Process, Scenarios and Forecasts, Macroeconomic Evaluation Methodology. Federal Transport Infrastructure Planning (FTIP)

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1 Process, Scenarios and Forecasts, Macroeconomic Evaluation Methodology Federal Transport Infrastructure Planning (FTIP) Dr. Peter Gehrung March 2003

2 Table of Contents 1. Introduction 1 2. Purpose and legal framework 1 3. Process 3 4. Objective levels 4 5. Scenarios/traffic trend forecasts 5 6. Macroeconomic evaluation methodology Benefit-cost analysis (BCA) Environmental risk assessments (ERA) Spatial impact assessment (SIA) Organization/Management Investment and Funding (Transport budget) 15

3 1 1. Introduction The Federal Government s planning of its transport infrastructure federal trunk roads, railway lines and federal waterways is a complex procedure with manifold individual steps. In this context, the administration has to establish priorities. Detailed transport forecasts and an extensively formalized and objective assessment procedure are the basis for deciding which infrastructure projects are particularly urgent and have the highest benefit-cost ratio for the community as a whole. Only highly profitable and ecologically compatible investment measures will have a chance of realization and justify the spending of tax revenues. 2. Purpose and legal framework According to the Basic Law the Federal Government is the owner of the federal trunk roads (federal motorways and federal highways) and of the federal waterways (Articles 89, 90 of the Basic Law). The federal railway infrastructure is owned by railways in which the Federation holds a majority interest. They are to be operated as private enterprises. They are the property of the Federation as far as the construction, maintenance and operation of the rail infrastructure is concerned (Article 87e Basic Law). The Federation meets its responsibility for the railway infrastructure by providing budgetary means for investments in the construction, upgrading and replacement of infrastructure of the federal railways according and pursuant to the so-called Federal Railway Infrastructure Development Act. The federal transport infrastructure does not include seaports and inland ports, airports and goods distribution centres. The planning, construction and maintenance of these facilities is the responsibility of the Federal States or municipalities, they are not the task of the Federal Government. The Federal Government is only responsible for providing connections between these facilities and the federal trunk road and railway networks. For this purpose, financial resources are made available within the framework of Federal Transport Infrastructure Planning (FTIP). As owner of the federal trunk roads and federal waterways (indirectly also of the federal railway infrastructure) the Federal Government is responsible for their construction and maintenance, i.e. for financing them. The financial resources required for this purpose must be used in responsible manner and to the benefit of the general public. That is why it must be carefully planned how and where investments would be most appropriate and most urgently needed.

4 2 In addition, the individual modes of transport interact in many ways. Rail, road and air transport as well as shipping can complement or even replace each other fully or in part. In this respect largescale investment projects compete with each other for tight budgetary means. Since the middle of the seventies the Federal Government has, therefore, based its investment policy for the federal transport infrastructure on integrated planning. Integrated planning takes place within the framework of overall transport concepts and is reflected in so-called Federal Transport Infrastructure Plans (FTIP) which are established by the Federal Government for an overseeable period of time (as a rule about 10 years) and adopted by the Federal Cabinet. These FTIP describe, in accordance with the financial resources presumably available for the periods of validity concerned, the investment volume required for the preservation and upgrading of the existing infrastructure. In addition to that, planned ("considered") construction and development projects are classified into different priority categories, depending on the result of their overall economic and environmental assessment. The FTIP reflects the investment goals of the transport policy of the Federal Government. It is a general investment plan and thus a planning instrument rather than a financing scheme or programme. Its does not contain any details for funding and the time when a particular measure/project is to be realized. The individual measures/projects are realized when they have reached "construction maturity" (construction law, normally through plan approval decision; implementation draft) in view of the budgetary means available every year (so-called budgetary proviso). The FTIP in effect is updated on the basis of the result of the review of the requirement plans for federal trunk roads and/or the federal railway infrastructure to ascertain their need for adaptation to the transport development, which takes place at regular intervals (about every five years). The requirement for the development of the federal trunk road network has been regulated since 1970 by the Federal Trunk Road Development Act. The so-called requirement plan for federal trunk roads is annexed to this Act (i.e. to its amended version concerned) as a map. This plan is based on the actually applicable FTIP and contains all construction and development (upgrading) measures along federal trunk roads planned for its period of validity. In order to ensure equal treatment of rail and road, the requirements for the development of the federal railway infrastructure, too, were regulated for the first time in 1993 by the Deutsche Bundestag (German Parliament) by means of the Federal Railway Infrastructure Development Act. Annexed to this Law - in the form of a project list - is the so-called requirement plan for the federal railway infrastructure.

