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TRENEN II STRAN ST 96 SC 116 - Final Summary Report



The objective of the TRENEN II STRAN project is the development of strategic models for the assessment of pricing reform in transportation, and their application to the European Union. The strategic models are designed to analyse two types of policy problems. The first problem is to measure the gap between present and efficient prices across all modes. What prices are too low and what prices are too high compared to their marginal social cost? The second problem is to measure the potential of different types of pricing instruments to improve the pricing of transport. What can higher fuel excises achieve ? Are parking charges and road tolls the best ways to make user prices correspond to marginal social costs? The answers go beyond theoretical principles. They take into account behavioural reactions, infrastructure capacity and interactions between modes. They integrate all external costs and they give information on the direction of pricing reform.

Model development

Two sets of models are developed: one for URBAN areas and one for INTERREGIONAL (or non-urban) transport. Both models use the same methodology. They represent the transport problem of a given zone as an equilibrium of a set of interrelated transport markets. One market corresponds to the use of a given type of vehicle (e.g., small gasoline car driven alone) at a particular period (peak or off peak) in that zone. Typically between 20 and 30 transport markets are distinguished for each zone. The equilibrium price on each market is expressed as a generalised cost (resource cost + tax + time cost). Using generalised costs as central price concept allows to study modal interactions resulting from changes in money prices and from changes in speed or quality of service.

Present taxes may or may not cover the marginal external costs (congestion, air pollution, accidents, noise and road maintenance). The main aim of pricing reforms is to adjust transport taxes in order to cover better the marginal external costs. In this way all transport users, when deciding on their mode of travel, will take into account all costs to society. This is more than an accounting exercise and requires a model for two reasons. First, all modes interact and some of the external costs (congestion) depend on the volume of traffic itself. This means that optimal taxes require an equilibrium computation including all modes simultaneously. Second, pricing instruments are in general imperfect and this requires the trading off of welfare effects of too high or too low prices on different transport markets.

A final important element in the study of transport pricing reforms is the use of the transport tax revenues. The welfare effect of any change in revenues from the transport sector will crucially depend on the use of this revenue in other sectors. In the TRENEN models, the changes in the transport tax revenue are returned to the households. Their possible efficiency enhancing effect when used to reduce other taxes can be taken into account via a cost of public funds parameter.

The emphasis in the urban and interregional models is different. The urban models concentrate on urban modes (including walking and cycling), make a distinction between inhabitants and commuters and integrate parking costs and cordon tolling. The interregional models have tolled (highways) and untolled roads. An important part of the non-urban model is devoted to the freight transport modes. Morover it can be used in a two country version where countries compete for tax revenue from international freight transport.

The models are used in 6 urban case studies and in 3 interregional case studies. Compared to existing detailed transport network simulation tools, the TRENEN models are very simple. The zone that is studied is assumed to be homogeneous so that its network capacity can be aggregated into one speed-flow relationship. Transport infrastructure capacity (road and tracks) is taken as given. Transport behaviour is represented by a nested CES utility function. Moreover, the model is static and takes infrastructure as given. The model computes counterfactual equilibria for the transport market. No adjustment path is given. The main advantages are the multi-modal character, the integration of passenger and freight transport, the representation of all relevant externalities and the capacity to compute welfare optimising values for the available policy instruments. This allows an economically consistent comparison of second best policy options. Experienced transport economists can implement and calibrate the model using a minimum of available data and resources. In contrast to most transport pricing case studies, all TRENEN case studies use a common approach for the measurement of internal and external costs and benefits. This is a prerequisite for an analysis of policy proposals at the EU level.

In the next sections, we summarise the main findings of the case studies. Each case study consists of two parts. First there is an analysis of a reference equilibrium that corresponds to the expected situation for 2005 with unchanged pricing policies. This analysis is the result of calibrating a TRENEN model to the observed transport price and volume data in a given zone. Next, the calibrated model is used to test several common scenarios of pricing reform. These common scenarios include cordon pricing in urban areas and tolls on motorways, resource cost pricing of parking and regulation of emission characteristics of vehicles. For the analysis of the pricing reform scenarios, two benchmarks are used: the reference scenario with unchanged policies and the optimal pricing scenario where perfect pricing instruments are assumed.

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