Internalisation of External Effects in European Freight Corridors



Internalisation of External Effects in European Freight Corridors

Authors

Anna Mellin, The Swedish National Road And Transport Research Institute, Åsa Wikberg, The Swedish National Road And Transport Research Institute, Rune Karlsson, The Swedish National Road And Transport Research Institute

Description

In this paper we have analyzed the internalization ratio in two different freight corridors in Europe. The first one starts in Oslo, Norway and ends in Rotterdam, The Netherlands. The second one runs from Narvik, Norway to Naples, Italy. For each corridor we have selected alternative routes for road, rail and sea transports. The external cost calculations are mainly based on the report Handbook on estimation of external costs in the transport sector (IMPACT) financed by the European Commission. The results show that internalization ratios differ between both countries and within countries, depending on the chosen route. The differences are also significant between the modes. For road the share of motorways is an important factor affecting the internalization ratio, and for both road and rail wear and tear on the infrastructure that is the main external cost. For sea transports, there are fewer internalizing charges and taxes, as reflected in the low internalization rates for this mode. However, sea transports have current and coming regulations for e.g. emissions of air pollutants which are not included in the calculations of the internalization rate as they are not levied in the form of a variable fee or tax. Overall, the internalization ratios for road and rail are the highest, where an over internalization is seen in the corridor Oslo Rotterdam. For road transport the internalization ratios varies between 87% and 119%, for rail between 84% and 121%, and for shipping between 5% and 8%, depending on the route.

Abstract

In this paper we have analyzed the internalization ratio in two different freight corridors in Europe. The first one starts in Oslo, Norway and ends in Rotterdam, The Netherlands. The second one runs from Narvik, Norway to Naples, Italy. For each corridor we have selected alternative routes for road, rail and sea transports. The external cost calculations are mainly based on the report Handbook on estimation of external costs in the transport sector (IMPACT).

The internalisation ratio varies considerably for the different modes, countries and routes. Comparing the three transport modes, the internalisation ratio is highest for the road (87-119%) and rail transports (84 – 121%), and lowest for sea (5-8%). For the land based modes, the rates of internalisation are higher in the corridor Oslo – Rotterdam than the corridor Narvik – Naples. For the road (alternative 2) and rail route, there is an over internalisation for the corridor Oslo- Rotterdam, but the difference between the individual countries is large.
The knowledge on external costs is more developed on the road side, which can be one explanation to the high internalisation ratios along the road corridors. This could also explain the observed variation in taxing and charging schemes. In comparison, sea transports are mainly regulated through setting maximum levels of e.g. allowed sulphur content in fuel, rather than economic policy measures such as taxes. When it comes to rail, it is clear that the shorter route Oslo-Rotterdam has a significantly higher rate of internalisation, compared to the longer route Narvik - Naples. The explanation is mainly to be found in the country specific charging systems, rather than in the length of the segment. The high rate of internalisation in the rail route however calls for a further discussion.

A large part of the external costs along the rail corridors can be attributed to wear and tear. The capacity of each country to meet these external costs through the charging system will be crucial for a full rate of internalisation in rail traffic. The costs of wear and tear can be estimated through different techniques, and the one applied in this analysis is based on maintenance costs only, excluding cost for operation and renewals. Thus, using an estimate of wear and tear that would include maintenance, operation and renewals would have given considerably lower rates of internalisation along the rail routes. It is also important to note that for road traffic, the estimate for wear and tear in IMPACT includes, additional to maintenance, certain operational and renewal costs. It is therefore difficult to compare the internalisation of wear and tear costs for road and rail.

As for rail, the external costs related to wear and tear constitute a large part of the total sum of external costs also in road traffic. This cost category by far exceeds the other types of external costs (except for the high valuation of congestion on the road routes in our sensitivity analysis). An interpretation of these observations is that in order to achieve full internalisation along these routes, it is necessary to further analyse the wear and tear of infrastructure, as well as the framework for the infrastructure taxes and charges in each country since the rate of internalisation vary considerable.

For road, the share of motorways is another important factor that affects the external costs along the routes analysed, and in combination with road tolls and bridge fees, they have a significant impact on the rate of internalisation.

The sensitivity analysis shows that other factors such as noise, congestion and alpine conditions do cause increased external costs. These factors vary in their impact as cost drivers, where the changed assumption of noise cost has a rather small impact, while alpine conditions and congestion has a rather large impact on the rate of internalisation. For the high valuation scenario of congestion for road, the impact is almost as important as wear and tear. Further, the sensitivity analysis shows that the use of diesel locomotives instead of electrically driven locomotives has a very large impact on the non-internalised external costs.

For the road transport, the assumption on the diesel tax level is also an important factor affecting the internalisation ratio. If the driver chose to fill up the tank in the country with the lowest diesel tax (within the route) the internalisation ratio drops with up to 10 % (i.e. from 87 % to 79 % in the route via Västerås in the corridor Narvik – Naples).

Publisher

Association for European Transport