5 3. Process 3 The individual steps of preparing the new 2003 Federal Transport Infrastructure Plan (FTIP 2003) are described in the diagram in Figure 1: Step no. Activity Main parties involved apart from FMTBH 1 Scenarios/forecasts of traffic development Structural data forecast Scenario definition Overall traffic forecasts for passenger and goods transport Determination of transport network capacity utilization 2 Modernization of evaluation methods, mainly Environmental risk assessment Evaluation from the point of view of regional planning Assessment from the point of view of urban development 3 Examination of transport networks / project applications Bottlenecks, gaps in the network Network optimization Proposals for routes to be constructed or upgraded 4 Evaluation of the projects and determination of whether their realization is necessary Evaluation of individual projects Interdependence considerations Proposals for prioritization 5 Categorization according to priorities while taking account of financial planning Determination of investment funds available Draft Transport Infrastructure Plan 6 Hearings/Coordination Coordination at state level (Laender) Coordination at federal level Information to expert circles and associations Proposal submitted to Cabinet 7 Cabinet decision Federal Transport Infrastructure Plan at the same time: draft requirement plans as annexes to the upgrading acts 8 Legislative procedure Discussion of the upgrading acts with accompanying requirement plans Adoption of the acts FMTBH = Federal Ministry of Transport, Building and Housing Figure 1: Individual steps of preparing the FTIP 2003 Federal Ministries Experts Federal Ministries Experts Federal States (Laender) Deutsche Bahn AG (German Railways) Associations Experts Federal Ministry of Finance Federal States (Laender) Associations Federal Ministries Federal Cabinet Deutscher Bundestag (Federal Parliament) Bundesrat (Federal Council representing the Federal States)

6 The major elements of the FTIP 2003 are: 4 Overall traffic forecasts for passenger and freight traffic on the basis of scenarios (step 1); Macroeconomic project evaluations, based on standards that are uniform for all modes of transport, to determine the necessity and degree of priority of transport infrastructure projects under consideration. The evaluations comprise benefit-cost analyses, spatial impact assessments and environmental risk assessments (step 4). In the current procedures of the FTIP 2003, the revision and updating of the macroeconomic evaluation methodology (step 2) has largely been carried out in parallel with the traffic forecasts (step 1), as the second major stage of work. 4. Objective levels Federal transport infrastructure planning is guided by central transport policy and societal objectives. The FTIP 2003 is based on the following list of goals: ensuring sustainable mobility; enhancing German competitiveness in the global economy, in order to create new jobs and secure existing jobs; promoting sustainable patterns of development; creating fair and comparable conditions of competition for all modes of transport; improving traffic safety for transport users and the general public; reducing the use made of nature, landscape and non-renewable resources; reducing emissions of noise, pollutants and climate change gases (principally CO 2 ); promoting European integration. For the traffic forecast scenarios, these overarching objectives (meta-level) are concretized by regulatory measures and measures of price policy. For the FTIP 2003, there were initially three different scenarios, from which the integration scenario was selected as a basis for the traffic forecast. By selecting this scenario, an approach has been adopted that attempts to reconcile the economic, ecological and social requirements which are not always consistent with one another to be met by transport policy (scenario level). At the evaluation level, the overarching objectives of federal transport infrastructure planning are taken up again. As part of the evaluation of competing rail, road and waterway projects, the totality of impacts is taken into account.

