Socio-economic analysis of freight transportation A Total Cost Analysis of freight transportation on road, and on rail through Flexiwaggon

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1 MID SWEDEN UNIVERSITY Institution of technology and sustainability Examination: Morgan Fröling Datum: Project report Socio-economic analysis of freight transportation A Total Cost Analysis of freight transportation on road, and on rail through Flexiwaggon Felicia Tengdahl Sofia Pettersson Emelie Eriksson Adrian Cordero Rojas

2 Summary The topic for this report is the socio-economic costs specific for four areas; emissions, road tear, accidents and noise that arises from two types of freight transport: truck on road and truck placed on Flexiwaggon. The result roughly describes the benefits for society if investing in Flexiwaggon in terms of marginal costs. Flexiwaggon is a transport alternative solution combining road and rail freight. Flexiwaggon can significantly reduce the CO2 emissions from road freight transportation. Other benefits are reduction of traffic accidents, noise and road tear. The combination of Flexiwaggon and freight trucks minimizes the loading and unloading labor. The technology is easy to introduce in current infrastructure since there is no need for loading terminals. Today transportation stands for approximately one fourth of the global CO2 emissions, a change in type of transport can reduce the emissions and contribute to a slowdown of the increasing global temperature. The result with Total Cost Assessment used as method, shows that costs for emissions, road tear, accidents and noise are all decreased by Flexiwaggon, especially when driven by electricity produced with low carbon emissions. A rough comparison between the average cost for a diesel powered freight train with 25 truck loaded Flexiwaggons, and 25 freight diesel powered trucks on road, shows that the use of Flexiwaggon can decrease emissions of green house gases (GHG) even when fossil fuels are used. ii

3 The study is based on literature studies where ASEK 5 and Delft served as main sources for cost factors and future carbon emission prices. Central values for cost factors in /tonne CO2 for 2010 are used to obtain the amount in tone of CO2 emitted per kilometer for each type of transport, from values presented in /km in Delft. The value tonne/km for each type of transportation is then used to demonstrate three possible price curves: low, central and upper, by multiplying with the recommended price values /tonne CO2 for each year. Figures from ASEK 5 were used to make the same calculations in order to estimate the price between vehicle /kilometers (Truck) vehicle /kilometers (Train). (Trafikverket, 2012) Marginal costs for environmental issues are biosphere damage, health costs, long term risk, and material damage. Marginal cost is the total cost change resulting from a one-unit change in the production level. Since some costs are fixed, the marginal cost most often deviates from the average cost per produced unit. Four areas are addressed in the report; emissions, accidents, road tear and noise. In Sweden the marginal costs are in general significantly lower for these four areas, when transporting goods, on rail with Flexiwaggon compared to road transportation. The report shows that the total marginal cost for society are larger for transportation with truck on road then truck on rail with Flexiwaggon, for every four areas that was looked into; emissions, road tear, accidents and noise. It is difficult to set a socio-economic value on impacts of climate change because of its complexity. This report shows that transportation of goods on rail has a lower marginal cost for carbon dioxide, even if the locomotive is driven by diesel. An analysis for future costs of carbon dioxide emissions shows that the price will rise. The results also show that an investment in Flexiwaggon can decrease marginal costs for society.

4 Table of contents SUMMARY... II TABLE OF CONTENTS... IV 1 BACKGROUND FLEXIWAGGON TRUCK CLIMATE CHANGE PURPOSE AND GOAL METHOD BOUNDARIES MARGINAL COST CALCULATIONS FOR GREENHOUSE GASES Climate change costs for freight trucks Climate change costs for freight train in Sweden Comparison between a diesel- and electric train in EU Freight train compared with Flexiwaggon RESULT ELECTRICITY PRODUCTION AND ITS CO 2 EMISSIONS Sweden Europe MARGINAL COSTS Emissions Road tear Accidents Noise MARGINAL COST CALCULATIONS FOR GREENHOUSE GASES DISCUSSION CONCLUSION REFERENCES WEB-BASED SOURCES REPORTS PERSONAL CONTACT iv

