Ricci, 20 November 2003 Pricing relevance of external costs calculation: recent results Andrea Ricci - ISIS Istituto di Studi per l’Integrazione dei Sistemi [email protected]www.isis-it.com International Symposium on Road Pricing Key Biscayne - November 19-22, 2003
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Ricci, 20 November 2003 Pricing relevance of external costs calculation: recent results Andrea Ricci - ISIS Istituto di Studi per l’Integrazione dei Sistemi.
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Ricci, 20 November 2003
Pricing relevance of external costs calculation: recent results
Andrea Ricci - ISISIstituto di Studi per l’Integrazione dei Sistemi
International Symposium on Road PricingKey Biscayne - November 19-22, 2003
Ricci, 20 November 2003
This presentation
• Why external costs are relevant to pricing
• Some recent results from EU studies
• Sensitivity of costs (and charges) to situational factors
• Deriving charges at country/network level
• Implications of the recent EU directive (proposal) on HGV charging
Ricci, 20 November 2003
Definitions
Externalities are changes of welfare caused by economic activities without being reflected in market prices
External costs are those borne by individuals other than those who have induced them (e.g. society as a whole). They remain such until they are incorporated in prices (internalisation)
Ricci, 20 November 2003
Pricing relevance of external costs
• Price levels are critical to CBA– revenues– acceptance/success– macro economic implications– etc.
• The EU perspective (research and policy orientation): getting prices right– cost based prices: the users pay principle– MSC-based => knowledge of real (social) costs, including externalities– priority to HGV
• Evidence from EU projects– RECORDIT (HGV)– UNITE
Ricci, 20 November 2003
Results from RECORDIT
• External costs calculated over more than 9000 km of road network (segments of variable length)
• Air pollution, Noise, Accidents, Congestion, GHG, LCA
• …and Infrastructure Costs (wear and tear)
• Mostly bottom-up (IPA), EU-wide reduction target for GHG
• Current payments (taxes and charges)
• Charge derivation at corridor/segment level
• Generalisation at country level
Ricci, 20 November 2003
Infrastructure charges
Marginal infrastructur
e costs
Taxes
Marginal external
costs
Social charge
Existing situation MSC
pricing
Social charge = Marginal external costs - Taxes - Net infrastructure payments
• Scenario 1:– Full internalisation of all (MSC) externalities (air pollution, noise, accidents, global warming, congestion)– Only wear and tear of infrastructure (no investment recovery)
• Scenario 2:– Only accident costs are internalised
– All infrastructure costs are passed on to the users: wear and tear + costs of provision of infrastructure (flat rate: 15 €cents/v.km)
• Scenario 3:– as Scenario 2, but– flat rate of 10 €cents/v.km)
Ricci, 20 November 2003
Charge simulation: S1 Vs S2
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
Full internalisation EU dir(15)
Ricci, 20 November 2003
Charge simulation: the 3 scenarios
-10,00,0
10,020,030,040,0
Full internalisation EU dir(15) Eu dir(10)
Ricci, 20 November 2003
Conclusions
• External costs matter, and they can be calculated
• High variability reflects sensitivity to situational factors
• Need to capture all important cost drivers in price setting mechanism
• Simplified approach (EU directive) may provide an acceptable approximation