7 Objective levels in FTIP 5 Meta-level (Overarching transport policy objectives) Scenario level (Scenarios as a basis of traffic forecasts) Evaluation level (Components of macroeconomic evaluation) Figure 2: The three objective levels in FTIP Before the evaluation calculations can be carried out, the freight and passenger traffic forecasts have to be converted into route-specific vehicle flows. This is done using very complex computerized traffic apportionment models and models that simulate operational conditions. The quantifiable evaluation components, such as reducing the price of transport processes, enhancing traffic safety, relieving environmental pressures, etc., thus correspond to the overarching objectives of FTIP. As a result, the overarching objectives of FTIP become a concrete benchmark at the project evaluation level. The result of the macroeconomic evaluation consisting of the benefit-cost ratio plus other non-monetary appraisals is a standard for the resolution of conflicts. 5. Scenarios/traffic trend forecasts Scenarios and forecasts are of great importance when it comes to fleshing out the FTIP Here, for instance, targets for a comprehensive shift of the future growth in freight traffic from the roads to the railways and waterways are studied. Likewise, it is possible to analyze the impact of specific regulatory rules (for instance distance-related charges for heavy goods vehicles using motorways). Of particular relevance to the objective of achieving better use of the capacities of all modes of transport is the level of user costs in road, rail, air and waterway transport and the way in which they have changed compared with the reference year of These costs are influenced primarily by the following variables and the form they take: distance-related charges for heavy goods vehicles using motorways; fuel sales prices for the individual modes of transport; emission-related take-off and landing charges in air transport. In the FTIP 2003, three scenarios have been studied:

8 6 A so-called laissez-faire scenario, an overload scenario and an integration scenario. The laissez-faire scenario assumes that the Federal Government does not pursue any transport policies to change the 1997/1998 status quo. In this case, changes will result, in particular, from a further reduction of average fuel consumption by around 21 % for passenger cars and just under 8 % for heavy goods vehicles. On the other hand, there will increases (in real terms) in the price of fuel at the pump including the ecology tax between now and 2015 of a total of around 21 % for passenger cars and 28 % for heavy goods vehicles. Whereas an increase in productivity of 14 % is assumed for the road haulage industry, the railways will achieve a productivity increase of around 7 %. As far as inland navigation is concerned, it is likely that it will increase its productivity by 25 % between now and The opposite is the so-called overload scenario, which involves imposing considerable costs on the road (both passenger and freight transport) and air transport sectors, something for which no consensus is apparent in a society as a whole. The aim of this scenario is to shift traffic from the roads to the railways, and this can only be achieved by introducing road pricing for passenger cars, resulting in significantly higher user costs for motorists. This would not just jeopardize the objective of area-wide i.e. including rural areas mobility; a drastic rise in the burden imposed on passenger cars by user charges would also impair the mobility of large sections of the population, especially in view of the fact that this scenario is also based on higher fuel costs. The social component of mobility mobility for everyone which is also laid down in the coalition agreement, would thus be disregarded in the triangle of economic, ecological and social objectives. The drop in purchasing power that this would entail, with its negative impact on the economy and employment, would be diametrically opposed to the Federal Government s primary economic, social and employment objectives, which are geared towards strengthening German competitiveness in the global economy and reducing unemployment. In the FTIP 2003, the Federal Government is pursuing an integration scenario, which involves an integrated approach to transport policy. This policy will be able to absorb the enormous growth in traffic in such a way that mobility can be made sustainable and economically manageable. If we look at the way in which user costs will develop between now and 2015, it is apparent that the railways have the greatest productivity reserves. For this reason, we must continue the approach whereby these reserves are exploited and the economic efficiency of the railways enhanced. On the roads, it will be possible, by means of enhanced energy efficiency in fuel consumption, to limit the rise in user costs for passenger transport to 15 % over the period between now and The Federal Government does not intend to introduce a passenger car vignette, which would increase user costs in passenger transport on the roads by a total of around 70 %. In the road haulage sector, user costs can be reduced not only by enhancing energy efficiency, but also by fully exploiting all the logistical and operational productivity reserves.