5 1 Background This report is focused on transportation of goods with truck on road and truck placed on Flexiwaggon, and the socio-economic costs arising for each type of transportation. The aim is to present the different marginal costs from four different areas; emissions, road tear, accidents and noise. Marginal cost is the total cost change resulting from a one-unit change in the production level. Since some costs are fixed, the marginal cost most often deviates from the average cost per produced unit. 1.1 Flexiwaggon The Flexiwaggon offers an opportunity to transport trucks and other vehicles on railroads. With its capacity to load cars, trucks, buses or containers on a wagon, it can reduce the vehicles on the roads. It can be hitched on an ordinary passenger train and have a speed up to 160 km/h. The loading of a truck takes about seven minutes and the process is automotive. The Flexiwaggon can load a maximum of 80 tonne. This way to transport goods is an efficient way even for short distances. (Flexiwaggon, 2013). The comparison is made with the assumption that the model of Flexiwaggon used are the standard RW and SW. Some characteristics of this wagon are, see figure 1: m Loadable length Maximum load of 80 tonne Using button controls for launching Figure 1 Standard model of Flexiwaggon. (Flexiwaggon, 2013)

6 1.2 Truck Freight trucks in average travel distances of about km per day, carrying a load between tonnes (weight accounts for both payload and vehicle itself).the 20 tonnes difference is due to the fact that not all freight trucks are fully loaded when in traffic or the goods being transported are of lighter weight than others. From the total of 88% of work transport carried out in 2012, 46% were trucks with tonnes loads and 43% with tonnes load. (Trafikanalys, 2012) According to Schenker the average lifetime is around years. In the case of Sweden the oldest freight trucks in traffic range between 8-10 years. (Olsson,P, 2013) 1.3 Climate change The global problem of climate change is a consequence of anthropogenic Green House Gas (GHG) emissions, of which the main gases are carbon dioxide (CO2), methane gas (CH4) and nitrous oxide (N2O), released from burning of fossil fuels. (IPCC, 2011)(Delft, 2008). Most of the observed increase in global average temperature since the mid-20th century is very likely due to the observed increase in anthropogenic greenhouse gas concentrations. - IPCC, Climate Change 2007 The expression "very likely" is used to describe a probability of 90 percent. When it comes to GHG emissions, transport is the second largest contributor preceded only by electricity production. In 2009 it was estimated that from the total CO2 emissions from fossil fuel combustion approximately 24% was caused by emission in the transport sector of which 16.7% were from road transport, see figure 2. (Jofred P. & Öster P, 2011) Figure 2 Global CO2 emissions from fossil fuel combustion in (Jofred P. & Öster P, 2011) 2

7 2 Purpose and goal The goal with this study is to carry out a socioeconomic evaluation in order to describe the benefits for society of investing in Flexiwaggon. The result from the report can be used to estimate the payback time of invested money. Many countries have a need for solutions for transport related problems e.g. global carbon dioxide emissions, air pollution, noise, road wear tear, traffic accidents.

8 3 Method Total Cost Assessment (TCA) is used as method in this study. TCA is a business decision tool that covers the financial and environmental impacts for procedural changes, operational changes, and the costs associated with them. (Ukena, M) Estimates about the external cost from the transport sector are gathered from ASEK 5 1 and Delft 2. The analysis is focused on the socio-economic costs from four different areas: emissions, road tear, accidents and noise, see figure 3. Figure from ASEK 5 and Delft are presented and emission costs for GHG are recalculated to demonstrate three possible price curves: low, central and upper. Figure 3 Four areas of impact regarding the socio-economic cost, when freight transportation is carried out on road or on rail. 3.1 Boundaries The geographical boundaries are set to Europe but the main focus is Sweden, and the functional unit used is cost per km. The report is also intended to describe the potential development for the cost for carbon dioxide emissions. The oldest pieces of data collected and taken into consideration do not exceed 10 years. 1 Report of the socio-economic principles and calculations for the transport sector, from Trafikverket 2 Handbook on estimation of external costs in the transport sector, 2008, Commissioned by: European Commission DG TREN 4

9 3.2 Marginal cost calculations for greenhouse gases The two main methods used in the Delft-handbook, to estimate the cost of greenhouse gas emissions are damage costs and avoidance costs. The socioeconomic costs of the key areas for assessing the social costs due to climate change need to be quantified when making an damage cost analysis. According to the handbook from Delft, the following effects are key areas for assessing the social costs due to climate change: Sea level rise Energy use Agricultural impacts Water supply Health impacts Ecosystems and biodiversity Extreme weather events 3 Major events 4 The avoidance cost method involves calculations of all costs that are needed to avoid the critical rates of greenhouse gases in the atmosphere that would lead to effects on the biodiversity and ecosystem. Since climate change is so complex, the combination of these two methods is recommended by the handbook from Delft, for calculations of emissions from transport. The recommended values from the handbook presented in the table 1 will be used to calculate total cost using the low- centraland upper value. (Delft, 2008) 3 Cost from this category is often excluded from studies. 4 Potential catastrophic results from climate change are not captured in models.

