The environmental impact of transport subsidies

1

• The environmental impact of transport subsidies
•  
• Chris Nash (University of Leeds)
• Peter Bickel and Rainer Friedrich
• (University of Stuttgart),
• Heike Link and Louise Stewart (DIW, Berlin)
•  
• Paper prepared for the OECD workshop on the
  environmentally harmful subsidies, Paris,
  November 2002

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Outline of the paper

• Introduction
• Alternative approaches to subsidies
• What is the nature of transport subsidies
• Evidence on overall subsidy levels
• Methodology for quantifying environmental costs
• Measurement of marginal external cost
• Effects of marginal social cost pricing
• Conclusions

3
Alternative approaches

• Comparison of total cost with revenue
• Relevant to political and equity issues
• Comparison of marginal social cost with price
• Relevant for economic efficiency

4
What is the nature of transport subsidies?

• Explicit subsidies
• service obligations
• fares obligations
• investment grants
• Implicit subsidies
• failure to charge fully for infrastructure
• favourable tax treatment
• failure to charge for externalities

5
Justifications for subsidy

• Economies of scale
• Second best
• Equity
• Economic development

6
Relevant costs and charges in the transport
sector?
Summary of Relevant Cost and Revenue Categories
Key ? - included
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How significant are transport subsidies?

• Road
• Charges always cover total infrastructure costs
  often also total external cost
• Rail
• Charges on average cover 37 of infrastructure
  and operating cost on average 36 of total
  social cost
• Other local public transport
• Heavily subsidised
• Air
• Landing fees often do not cover cost of airports,
  let alone external cost

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Environmental Cost Categories

• Air pollution (e.g. CO, SO2, Nox, etc.)
• Climate change the emission of greenhouse gases
  (CO2, CH4, N2O, etc.)
• Noise
• Impacts on nature and landscape
• Soil and water deterioration
• Effects associated with electricity production
• Other effects e.g. visual intrusion in cities

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Processes generating Environmental costs

• Each of the processes
• Vehicle manufacture
• Vehicle use
• Vehicle maintenance and support
• Vehicle disposal
• Fuel/electricity production
• Infrastructure construction, maintenance and
  disposal causes environmental damage

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The Impact Pathway Approach for the
quantification of external costs caused by air
pollution
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Marginal cost and revenue analysis by type of
vehicle and time of day
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Effects of inter urbanMSC pricing

• much more variable results (toll roads, existing
  rail charges)
• often lower rail fares, but car may be
  overcharged too
• air charges higher (unless heavily taxed)
• road freight undercharged (but rail subsidised as
  well)
• limited mode split shifts

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Effects of MSC pricingin urban areas

• Much higher charges for use of roads, e.g. peak
• Reduction in peak road traffic (5-20)
• Changes in time and route of travel
• Park and ride
• Higher public transport fares (esp. bus)

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Conclusions

• Eliminating subsidies to cover total cost would
  lead to
• growth in road traffic
• big reduction in public transport
• environmental damage
• Equating price to marginal social cost would
  lead to
• modest reductions in road and air
• growth in rail
• modest environmental improvement