9 7 In the following, the scenarios are presented in tabular form: Table 1: Change in the cost burden imposed on users as a function of the scenarios User costs*) Change between 1997 and 2015 Laissez-faire Integration Overload Road passenger transport - 5 % + 15 % + 70 % Road freight transport - 19 % - 4 % + 14 % Rail passenger transport Constant in real terms - 30 % for long-distance leisure journeys - 30 % for longdistance leisure journeys Rail freight transport - 7 % - 18 % - 18 % Air transport Constant in real terms + 9 % + 18 % Inland waterway - 25 % - 25 % - 25 % *) The changes in user costs are changes in real terms (i.e. adjusted for inflation) in 1997 prices/costs These assumptions regarding the changes in user costs in passenger and freight transport of the individual modes are used to estimate (roughly) the transport demand likely to exist in The results are presented in the Tables 2 and 3 below: Table 2: Mileage and modal split in passenger transport (comparison between 1997 and 2015) 1997 Laissez-faire Integration Overload Bn pkm Share Bn pkm Share Bn pkm Share Bn pkm Share Road % % % % Rail % % % % RPT*) % % % % Air % % % % Total % % % % *) Road-based public transport (light rail transit (underground), trams, trolley buses, motor buses and coaches operated by local authorities, semi-public enterprises and the private sector)

10 8 Table 3: Mileage and modal split in freight transport (comparison between 1997 and 2015) 1997 Laissez-faire Integration Overload Bn tkm Share Bn tkm Share Bn tkm Share Bn tkm Share Road % % % % Rail % % % % Waterwa y % % % % Total % % % % 6. Macroeconomic evaluation methodology The information value of benefit-cost analyses is largely dependent on their evaluation methodology. Weighting a factor incorrectly, or disregarding an influence quantity, can crucially change or even distort the result. Over the last twenty years starting with the evaluation procedure for the 1985 Federal Transport Infrastructure Plan and, to an even greater extent, with the improved procedures for its successor, the FTIP 92 (which was also the first all-german plan) the methodology of the macroeconomic evaluation procedures for transport infrastructure investment has reached a high scientific and technical level, even when compared with that of other countries, thanks not least to the fact the help of numerous academic institutions has been enlisted [6]. The changes in the social, economic and transport environment as well as the latest scientific findings are reflected in the Federal Ministry of Transport, Building and Housing s ongoing research for federal transport infrastructure planning, which comprises both updates and modifications of details and additions to procedures and major modernization. What do I get for my money? This is a question that the state, as the manager of tax revenue, also has to ask. Applied to transport infrastructure, the question is what does the national economy get out of the investment? Thus, in the ongoing work to revise the Federal Transport Infrastructure Plan, despite changing priorities and more recent scientific findings, the central element of the evaluation methodology will continue to be the monetization of the impacts of the projects under discussion within the framework of benefit-cost analyses. However, the monetization of project impacts is not feasible or advisable for all areas where projected transport infrastructure investment will have an impact. This applies to some of the environmental impacts, especially the ecological risks of a project, as well as to the fulfilment of regional planning and urban development objectives. They are beyond the evaluation criteria of the benefit-cost analysis, which are based entirely on macroeconomic efficiency.

11 9 The FTIP 2003 therefore contains, in addition to the benefit-cost analysis (BCA), environmental risk assessments (ERA, as in the FTIP 92) and (augmenting the methodology used so far) spatial impact assessments (SIA) as independent modules of the overall system for appraising impacts. In this context, the spatial impact assessment integrates the impacts on urban quality resulting from relief at the local level (effects on the urban environment). However, with this systemization of the way in which impacts are captured, the interests of the environment and regional planning are not detached completely from the benefit-cost analysis. Major components of environmental impacts (emissions, noise, community severance) plus significant aspects of regional planning (regional employment, international division of labour) remain in the monetization system. The environmental risk assessment and spatial impact assessment address those aspects of these policy areas that go beyond the benefit-cost analysis. This delimitation avoids duplication (i.e. one effect being considered more than once in the overall system). Spatial impact assessment Regional employment International division of labour Benefit-cost analysis Emissions Community severance Noise Environmental risk assessment Figure 3: Impact appraisal modules in the modernized federal transport infrastructure planning procedure