10 3.2.1 Climate change costs for freight trucks The climate change cost per driven kilometer are found in the Delft - handbook. The average cost value for freight trucks with a weight of tonne and EURO-5 5 is 1.4 /vehicle km. This value is based on the central values for cost factors in /tonne CO2 for 2010 (25 / tonne CO2). See table 1. (Delft, 2008) Table 1 Recommended values for the external cost of climate change (Delft, 2008) To draw a comparison of the price per vehicle kilometer between 2010 and 2050 the following calculations were made. The average climate change costs for trucks (1.4 /vehicle km) are divided by the central value for 2010 (25 /tonne CO2), see table 1, in order to obtain the value of tonne CO2/km. The answer is then multiplied by every recommended value for different years according to table 1; see the average cost calculations in table 2. tonne CO2 / km /vehicle km Table 2 Average costs for driving a freight truck with a weight of tonne and EURO-5 in /vehicle km Lower value Central value Upper value * * * * * * * * * * * * * * *180 The result is shown in figure 8. 5 European emission standards for vehicles 6

11 3.2.2 Climate change costs for freight train in Sweden Figures from ASEK 5 were used to make the same calculations in order to make a comparison between the climate change cost for trucks and trains in Sweden, estimated in EURO per kilometer. (Trafikverket, 2012) 1 According to ASEK 5 the average cost for carbon dioxide outlets for train in Sweden is SEK/vehicle km. A rough conversion to euro gives: /vehicle km. The average of this interval is /vehicle km, and that number is used during the calculations. (Trafikverket, 2012) 1 The average climate change costs for trains 6 are divided with the central value (25 / tonne CO2) for 2010, table 1. The answer is then multiplied with every recommended value for different years according to table 1; see average cost calculations for train in table 3. tonne CO2 / km /vehicle km Table 3 Average costs for driving a freight train in Sweden in /vehicle km. Lower value Central value Upper value * * * * * * * * * * * * * * *180 The result is shown in figure /vehicle km

12 3.2.3 Comparison between a diesel- and electric train in EU In the Delft-handbook there are also climate change costs in /vehicle km for trains running on diesel and electricity for Europe. For these values, both direct and indirect emissions are taken into account. The electric locomotive has a carbon dioxide cost of 30.7 /train km while a diesel locomotive has a cost of 34.6 /train km. (Delft, 2008) These numbers are multiplied by every recommended value for different years according to table 1, and average values for every year are calculated. Comparisons between carbon dioxide costs of electric and diesel powered trains are presented in table 4, in /train km. The same calculations are done, using table 1. tonne CO2 / km for electric train /train km tonne CO2 / km for diesel train /train km Table 4 Average costs of diesel- and electric train, in /train km Electric train Diesel train The results are shown in figure 10. 8

13 3.2.4 Freight train compared with Flexiwaggon The average length of a freight train is 500 m. (Atkins, 2012). Dividing 500 by 20 (approximate length for a wagon) give a total of 25 Flexiwaggon with trucks transported. A rough comparison between the average cost for freight train with 25 truck loaded Flexiwaggons, and 25 freight trucks on road; both diesel powered are shown in table 5. The values for freight diesel train are only the cost for the direct emissions from transport, according to Delft. A diesel locomotive has a cost for carbon dioxide for direct emission of 29 /train km. (Delft, 2008) The same calculations are done, and average values for each century are calculated, using table 1. tonne CO2 / km for diesel train /vehicle km The average carbon dioxide cost per truck for each century (table 2), is multiplied by the number of trucks that can be loaded on a standard length freight train, which is 25, in order to make the numbers comparable. Table 5 Average cost for a freight train with 25 Flexiwaggons compared to 25 freight trucks, both diesels powered, / km. 25 trucks Diesel train The results are shown in figure 11.

14 4 Result The result shows that costs for emissions, road tear, accidents and noise are all decreased by Flexiwaggon, especially when driven by electricity produced with low carbon emissions. A rough comparison between the average cost for a diesel powered freight train with 25 truck loaded Flexiwaggons, and 25 freight diesel powered trucks on road, shows that the use of Flexiwaggon can decrease emissions of green house gases (GHG) even when fossil fuels are used. 4.1 Electricity production and its CO 2 emissions When assessing the environmental marginal cost for electricity demanding products, the outcome highly depends on if the system boundaries are set so to include the electricity production or not. Knowing how the electricity has been produced is complicated since the electricity is produced by different sources and the production rates are seldom constant. How much electricity that originates from a specific source, a specific time depends on many things such as fuel prices, weather conditions, quantity in reservoirs etc. The fact that the origin of electricity varies depending on time shows that an average of a country's specific production sources in percent forms a better basis for calculations of environmental marginal costs. (Elforsk, AB) 10

