricing to finance investments in other modes can be welfare improving.  Transport pricing, investment, and revenue use must be considered together to derive conclusions on efficiency.  Earmarking for transport or not: Benefits of alternatives?  An overall positive effect may still have winners and losers: A sound analysis of the distributional effects is needed. Limits: Basis is a partial equilibrium model, a general equilibrium approach would yield additional insights

ECOPLAN 27 Case Study Switzerland: Railway Investment Fund Stefan Suter ECOPLAN, Economic Research and Policy Consultancy REVENUE Final Conference Brussels, 29 and 30 November 2005