Assessing the benefits The Joint Air Quality Unit (JAQU) have identified three key benefits to capture:

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1 Appendix E - Economic Modelling Methodology Introduction This study will explore the economics case for the AZ by demonstrating the value-for money (VFM) of the proposed option and provides value to the public. The costs and benefits of each of the AZ options will be assessed and compared through cost-benefit analysis (BA). BA aims to identify, assess and place a monetary value on all impacts associated with a given policy option. In doing so, the impacts of a single option can be combined to judge the overall net effect. Options can be compared to assess which delivers the largest net benefit. Alongside overall VFM, it is clear that other objectives are important. oncerns have been raised regarding economic damage and that different groups will be disproportionately affected. The outputs of the economic analysis will need to be clearly and concisely written up in the economic business case, which will form part of the Final Business ase supporting the proposed option. This will be subject to public consultation before formal submission to the Secretary of State. Methodology Assessing the benefits The Joint Air Quality Unit (JAQU) have identified three key benefits to capture: Air quality emissions: The reduction in air pollution is the key objective of the AZ. First, the change in emissions from the AZ option will be estimated using emissions modelling. This will then be combined with the IGB s air pollution damage costs 1, which convert emission concentrations into monetised health impacts, to estimate the total benefit of each AZ option. The damage costs capture a range of effects associated with exposure to air pollution: impacts on human and environmental health, amenity and productivity effects. Greenhouse Gas (GHG) emissions: Where vehicle owners upgrade vehicles or cancel their journeys, this will have an impact on fuel consumption and in turn on the emissions of GHG s. Any change in GHG emissions will influence the ability of the UK to meet its climate change targets. hanges in GHG emissions will be taken where available from the underlying modelling, otherwise estimates will be made based on available data (e.g. changes in vkm travelled). The resulting change in GHG emissions will be valued following BEIS guidance 2. Traffic flow improvements: Where vehicle owners cancel journeys or avoid the zone, this can lead to changes in traffic and congestion within the zone. Using inputs from the underlying transport modelling (i.e. change in travel time), we will apply DfT s WebTAG guidance to monetise any benefit from reduced congestion 3. Alongside these effects, there may be other smaller impacts. Given limitations in data and / or assessment methodologies, we will assess the following qualitatively using the methods set out by Defra in their Wider Impacts Model 4 : Noise impacts: hanges in traffic in the AZ will also impact on noise pollution, which like air pollution has a range of detrimental effects

2 Active travel benefits: vehicle owners who avoid travel into the zone by switching to active travel modes, such as walking and cycling, will benefit from health benefits associated with exercise Reduction in accidents: a reduction in road traffic in the zone will also reduce the potential for accidents. However, this will need to balance against potential increases in traffic outside the zone. Assessing the costs We will also undertake an assessment of the cost implied by the AZ options. Two key costs will be captured. ompliance costs: In order to comply with the AZ, vehicle owners will be required to take action to respond. The response chosen will have a cost. JAQU have provided guidance on the types of behavioural responses (and the proportion of owners adopting each response) which should be reflected in the analysis (unless more appropriate local data is available). This guidance depicts four possible responses, each of which carries a number of impacts for vehicle owners, as set out below. Table 2.1 Mapping of impacts against behavioural responses Behavioural response Impact Notes Pay harge Avoid zone (alternative route) Avoid zone (mode switch) ancel journey Upgrade vehicle AZ charge harges paid by user when entering the zone Fuel/ operating cost Travel time hanging travel patterns and distances will carry with it a change in fuel costs, and likewise operating costs (which vary with distance travelled) hanging travel patterns and routes will likely vary in the time spent travelling B B /B B Welfare loss Transport users preferences will vary between different modes. Likewise, transport users place a value on the activity they travel to participate in, which is lost where journeys are cancelled apital cost Loss of asset value Where replacement vehicles are purchased, this will carry an upfront investment cost Where a AZ is put in place, this could reduce demand for and hence the value of non-compliant vehicles Notes: = cost, B = benefit; We will adopt JAQU s detailed assumptions regarding the alternatives taken up where vehicles are replaced.

3 Across all impacts two important inputs are: 1. the number of unique vehicles which travel to the AZ over the course of the year, and 2. the number of trips made by each vehicle. We will use local data are available to inform these assumptions, in particular ANPR data. Implementation costs: Alongside costs to vehicle owners, there will also be costs for monitoring and enforcement for the implementing authority. These costs would include items such as cameras, signage, and back office staff. Distributional analysis For the Nottingham AZ, two potential distributional effects are considered important: 1. Potential for economic damage: i.e. affordability for businesses 2. Air quality (changes in concentrations of NO 2) : ie the potential for one group to be disproportionately affected and the need to minimise the impact on areas of high deprivation. We will complement the social BA with analysis of these effects. This will explore in further detail where the costs of compliance fall, and any subsequent impacts. Affordability for businesses ompliance with the AZ will place costs on businesses which operate in and around the Nottingham city region. Businesses may face an increase in their costs of operating, through e.g. the need to invest to upgrade vehicles or pay the AZ charge. Even where businesses are not directly affected, there may be a knock-on as the AZ impacts ripple through the supply chains of those directly affected. A AZ could also increase the costs for consumers, visitors and business people travelling to the city. The costs for businesses will depend on a number of factors: location of premises, journey routes made for business and by commuters, frequency of journeys made, whether firms operate a HGV fleet, ownership and age profile of the HGV fleet, etc. However, what is equally as important is what impact any costs will have on operation. E.g., are firms able to pass costs onto customers? If so what proportion and what impact will this have on demand for their business? If they are unable to pass costs on, what effect does this have? Does this reduce profit, investment or employment, or will this push the firm to operate elsewhere or out of business completely? Linking changes in business behaviour to the AZ specifically is very difficult given the AZ will be one of a number of factors influencing decisions. The quantitative analysis of compliance costs described above will provide an estimate of the total costs, from which we can define a cost for business. This will consider to what extent costs can be passed through to consumers. Where costs are absorbed, we will compare these to over-arching economic parameters (e.g. value added, total output) to assess how great a burden the costs could place on businesses. We will also identify the sectors most at risk. Together this analysis will bring together a narrative of which businesses are likely to be affected, what the potential response of businesses may be and how significant the effects will be. Air quality Alongside costs, the benefits of the AZ may also fall disproportionately across groups. To explore this further, we propose to undertake post-processing of the air quality modelling. We will overlay the outputs with spatial data-sets depicting the distribution of different groups. The results could include, e.g.:

