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Factors affecting government transports investments

05 March 2018

What different factors affect government transport investments? A pre study from Lighthouse shows how government investment is assessed and shows differences between different modes of transport.

The analysis, by Marcus Sundberg and Karl Garme at the Royal Institute of Technology, KTH, provides a brief overview of various, mainly governmental, reports that deal with the role of shipping as part of the infrastructure.

Extract from the report's closing comments:
"When assessing maritime transport, it is important to be extra vigilant. Measures can have relatively small costs, but a big impact because large freight flows go by sea transport via ports.

A very small proportion of infrastructure investments are planned to be directed towards shipping (Maritime Administration 2016), which raises the question: is shipping bad or is the decision base poor? A possible answer is: neither! There are a number of examples of investments that are assessed as economically profitable, but have not yet been implemented. The Swedish Nation Office (2016) rather asks for the prioritization of different projects and if the socio-economic analysis really has the impact it should have. The office also states that traffic analysis should consider following up in its evaluative role.

Internalizing taxes aim at adjusting behaviors in such a way that actors take into account the external costs their decisions generate. For shipping, according to Traffic Analysis (2017), shipping costs consist of a very high proportion of costs caused by emissions. By differentiating fare and pilot fees, these externalities can to some extent be internalized. The charges today are primarily linked to the ship itself and not to the actual performance. This means that charges may affect the types of vessels that are being carried out, but, for example, the way they are carried out does not affect the amount of fees paid.

Since emissions are related to the combustion of fuel, it would be of interest to impose steering charges or taxes that are more directly linked to the actual combustion. When a ship's fuel combustion is linked to the speed in which it is being conducted, such a connection could generate type-of-use, slow down (longer transport time), save fuel and pay less in taxes (lower fuel cost and tax).

In addition to the actual combustion, the external costs of emissions of where emissions are effected (Nerhagen, 2016), emission of, for example, particles, also results in higher costs if they occur in populated areas, which could be the basis for differentiation of charges and / or external costs in the socioeconomic analysis.

Of the external costs in the transport sector, we have seen that shipping has a high degree of internalization,  with the higher fare charges (from 2017), it should be close to 100%. Compared with transport by train and heavy trucks, the external costs are almost twice as high for rail transport and more than 3 times higher for the truck option.

Set at non-internalized costs, ie those that may be carried by someone else and are seen in the socioeconomic calculation, for both road and rail alternatives, they are approximately equal to the total external costs of shipping in terms of NOK / tonkm. Now all transports can not be beat and time and costs for transhipment and poorly developed coordination (interpretation of the Swedish Maritime Administration's demand for the "National Harbor and Coastal Shipping Strategy", the Swedish Maritime Administration (2016)) may make it difficult to move from road to road.

The shipping costs of freight transport, as we have seen, are mainly internalized. If you break up the costs, infrastructure costs appear to be over-internalized at the expense of the costs of CO2 and other combustion-related emissions.

In view of uncertainties about the cost-perception of CO2 (Traffic Analysis 2016), which is the largest of the shipping costs (and, incidentally, all external transport costs), it should be in the government's interest to use internalizing taxes and fees to clearly encourage energy and fuel saving, technical development and operation.

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