15 4.1.1 Sweden Sweden s electricity related emissions of GHG are relatively low since electricity production consists primarily of nuclear- and hydropower. Sweden s total electricity production in 2011 was TWh. According to Swedenergy the total CO2 emission was tonnes which represents 6.5% of the country s CO2 emission in (Svensk Energi, 2012) Figure 1 Sweden s total electricity production in 2011, divided into different types of energy. (Energimyndigheten, 2012) Europe The majority of electricity used in the EU is produced by fossil fuels. Pulverized coal is used in power plants (Conv. Thermal power), which releases big amounts of CO2 into the atmosphere. Any change in the efficiency of power generation into more renewable sources can contribute to lower emissions. (European Comission) Figure 2 Europe s total electricity production in 2012, divided into different types of energy. (Eurostat, 2012)

16 4.2 Marginal costs Marginal costs are calculated from four different areas of road and railroad transportation; emissions, road tear, accidents, and noise, see figure 3. Table 4 Overview of marginal costs for electric freight train and freight truck in Sweden, calculated for year 2012 presented in SEK/tonkm. According to these numbers, marginal costs are about 18 times higher for transportation of goods on road (Trafikverket, 2012) 1 Figure 3 Marginal cost for different areas, for both freight- train and truck, presented in SEK/tonkm (Trafikverket, 2012) 1 12

17 4.2.1 Emissions The socio-economic costs from emissions are divided into global-, localand regional emissions. The global emissions from combustion of fossil fuels from transportation of trucks and trains mainly consist of carbon dioxide (CO2). (Trafikverket, 2012) 4. It is difficult to put a figure on the socio-economic prices for climate change from carbon dioxide, but one method used is an avoidance cost approach. Environmental marginal costs arise from environmental issues such as biosphere damage, health costs, long term risk, and material damage. (Delft, 2008) The costs from local emissions are the damages that are caused near the outlet source. The combustion of fossil fuels generates emissions of sulphur dioxide (SO2), hydrocarbons (VOC), nitrogen oxide (NOx) and other particulates. It is important to try to summarize and value all the effects that may occur from the emissions to put a value of the costs associated with the emissions. (Trafikverket, 2012) 3. The regional emissions are direct (primary) and indirect (secondary) from combustion of fossil fuels. The effects from these emissions occur on a relative large area away from the outlet source. The emissions are the same as for local pollutions; SO2, VOC, NOx and particulates, and can have negative effects on health- and nature such as eutrophication and acidification. (Trafikverket, 2012) Road tear The degree of road tear is dependent on the gross weight and size of freight trucks. The most common cost for road tear is the costs of investments on operation and maintenance of the road and rails. (Trafikverket, 2012) Accidents Every accident that is caused in traffic from either rail or road is a socioeconomic cost for the society. The costs for society consists of, risk assessment, sick leave from work, hospital costs, administration, damage to property or/and ground but also the cost for relatives that are effected. The costs for railroad traffic are most commonly caused by crossing accidents and other accidents. (Trafikverket, 2012) 1.

18 4.2.4 Noise Noise is a marginal cost for society since it has negative effects on the population regarding stress, sleeping issues, elevated blood pressure etc. The total disturbance is a summary of conscious-, unconscious- and direct disturbances. (Trafikverket, 2012) Marginal cost calculations for greenhouse gases It is difficult to set a monetary value for these emissions, much due to many uncertain factors that must be taken into consideration to determine the resulting damage. These greenhouse gases have different life spans in the atmosphere, meaning that their effect on global warming will be different both in global warming potential and time, which is why it can be necessary to differentiate between them or analyze scenarios using different time spans. Many of these factors may not be a part of the economic market e.g. biodiversity and ecosystems, and are therefore difficult to put a value on. Furthermore, insufficient knowledge about the interactions of the effects from climate change, it is difficult to predict exactly how the climate will be affected in the future. Moreover, secondary consequences should also be included to make a complete assessment, but these are even more difficult to predict. (Delft, 2008) 14

19 Figure 7 shows a comparison between the cost for carbon dioxide emissions from truck and train (see calculations in method). The unit is euro/km and an expected development is estimated from 2010 to The marginal costs for carbon dioxide emissions are higher for trucks. Figure 4 Comparison of average cost for a EURO-5 truck weighing tonnes and electric train in Sweden presented in euro/km. (Delft, 2008), (Trafikverket, 2012) 1

