The correlation of externalities in marginal cost pricing: lessons learned from a real-world case study

Negative externalities cause inefficiencies in the allocation of capacities and resources in a transport system. Marginal social cost pricing allows to correct for these inefficiencies in a simulation environment and to derive real-world policy recommendations. In this context, it has been shown for analytical models considering more than one externality, that the correlation between the externalities needs to be taken into account. Typically, in order to avoid overpricing, this is performed by introducing correction factors which capture the correlation effect. However, the correlation structure between, say, emission and congestion externalities changes for every congested facility over time of day. This makes it close to impossible to calculate the factors analytically for large-scale systems. Hence, this paper presents a simulation-based approach to calculate and internalize the correct dynamic price levels for both externalities simultaneously. For a real-world case study, it is shown that the iterative calculation of prices based on cost estimates from the literature allows to identify the amplitude of the correlation between the two externalities under consideration: for the urban travelers of the case study, emission toll levels—without pricing congestion—turn out to be 4.0% too high in peak hours and 2.8% too high in off-peak hours. In contrary, congestion toll levels—without pricing emissions—are overestimated by 3.0% in peak hours and by 7.2% in off-peak hours. With a joint pricing policy of both externalities, the paper shows that the approach is capable to determine the amplitude of the necessary correction factors for large-scale systems. It also provides the corrected average toll levels per vehicle kilometer for peak and off-peak hours for the case study under consideration: again, for urban travelers, the correct price level for emission and congestion externalities amounts approximately to 38 EURct/km in peak hours and to 30 EURct/km in off-peak hours. These toll levels can be used to derive real-world pricing schemes. Finally, the economic assessment indicators for the joint pricing policy provided in the paper allow to compare other policies to this benchmark state of the transport system

Pricing local emission exposure of road traffic: An agent-based approach

This paper proposes a new approach to iteratively calculate local air pollution exposure tolls in large-scale urban settings by taking the exposure times and locations of individuals into consideration. It explicitly avoids detailed air pollution concentration calculations and is therefore characterized by little data requirements, reasonable computation times for iterative calculations, and open-source compatibility. In a first step, the paper shows how to derive time-dependent vehicle-specific exposure tolls in an agent-based model. It closes the circle from the polluting entity, to the receiving entity, to damage costs, to tolls, and back to the behavioral change of the polluting entity. In a second step, the approach is applied to a large-scale real-world scenario of the Munich metropolitan area in Germany. Changes in emission levels, exposure costs, and user benefits are calculated. These figures are compared to a flat emission toll, and to a regulatory measure (a speed reduction in the inner city), respectively. The results indicate that the flat emission toll reduces overall emissions more significantly than the exposure toll, but its exposure cost reductions are rather small. For the exposure toll, overall emissions increase for freight traffic which implies a potential conflict between pricing schemes to optimize local emission exposure and others to abate climate change. Regarding the mitigation of exposure costs caused by urban travelers, the regulatory measure is found to be an effective strategy, but it implies losses in user benefits

Is marginal emission cost pricing enough to comply with the EU CO2 reduction targets?

From transport economic literature it is known that pricing (environmental) externalities can improve the efficiency of a transport system. However, in real-world politics, policy setting often follows so-called `backcasting' approaches where predefined goals are set, and policy measures are implemented to reach those goals. This study presents, for a specific case study, an parametric approach to identify the gap between toll levels derived from environmental damage cost internalization and toll levels from the goal to reduce global greenhouse gas emissions in the transport sector until 2020 by 20% (avoidance cost approach). For this purpose, the damage costs internalization is applied to a real-world scenario of Munich metropolitan area. The results indicate that the desired reduction in CO2 emissions is not reached. This parametric internalization approach with damage cost estimates from the literature yields toll levels that are by a factor of 5 too low in order to reach the predefined goal. When aiming at overall emission cost reductions by 20%, the damage cost estimates are even by a factor of 10 too low. Furthermore, it is shown that the major contribution to the overall emission reduction stems from behavioral changes of (reverse) commuters rather than from urban travelers; under some circumstances, the latter even increase their CO2 emission levels. Finally, the study indicates that there might be conicting trends for different types of pollutants, i.e. pricing emissions does not necessarily result in a reduction of all pollutant types