12 Benefit-cost analysis (BCA) At the heart of the macroeconomic evaluations remains a benefit-cost analysis (BCA) for all transport infrastructure investment under discussion. The macroeconomic evaluation of transport infrastructure projects under consideration is carried out within the framework of a benefit-cost analysis, always on the basis of a comparison of the benefit and cost situation with and without the project ( with scenario versus without scenario). This process involves capturing all changes in the area where the project has an impact. Expanding the methodology of previous FTIP, interdependent packages of measures are, if relevant, combined to form one evaluation unit. The structure of the evaluation components of the macroeconomic benefit-cost analysis is basically the same as that of previous FTIP. New components are induced traffic and the impacts of improved links to and from seaports and airports. The capture and evaluation of intramodal and intermodal interdependencies, which has been significantly expanded in the FTIP 2003, affects numerous areas where projects have an impact. The evaluation components of the BCA can be summarized as in figure 4: Evaluation components of the benefit-cost analysis Transport costs (NB) Transport infrastructure preservation (NW) Traffic safety (NS) Accessibility (NE) Spatial impacts (NR) Environmental effects (NU) Induced traffic (NI) Provision of links to and from seaports and airports (NH) Investment costs (K) Figure 4: Outline structure of the evaluation components of the BCA Interdependence effects of the projects A significant innovation in the FTIP 2003 is the capture of interdependence effects of the projects under consideration. Such interaction is conceivable both between different projects in

13 11 one mode of transport and in the road-rail-waterway relationship. Depending on the nature of interrelationship, the total benefit of interdependent packages of measures may be more or less than the sum of the individual benefits of the various projects. As an innovation in the ongoing activities, possible intermodal shifts in volume between the modes of transport are always considered for all modes. This applies to both possible shifts in longdistance passenger transport and freight transport and, for the first time and on an extensive scale, interaction between road improvement and a drop in the number of people using local public transport. Upgrading a federal highway Constructing a new bypass Substitutive impacts =competition Bypass B Town B Bypass C Town C Complementary impacts Town A Package of projects Bypass A Figure 5: Types of intramodal interdependence Induced traffic It is a well-known fact that improving the infrastructure also enhances the mobility of the population. Additional vehicle mileage on the roads results not only in benefit to individuals but also, inter alia, to a greater risk of accidents and to greater environmental pressures. In the new procedure used in FTIP 2003, these effects are, for the first time, quantified and evaluated using the induced traffic component.

14 12 Providing links to and from seaports and airports If their transport links are improved, the position of the German seaports and airports can change, both in the competition between the transport systems and in an international comparison. The project evaluations in the new FTIP 2003 take into account the associated impacts on the freight transport sector and on regional employment, thus complementing the procedure used in the past. 6.2 Environmental risk assessments (ERA) In the FTIP 2003, the quality and quantity, as well as the feasibility, of the contributions related to nature conservation play a greater role than in the past. It is true that in the procedure used so far, there has been an independent qualitative evaluation, within the scope of the environmental risk assessments (ERA), of the impact of new transport infrastructure on nature and the landscape, but it has not been implemented for all projects. Thus, for instance, in the case of roads, only new construction projects with a length of 10 km or more have been considered. In the new procedure, the evaluation is extended to cover a much wider field inter alia, all projects where there is likely to be an accumulation of conflicts related to nature conservation or where adjacent projects are likely to have cumulative effects. Environmental risk assessment (ERA) augments the evaluation procedure by adding the qualitative appraisal of spatially related environmental risks and possible conflicts that have not already been taken into account within the scope of the benefit-cost analysis. When road construction is being planned, an ERA will be carried out regardless of the size of the project if, after a preliminary examination, it appears likely that there will be an accumulation of nature conservation conflicts. In the case of railway infrastructure, an ERA will almost always be necessary, because of the size of the projects. In the case of waterways, examinations will normally be carried out on a case-by-case basis. New features of the ERA itself are a methodologically comparable application for all modes of transport and the greater account it takes of cultivated landscapes, highly sensitive sites and unsevered areas with a low density of traffic. In addition, it also takes possible conflicts with European nature conservation into account. The following diagram illustrates the geographical location of an example project, protected areas and the subdivision of the study area by environmental risk.

