REVENUE: Swiss Case Studies

1
Case Study Switzerland Railway Investment Fund
Stefan Suter ECOPLAN, Economic Research and
Policy Consultancy REVENUE Final
Conference Brussels, 29 and 30 November 2005
2
Overview

• Introduction (Background, questions)
• Model implementation MOLINOinGAMS
• Scenarios
• Main results
• Conclusions

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)

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 650000!)
• 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)

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

6
The railway investment fund (FinöV fund)
1 Introduction
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?

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

9
Geographical scope
2 Model implementation MOLINOinGAMS
10
Pricing
2 Model implementation MOLINOinGAMS

• 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 gt not social marginal cost
  pricing

11
Price changes over time Example of road freight
2 Model implementation MOLINOinGAMS
12
Accounting module
2 Model implementation MOLINOinGAMS
13
Pricing of transalpine transport
3 Scenarios Regulation schemes
14
Use of HVF/toll revenues and investment
3 Scenarios Regulation schemes
15
24 scenarios
3 Scenarios Regulation schemes
16
Price changes (vs. benchmark)(average prices,
2000-2040)
4 Main results
17
Earmarking of HVF/toll revenues(existing
pricing, investment only in railway tunnels)
4 Main results
18
Earmarking of HVF/toll revenues(existing
pricing, investment only in railway tunnels)
4 Main results

• 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 moneyPolitical reasoning
  NART and HVF ONE package

19
Investment in rail only or in rail and
road?(earmarking status quo. i.e. 2/3)
4 Main results
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

21
Pricing rules(earmarking status quo case)
4 Main results
22
Pricing rules Decomposition of
effects(earmarking and investment status quo
case)
4 Main results
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)

24
Equity Domestic versus transit road freight
trsp.
4 Main results
25
Equity Domestic versus transit road freight
trsp.
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)

26
Policy recommendations
5 Conclusions
27
Case Study Switzerland Railway Investment Fund
Stefan Suter ECOPLAN, Economic Research and
Policy Consultancy REVENUE Final
Conference Brussels, 29 and 30 November 2005