A combined marginal social cost approach for automobile emissions and congestion

Increasing emissions from road transport is a growing concern for planners and policy makers. Concurrently, congestion is another major issue which affects user behavior, escalates emissions and other externalities, and thus, reduces system welfare. Recent contributions in the literature investigated the interrelationship between congestion and emission levels, and find them to be positively correlated. However, most studies focus on pricing strategies to mitigate one isolated externality, and examine impacts on the other externality. This paper continues this line of research by investigating the effect of congestion pricing on emission levels, and the effect of emission pricing on congestion levels for a large-scale case study of Sioux Falls (South Dakota, US). Going beyond existing studies, the paper then proposes a joint optimization approach of internalizing both externalities simultaneously, and analyzes the effect of different available choice dimensions for users (route, mode, and departure time choice) on the results. The findings for separate pricing of the externalities are in line with the literature, and indicate a positive correlation between congestion and emissions. Furthermore, it is found that simultaneous pricing of congestion and emissions yields a higher increase in system welfare than separate pricing of only one externality. Mode choice turns out to be the determining factor of this welfare change, and therefore needs to be included in the transport model. Finally, the case study shows that simply combining the toll levels obtained from the separate pricing strategies will most likely result in tolls above the economic optimum, and thus, reduce overall welfare

Towards high-resolution first-best air pollution tolls : An evaluation of regulatory policies and a discussion on long-term user reactions

In this paper, an approach is presented to calculate high-resolution first-best air pollution tolls with respect to emission cost factors provided by Maibach et al. (2008). Dynamic traffic flows of a multi-agent transport simulation are linked to detailed air pollution emission factors. The monetary equivalent of emissions is internalized in a policy which is then used as a benchmark for evaluating the effects of a regulatory measure-a speed limitation to 30 km / h in the inner city of Munich. The calculated toll, which is equal to simulated marginal costs in terms of individual vehicle attributes and time-dependent traffic states, results in average air pollution costs that are very close to values in the literature. It is found that the regulatory measure is considerably less successful in terms of total emission reduction. It reduces emissions of urban travelers too strongly while even increasing the emissions of commuters and freight, both leading to a increase in deadweight loss. That is, the regulatory measure leads to higher market inefficiencies than a "do-nothing" strategy: too high generalized prices for urban travelers, too low generalized prices for commuters and freight. Finally, long-term changes in the vehicle fleet fuel efficiency are assumed as a reaction to the Internalization policy. The results indicate, however, that the long-term effect of emission reduction is dominated by the short-term reactions and by the assumed improvement in fleet fuel efficiency; the influence of the resulting route and mode choice decisions turns out to be relatively small

Munich

The MATSim scenario for the Munich metropolitan area was set up during 2010. The main goal was, and is, simulation of local air pollutant and global greenhouse gas emissions and how their levels change with different policy measures — on aggregated and spatially disaggregated levels

Emission Modeling

This chapter presents the emission modeling tool developed and tested by Hülsmann et al. (2011) and further improved by Kickhöfer et al. (2013). The text in this chapter is a slightly updated version of the emission modeling tool description in Kickhöfer (2014). The tool calculates warm and cold-start exhaust emissions for private cars and freight vehicles by linking MATSim simulation output to the detailed “HBEFA (Handbook on Emission Factors for Road Transport)” database, available for many European countries. The chapter is structured as follows: Section 36.3 reviews literature for other attempts to model transport-related emissions. Section 36.4 presents an overview of the “EMT (Emission Modeling Tool, see Chapter 36)” and Section 36.5 shows how the tool is embedded in MATSim’s software structure

Reverse-engineering of the rule-of-half in order to retrofit an assessment procedure based on resource consumption

The German evaluation procedure for the Federal Transport Infrastructure Plan (‘Bun-desverkehrswegeplan’) is a large-scale and comprehensive modeling, simulation, and eval-uation effort. An important component of the evaluation procedure is a cost-benefit analy-sis, based on the concept of resource consumption. This concept means that new transport infrastructure causes changes in the consumption of time, money, safety, environment, etc. In this paper, we show that — assuming elastic demand for the facility under consideration — the current approach is not in line with basic consumer theory. This stems from incon-sistencies between the behavioral model and the evaluation method: ignoring unobserved attributes of the different transport modes in the evaluation can lead to quite different eco-nomic gains than when these attributes are considered. Current practice in other EU coun-tries avoids this problem typically by applying the so-called rule-of-half, or by directly deriving the logsum term from the underlying logit model. However, a change in the Ger-man assessment procedure towards one of these best-practice approaches for the upcoming Federal Transport Infrastructure Plan in 2015 seems politically not feasible. We therefore propose an easily applicable procedure to include the logic of the rule-of-half into the exist-ing evaluation approach. We show that the resulting calculation yields the same result as the rule-of-half while maintaining the rest of the former evaluation method. Finally, we discuss how another German assessment scheme for urban public transit projects, which is currently under revision, fits into the proposed procedure.BMVBS, 960974/2011, Review and further development of the assessment methodology with a focus on the benefits components of the benefit-cost-analysis of the German national transport assessment exerciseDFG, 92485222, Detaillierte Evaluation verkehrlicher Maßnahmen mit Hilfe von Mikrosimulatio

Santiago de Chile

This section describes the creation process of the freely available MATSim scenario of Santiago de Chile. The first version of a calibrated scenario is available online and is documented in Kickhöfer et al. (2016)