Noise Differentiated Track Access Charges for Rail Infrastructure - - PowerPoint PPT Presentation

Noise Differentiated Track Access Charges for Rail Infrastructure – an Approach towards an adequate Pricing for Externalities in the Rail- Sector?

Presentation at Conference on Applied Infrastructure Research Berlin University of Technology [TU-Berlin] 9 October 2010

Rene Naumann, KCW GmbH Peter Schwinger

Slide 2

Content Overview

• 1. Noise-externalities as a particular problem of rail-freight transport
• 2. Theoretical approaches towards noise-externality charges in the

rail freight sector

• 3. Framework conditions for the practical implementation of a Noise-

Differentiated Track Access Charge on a European Level

• 4. NDTAC Recommended to European Commission
• 5. Gaps between theory and practice

Slide 3

• 1. Noise-externalities as a particular problem of rail-freight

І Rail freight in Europe has regained essential strength after the sector had lost both volumes and market share during a steep decline in the early 1990ies. І Overall rail freight volume in EU 15 states grew from 205.4 billion tonne-km in 1993 to 292.4 billion tonne-km in 2008 by 42.3%. І Noise externalities are estimated to have grown almost inline with volumes as operators did not invest in noise-reduction of fleet. І An estimated 35 million citizens in the EU are exposed to rail-noise levels above 55 dB(A). І Increasing concerns of local residents have put pressure on municipal, regional and state governments to address the issue.

Slide 4

• 1. Noise-externalities as a particular problem of rail-freight

І Technically there are several measures available to reduce the level of rail noise: І passive measures (noise barriers/ noise- insulation in private households); І active measures (reducing noise ‘at source’ e.g. rail-grinding); and І

• perational measures for rail freight (e.g.

routing restrictions at specific times of the day). І Active measures such as improving the quality

• f wheels and rail surface have been found to

deliver a benefit-cost ratio 2-4 times higher than passive measures. І Retrofitting of conventional cast-iron brake blocks with K- or LL- brake blocks achieve most significant reduction of noise at relatively low costs (potential of minus 8 dB(A) which corresponds with 50% of the perceived rail noise level

Slide 5

• 1. Noise-externalities as a particular problem of rail-freight

І Retrofitting of 370,000 wagons (some 60% of EU total fleet) is estimated to costs EUR 2.1 billion (LL-brakes) and EUR 4.0 billion (K-brakes) respectively. І The EC favours a coordinated approach on the European level involving all stakeholders (railway sector, competent authorities

• n national state level).

І Command an control approaches such as access or speed restriction for non-retrofitted wagons have been ruled out. І So was the fiscal instrument of direct funding (concerns regarding state aid and discrimination). І Instead the Commission favours a Noise-Differentiated Track Access Charge (NDTAC) where a mileage-related bonus/ penalty – dependent on whether or not wagons have been retrofitted – should be incorporated in national Track Access Charge Systems.

Slide 6

• 1. Noise-externalities as a particular problem of rail-freight

Aim of this presentation is to І briefly describe the theoretical concepts regarding noise- externality charges against the background of externality- charges in general; І contrast these concepts with the technical and institutional constraints of the implementation of a NDTAC for rail freight traffic; І describe the NDTAC which has been developed by a consortium of KCW, Steer Davies Gleave and TU Berlin for the European Commission in 2009; and І identify the gaps between theoretical approaches and ‘practice’.

Slide 7

Content Overview

• 1. Noise-externalities as a particular problem of rail-freight transport
• 2. Theoretical approaches towards noise-externality charges in the

rail freight sector

• 3. Framework conditions for the practical implementation of a Noise-

Differentiated Track Access Charge on a European Level

• 4. NDTAC Recommended to European Commission
• 5. Gaps between theory and practice

Slide 8

• 2. Approaches towards noise-externality charges in rail freight

І In economic theory externalities are seen as a form of market failure where the market fails to achieve an ‘efficient equilibrium’ with marginal social cost being lower than marginal social benefits. І The most important externalities allocated to the transportation sector are accident costs, damage to the infrastructure, scarcity (congestion) costs and environmental costs – subcategorised into noise, air-pollution and climate change. І In rail freight the most accident and infrastructure costs have been widely internalised. І Congestion costs are not existent as such, but scarcety costs are. І Environmental externalities are most the most significant externality.

Slide 9

• 2. Approaches towards noise-externality charges in rail freight

І Most approaches towards charging for noise-externalities discussed are of theoretical nature and follow the idea of Pigovian taxes in the sense that they look at marginal social costs imposed on society rather than looking at costs associated with retrofitting of freight-

• wagons. In essence there are two key concepts:

І First key concept follows an overall social marginal cost approach by

І broadly estimating the total number of people affected by rail-noise І applying monetarisation factors either used in national appraisal guidelines or derived from other studies; and І finally assigning the cost to different train/service types (e.g. regional passenger train, high-speed rail and freight train) per train kilometre

• n an average base.

(Finland and Sweden apply such social marginal costs approaches but do not include noise- externalities in the charge)

Slide 10

• 2. Approaches towards noise-externality charges in rail freight

І Second key concept is looking in more detail at the number of people being exposed to rail-noise І within certain time-bands (differentiation by time of the day); І by route (spatial or route-specific differentiation); І the distribution of affected population according to different levels of exposure (by classifying so called ‘sound pressure level classes); and І again, apply monetarisation factors and derive charges on a marginal social cost base and setting route and time differentiated charges. І Aim of this differentiation of noise charges by time and route is to achieve a higher allocative efficiency by incentivising railway undertakings to either use routes with lower number of inhabitants exposed to rail noise and/or use these routes at a different time of day.