20 Figure 8 shows the potential development from 2010 to 2050, of marginal cost for EURO-5 trucks weighing tonne, according to calculations found in table 2. The possible development of price per kilometer is shown in three different case scenarios, based on estimations of lower (worst case scenario) central (average case scenario) and upper (best case scenario) values for carbon dioxide price. Future performance improvements are excluded. Figure 5 Potential development of marginal cost for EURO-5 trucks weighing tonnes. The range is calculated based on estimations of future carbon emission prices and are presented in euro/km. (Delft, 2008) 16

21 Figure 9 shows the potential development from 2010 to 2050, of marginal cost for freight trains in Sweden, according to calculations found in table 3. The possible development of price per kilometer is shown in three different scenarios, based on estimations of lower (worst case scenario) central (average case scenario) and upper (best case scenario) values for carbon dioxide price. Future performance improvements are excluded. Figure 6 Potential development of marginal cost for freight train in Sweden. The range is calculated based on estimations of future carbon emissionprices and are presented in euro/km. (Delft, 2008)

22 Figure 10 shows the potential development from 2010 to 2050, of marginal cost for carbon dioxide, from freight diesel- and electric trains in Europe, according to calculations found in table 4. Both marginal cost for indirect (electricity production and fuel production costs) and direct (cost per kilometer) are included. Both indirect and direct costs are included because the direct emissions from freight electric trains in Europe are too low to put a value on. It is therefore not possible to compare these figures with transportation of goods by truck because the indirect and direct costs are included. Figure 10 show that the price for carbon dioxide outlets is larger for transport with diesel compared with electric train. Figure 7 Direct and indirect marginal cost from freight train driven on electricity and diesel in Europe. (Delft, 2008) 18

23 In order to express the cost for Flexiwaggon combined with a diesel powered locomotive, in a way that makes it possible to compare with the cost for trucks, the indirect costs has to be included or excluded in both cases. Figure 11 shows the marginal cost differences for GHG emissions arising from diesel-powered transportation of 25 trucks either on road or on rail, according to calculations found in table 5. Figure 8 Average cost for a freight train with 25 Flexiwaggons compared to 25 freight trucks, both diesels powered. (Delft, 2008)

24 5 Discussion The total marginal cost for society are larger for transportation with truck on road then truck on rail with Flexiwaggon, for every four areas that was looked into; emissions, road tear, accidents and noise. See table 6 and figure 6. According to this numbers the social marginal costs are about 18 times higher for transportation of goods on road. This means that the society would gain on investing in Flexiwaggon and transport trucks on the rail instead of on the road. It is difficult to set a value on the price that society pays for transport of goods, because it affects many factors like; the ecosystem and biodiversity, sea level, agriculture impacts, water supply and human health. The costs are not included in the market why responsibility and price are uncertain. In Sweden the average cost for global warming are larger for transportation with truck on road, see figure 8. Based on estimated figures for 2050, the upper value for carbon emission cost from trains, is lower than the lowest value for trucks, see figure 8 and 9. This means that transportation on trains with Flexiwaggon would be important in the future taking the climate change into account. Trains in Sweden are driven by electricity and the majority of Sweden s power generation is produced by sources with low CO2 emissions. In the case of changing freight transport on truck, to Flexiwaggon on rail, this would decrease the emissions of CO2 significantly. For another country where the trains are driven by diesel or electricity that is produced by fossil fuels, the price for carbon emissions would be larger, but still more beneficial than transportation with only freight trucks if trains of standard length are used. When focusing on the cost for impacts from transportation, decisionmakers need to consider many different aspects. Emissions, road tear, accidents and noise are all decreased when using a Flexiwaggon, especially when driven by electricity produced with low carbon emissions. 20

25 6 Conclusion The estimation of the total cost analysis of truck on road and a truck transported by Flexiwaggon on train, shows that the society would gain in investing on transportation of goods by Flexiwaggon. Social costs for emissions, road tear, accidents and noise are all lower for transportation by Flexiwaggon. Furthermore the emissions of greenhouse gases would be lower with transportation by Flexiwaggon.

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28 Reports Jofred P. & Öster P, 2011, CO2 Emissions from Freight Transport and the Impact of Supply Chain Management, KTH Industrial Engineering and Management Industrial Management. Retrieve Trafikanalys. 2012, Lastbilstrafik Swedish national and international road goods transport 2012, Publishing date: Retrieve Personal contact Olsson, Pierre, press and media officer, Schenker Retrieve