Implementing Marginal Cost Pricing of Rail Infrastructure - Barriers and Solutions

Implementing Marginal Cost Pricing of Rail Infrastructure - Barriers and Solutions


C Nash and B Matthews, ITS, University of Leeds, UK



The need for explicit methods of charging for the use of rail infrastructure has arisen as a result of the European Commission?s policy of separating infrastructure from operations and opening up operations to new entry. The European Commission sees this as an important way of improving the efficiency and marketing of rail transport. They are keen to see comparable approaches used in all member states, to avoid the distortions that exist when neighbouring countries charge for the use of infrastructure on a totally different basis. However, deriving an appropriate pricing system poses extreme difficulties. Reasons for this include:

* the existence of conflicting objectives, such as efficiency in the use of existing infrastructure, promotion of competition, promotion of investment in the infrastructure, transparency and cost recovery

* difficulty in measuring some of the relevant costs, and in particular the scarcity cost of infrastructure where capacity is constrained

* very different pricing philosophies exist in different member statesThis paper will review:1. The theory behind rail infrastructure charges, including second best considerations such as two part tariffs, Ramsey pricing and the efficient component pricing rule.2. The development of European Commission policy, including Directive 91/440, which first provided limited open access for international rail services, the Green Paper on Fair and Efficient Pricing, the White paper on Infrastructure Charging, the reports of the High Level Group on Infrastructure Charging, to which one of the authors was a specialist advisor, leading up to the current Directive on rail infrastructure charging. 3. The problem of achieving an appropriate trade-off between the alternative objectives of rail infrastructure charges. As outlined above, there are a number of different objectives, and most possible systems score well on some of them and badly on others. For instance, short run marginal cost pricing achieves the most efficient use of current infrastructure, but may not meet budgetary constraints or offer appropriate incentives for investment, whilst two part tariffs may be the most efficient way of meeting budget constraints but may hamper new entry. 4. Existing charging practices and experience of barriers to reform in a selection of European countries. This draws on recent reviews undertaken by the authors, firstly as part of a team working on behalf of the European Conference of Ministers of Transport and, secondly, as part of work undertaken for the EU fifth framework research project into the implementation of marginal cost pricing in transport, MC-ICAM. A wide range of approaches currently exist, with very low charges relating to short run marginal cost the norm in Scandinavia and now being introduced in the Netherlands, individually set two part tariffs in Great Britain and complicated tariffs approaching average cost in Germany. Barriers to reform include institutional barriers, cost measurement, financing, equity and issues of fair competition.

Conclusions will be drawn on the prospects for a standardised approach being adopted throughout the EU, what form that approach might take and on how that approach might overcome barriers to its implementation.


Association for European Transport