Slide 11

Content Overview

• 1. Noise-externalities as a particular problem of rail-freight transport
• 2. Theoretical approaches towards noise-externality charges in the

rail freight sector

• 3. Framework conditions for the practical implementation of a Noise-

Differentiated Track Access Charge on a European Level

• 4. NDTAC Recommended to European Commission
• 5. Gaps between theory and practice

Slide 12

• 3. Framework Conditions for an NDTAC on a European Level

І In general positive growth rates in rail freight sector, but: І sector earns relatively small profit margins І margins differ widely among commodity groups І there is a significant risk of modal shift towards road haulage (risk depends on several aspects e.g. type of goods, price elasticity, availability of other modes of transport), such mode share is not in- line with political agenda.

constraints of the rail-freight market

Slide 13

• 3. Framework Conditions for an NDTAC on a European Level

contractual relationships 1/3

І wagons are owned by RU (mostly by incumbents), renting companies (increasing market share) or even clients; І there are up to 10 different business models of how the bonus needs to be passed from the Railway Undertaking to the Wagon Owner; І three business models are shown exemplarily:

Infrastructure Manager Railway Undertaking

• wning own Rolling Stock

Client

Freight Contract Track Access Charge

Slide 14

• 3. Framework Conditions for an NDTAC on a European Level

contractual relationships 2/3

Infrastructure Manager Railway Undertaking Client

Freight Contract Track Access Charge

Wagon-Owner Renting / Leasing Contract

Slide 15

• 3. Framework Conditions for an NDTAC on a European Level

contractual relationships 3/3

Infrastructure Manager Railway Undertaking Shipper / Operator

Freight Contract

Client

Freight Contract

Wagon-Owner Renting / Leasing Contract

Track Access Charge

Slide 16

• 3. Framework Conditions for an NDTAC on a European Level

national track access charge systems

І Almost all national Track Access Charge Systems in EU charge on the basis of train mileage rather than wagon-mileage (except UK). І General level of Track Access Charge differs widely among Infrastructure Managers, hence noise-component should not be a percentage of TAC but a fixed rate per wagon-km. І Almost no price differentiation between commodity groups, time of day or route. І Business relationship only between Infrastructure Manager and Railway Undertaking

Slide 17

Content Overview

• 1. Noise-externalities as a particular problem of rail-freight transport
• 2. Theoretical approaches towards noise-externality charges in the

rail freight sector

• 3. Framework conditions for the practical implementation of a Noise-

Differentiated Track Access Charge on a European Level

• 4. NDTAC Recommended to European Commission
• 5. Gaps between theory and practice

Slide 18

• 4. NDTAC Recommended to European Commission

general characteristics

• f NDTAC

feature NDTAC should only include a bonus (no penalty) level of bonus predefined and fixed over funding period charging based on accounting

• f individual wagons

incentive level should cover costs associated with retrofitting plus administrative costs for WK and RU

І Individual mileage performance should be the activating variable for bonus

rationale

Ι sector should not be weakened Ι only ‚silent‘ wagons need to be recorded and adminnistered Ι low risk of calculating amortisation Ι Neither overcompensation nor under- compensation of the sector (over fleet average)

Slide 19

• 4. NDTAC Recommended to European Commission

feature rationale Clearing Body: Infrastructure Manager Railway Undertaking claims for the bonus RU forwards the received bonus to the participating WK

• r WK factors bonus into

rental charges respectively functionality and institutional setup of the charging process Ι only IM and/or RU have data

regarding train composition, train mileage and wagon mileage

Ι IM can apply plausiblility tests in case

self decleartation is used

Ι none of these enteties need to obtain

data from third parties

Ι allows market to create its own

accounting environment (e.g. WK can incorporate anticipated bonus payments into annual rental rate).

Slide 20

• 4. NDTAC Recommended to European Commission

length of funding period feature rationale high planning reliability for all involved parties funding period predefined before NDTAC starts recommended 6 or 12 years multiple of revision cycle level of bonus feature rationale

Ι cumulated bonus should refinance the investment

Slide 21

Content Overview

• 1. Noise-externalities as a particular problem of rail-freight transport
• 2. Theoretical approaches towards noise-externality charges in the

rail freight sector

• 3. Framework conditions for the practical implementation of a Noise-

Differentiated Track Access Charge on a European Level

• 4. NDTAC Recommended to European Commission
• 5. Gaps between theory and practice

Slide 22

• 5. Identifying the main gaps between theory and practice

І Charging for noise-externalities on a social marginal cost approach in the rail freight market is unlikely to have any effect on technology used to reduced noise. І The need to address/ incentivise Wagon Owners rather than Railway Undertakings changes the entire market and disavows theoretical approaches of having one price between two market participants (which finally leads to a ‘efficient equilibrium’ within the market). І Complexity and plenitude of business relationships between stakeholders cannot secure planning and hence investment security for Wagon Owner. І The transaction costs imposed by the introduction of route and time differentiated access charges would be disproportional to the externality charge itself and make such differentiation infeasible. І Route-specific and time-of-day demand elasticities in rail-freight tend to be relatively low. Demand would not react to price changes on the social marginal cost level.

thank you for your attention!