15 13 Figure 6: Example of environmental risk assessment 6.3 Spatial impact assessment (SIA) In the FTIP 2003, regional planning aspects insofar as they cannot be captured in the BCA are captured as independent evaluation components with comprehensible criteria. In the FTIP 92, the interests of regional planning were only quantified on the basis of a bonus procedure for less favoured regions within the scope of the BCA. The new spatial impact assessment (SIA) takes into account, inter alia, the extent to which a project helps to improve the provision of transport to and links between central places. This also includes the objective of providing, wherever possible, parity of access to major transport infrastructure facilities (freight villages, combined transport terminals, ports). In areas of high traffic density, the aim is to shift more traffic from the roads to more environmentfriendly modes of transport, such as the railways and waterways. Accordingly, the evaluation benchmark for giving regional planning preference to rail or waterway projects is the extent to which they help to relieve busy corridors by shifting traffic away from the roads. As part of the modernization of procedures for the FTIP 2003, the independent evaluation component entitled effects on the urban environment, which was used in the FTIP 92 to ensure urban sensitive planning for large-scale road construction projects (projects with long-range

16 14 network impacts), has been extended to cover small-scale projects (projects with predominantly short-range network impacts) and improvement projects, and has been integrated into the spatial impact assessment. The evaluation captures potential urban development benefits which can be exploited in conjunction with improvement or new construction work (bypasses) as a result of reductions in the traffic volume at the local level. These key regional planning requirements to be met by Federal Transport Infrastructure Planning can be allocated to the following groups: distribution and development objectives and relief and modal shift objectives. Distribution and development objectives Relief and modal shift objectives Strengthening the system of central places Relief in areas of high traffic density and builtup areas Improving accessibility on preferred regional planning links Shifting motor vehicle traffic to railways and waterways Reducing motor vehicle traffic on roads through built-up areas Weighting by means of accessibility structural backwardness Weighting by means of volume of traffic traffic relief Prioritization of project proposals in terms of regional planning Figure 7: Outline structure of spatial impact assessment (SIA)

17 15 7. Organization/Management The preparation of a new federal transport infrastructure plan (cf. steps 1 to 7 in Fig. 1) can last several years. The scenarios/forecasts plus all macroeconomic project evaluations (in the FTIP 2003 there are around 2,000 road projects to be evaluated) are drawn up by external consultants on behalf of the Federal Ministry of Transport, Building and Housing. 8. Investment and Funding (Transport budget) In Germany, the revenue accruing to the public sector from fuel duty and motor vehicle tax is not, as a rule, ring-fenced for transport infrastructure investment. The normal method of financing federal transport infrastructure is funding from the federal budget. This is augmented by other forms of funding. One of these is the toll to be paid by heavy goods vehicles for the use of federal motorways, which is to be introduced later this year. Most of the revenue from this toll is to be ring-fenced for the improvement of transport infrastructure and is to facilitate a changeover from budget-based funding to user-based funding. The level of the HGV toll is based on the infrastructure costs of the tolled motorways (average toll rate of around 0.15 per kilometre). On the basis of the 2001 and 2002 budgets and the current financial planning of the transport budget from 2003 to 2006, and assuming a constant roll forward of the estimates from 2006 to 2015, the financial framework for the rail, federal trunk road and federal waterway sectors for the period from 2001 to 2015 is around 150 billion euros for the FTIP Just under one half of these funds are earmarked for improvement and new construction projects. GDP Federal transport infrastructure investment accounts for around 0.5 % of GDP p.a.; all transport infrastructure investment taken together (federal government, federal states and local authorities) accounts for around 1.5 % of GDP p.a.