4 Average change in population weighted air pollutant concentrations, split by income decile / different levels on the index of multiple deprivation Number of people in different income deciles / levels of multiple deprivation removed from living in areas of exceedance. Appendix 3 Discussion of wider sensitivities Wider sensitivities around options Appraisal There are some key considerations that need to be factored in to the assessment of potential lean Air Zone options. These are factors that will commonly be considered as part of wider and longer term transport planning and whilst not directly linked to emission reduction measures at specific locations, they must be considered against the wider context of Transport Planning at the city, regional and national level. Demographic hallenges What are the changes that will impact on transport demand, type of transport used and volume of transport? Population growth and an aging population will have impacts on assessment of transport needs for a changing demographic. Economic Shift There are changing service delivery models that will place different demands on transport and highways. The growth of on demand deliver models, such as Amazon Prime and Argos 1 hour deliveries, and Deliveroo will see an increasing number of journeys being made to meet customer demand for instant delivery. This presents challenges in terms of trying to encourage consolidation as instant supply of goods reduces opportunity for rationalisation of deliveries. Political landscape There is a requirement to consider the impact of political considerations or factors in terms of deliverability of options. The need to consider the ritical Success factors in particular minimising economic impact and impact on protected groups. Technical hallenges Options appraisals need to consider the potential for new transport models or solutions that may impact upon AZ planning. Technical solutions that support mobility as a service, automation of transport, even driverless vehicles for example present challenges that may have both positive and negative impacts upon transport behaviours, volumes and profiles. Technology will have an impact on the movement of data, information, people, assets and goods. It may also have an impact of the form of propulsion in terms of energy consumption and the demands that may be made on utilities and grids to support those. Environmental Focus Scarcity of resources mean that fossil fuels should have a defined shelf life. The potential to introduce renewable energy to the transport sector is broadly seen as a positive step to reduce tailpipe emissions. Low emission vehicles such as EV s or NG powered vehicles present clear opportunities to support improvement in air quality. However, there are infrastructure challenges that need to be assessed. lean Air Zone planning in Nottingham and other cities will look to encourage uptake of ULEV s and alternative fuel vehicles. Transport consultants have raised concerns that the national grid infrastructure may struggle to meet demand unless there is significant improvement and investment in new energy delivery models and local storage capacity. Essentially there are key drivers of change for Transport Planning that need to be considered;

5 The evolving economy Nottingham economy is forecast to grow, with associated transportation growth and demands placed in terms of commuters travelling into the city to work. The changing environment hanges to the city landscape will impact upon Transport Planning within the city and AZ considerations need to take account of that. hanging user needs & desires hanges in the service economy and how people expect to connect with each other, services, goods and use of data to underpin this mean that the AZ options need to consider impacts of customer, commercial and technological changes. Demographic shifts There is an aging population in the UK, Nottingham s population is expected to grow and the way people live, where they choose to live and just as importantly where they choose to work is changing. Interdependencies In terms of interdependencies, there are stakeholders; National Government Ability to influence nationwide direction of travel through policy levers, signifying fuel switch preferences through fiscal policy and developing of cross departmental strategy that ensures wider strategic fit with improving Air Quality nationally. Highways England (for placement of signage and diversion of traffic) as well as impact on Motorway routes that potentially intersect the AZ. Bordering Locals Authorities. Pending the outcome of the new Air Improvement Plan there may be changing priorities amongst other adjoining Local Authorities, ie Derby. There may be the need to liaise on advance warning AZ sign placements. Bus companies. Fleet changes to meet AZ requirements. NG plant. Additional Alternative Fuel Opportunities that can provide reduced emission refuelling options. Taxi and private hire licensing. Potential for wide changes to licensing conditions and implementation of measures to encourage ULEV uptake. DVLA. Access to data and requirement for DVLA updates to data they hold to support AZ enforcement. DFT. Leadership on national framework for AZ signage. JAQU. Leading on developing the National AZ framework and co-ordinating AZ city issues and progressing national plans to support LA s. Treasury. Approval of AZ business cases and provision of funding, provision of fiscal incentives and strategies to encourage ULEV uptake nationally. itizens. Behavioural changes and transport mode shift. There will be a need to ensure willingness and ability of commercial and business cases to be made by the above stakeholders to support the lean Air Zone measures by developing their own response to the impacts it will have on transport needs. Air Quality is clearly a priority, but this priority may not be shared by other sectors, as such We must also consider additional dependencies;

6 Legislative frameworks or strategies impact on National Policy changes that could drive transport changes. Fiscal or taxation changes that may drive behaviours or choices on vehicles could be incorporated into lean Air Zone options appraisals. Role of technical change to support deliverability of both AZ solutions, but also to support development of measures to increase uptake of alternative travel modes such as easy ticketing on public transport.