case study switzerland: railway investment fund

1ECOPLAN

Case Study Switzerland: Railway Investment Fund

Stefan Suter

ECOPLAN, Economic Research and Policy Consultancy

REVENUE Final Conference

Brussels, 29 and 30 November 2005

2ECOPLAN

Overview

1. Introduction (Background, questions)

2. Model implementation: MOLINOinGAMS

3. Scenarios

4. Main results

5. Conclusions

3ECOPLAN

Transalpine freight transport1 Introduction

Key figures for the Swiss corridors:

31.5 mill. tons in 2003

(France: 33 mill.t. Austria: 39.4 mill.t.)

Share of transit transport: 77.8%

(France: 31.5%. Austria: 88.1%)

Modal split: 66% railway

(France: 20.2%. Austria: 25.1%)

HGV Mt-Cenis - Brenner (in 1'000)

400

800

1’200

1’600

2’000

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

FranceSwitzerland Austria

4ECOPLAN

Swiss Policy for Transalpine Transport1 Introduction

Initiative for the Alps 1994: Shift from road to rail

(from more than 1.2 mill. trucks / year down to 650’000!)

Consequence: High political support for rail transport

Instruments

Subsidies for Combined Transport

Distance-dependent Heavy Vehicle Fee (HVF) since 2001 on all

roads

New Alpine Railway Tunnels

Railway investment fund

Alpine crossing exchange (concept, first discussions)

5ECOPLAN

The new railway tunnels through the Swiss Alps 1 Introduction

Two transalpine base tunnels (approx. EUR 10 billion):

Lötschberg: 34 km, opening 2007

Gotthard: 57 km, opening 2015+

6ECOPLAN

The railway investment fund (“FinöV” fund)1 Introduction

Federal government• determines

level of revenues• oversees fund

management Debt limit:EUR 2.8 billionFederal Parliament

• approves creditsfor specific projects

HVF (2/3)

Fuel tax(< 25%)

VAT (1‰)

PPP

High speed connections

New Alpine

rail tunnels Noise

reduction

Loans

FinöV

Fund

Improvements of railway network

7ECOPLAN

Questions1 Introduction

What are the welfare implications of earmarking and cross-financing from the road to the railway sector in the case of given investments (tunnels)?

Would it be welfare increasing to extend railway and road capacity in the Swiss transalpine corridors?

Does welfare increase if transport pricing is adjusted taking into account congestion and environmental costs?

Should these charges be levied in addition to or instead of existing taxes and charges? What is the effect of “over-charging”?

What actors are the winners and losers of different RS?

8ECOPLAN

Model overview2 Model implementation: MOLINOinGAMS

MOLINOinGAMS: – Partial equilibrium model based on MOLINO

– Implemented in GAMS

2 Modes: Railway and road

4 Users– Passengers low income

– Passengers high income

– Freight domestic (local, import, export)

– Freight transit

Time horizon: 40 years

9ECOPLAN

Geographical scope

Investment: Extension of

Gotthard tunnel from 2 to 4 lanes

Road link: Gotthard (2015) (80 / 80 km):

Peak vs. off-peak traffic

Erstfeld Biasca

Railway link: Lötschberg-Simplon (2007)

vs. Gotthard (2015) (88 / 68 km)

Thun Brig

Erstfeld Biasca

Investment: Railway base tunnels

2 Model implementation: MOLINOinGAMS

10ECOPLAN

Pricing

Existing pricing– Railway: Track charges

– Road: Vehicle taxes (regional gov.), Fuel tax, HVF (fed. gov.)

Existing taxation plus internalisation– Existing pricing plus exogenous charges (congestion, environmental costs)

Congestion charging– Marginal infrastructure and marginal external costs: Exogenous cost rates,

implemented as tolls on the link

– Congestion charges: Endogenous, only road (rail: large capacity reserves)

– No full optimisation => not social marginal cost pricing


11ECOPLAN

Price changes over time: Example of road freight2 Model implementation: MOLINOinGAMS

0

20

40

60

80

100

120

140

160

180

200

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39

Years

Roa

d fr

eigh

t tol

l (E

UR

/ ve

hicl

e-tr

ip) Existing pricing

Taxation with internalisation

Congestion charging, railway investment

Congestion charging, railway & road investment

12ECOPLAN

Accounting module

Rail infrastructure operator (public)

Rail infrastructure manager (public)

Road infrastructure operator (public)

Road infrastructure manager (public)

Federal government Local government

Railway investment fund(Lifetime-balanced

budget)

Road investment fund (budget not balanced)

Vehicle tax, fuel tax, labour tax

HVF (1/3)

HVF (2/3)

Subsidyinvestment

Subsidyoperation


13ECOPLAN

Pricing of transalpine transport 3 Scenarios: Regulation schemes

- Existing pricing (exogenous)

- Existing taxation plus internalisation (exogenous)

- Congestion charging (endogenous congestion charge)

Road fund

Pricing / taxation

Investments

Railway

Fuel tax HVF

Public Treasury

Track charges

Railway fund

Local/national taxes

Use of revenues

2 new trans-alpine tunnels

Extension of existing tunnel to 4 lanes

Road

14ECOPLAN

Use of HVF/toll revenues and investment

• No cross-financing (2/3 road investment fund, 1/3 local government)

• Equal distribution (1/3 rail and 1/3 road investment fund, 1/3 local gov.)

• Status quo (2/3 rail investment fund, 1/3 local government)

• Green lobby solution (3/3 rail investment fund)

Road fund

Pricing / taxation

Investments

Railway

Fuel tax

Public treasuryTrack charges

Railway fund

Local/national taxes

Use of revenues

2 new trans-alpine tunnels (2007 and 2015+ = benchmark)

Extension of existing tunnel to 4 lanes (2015)

HVFRP

3 Scenarios = Regulation schemes

15ECOPLAN

24 scenarios 3 Scenarios = Regulation schemes

Scheme Scenario Pricing Revenue use Investment

A A1 P1: Existing transport pricing

RU1: No cross-financing I1: Two new railway tunnels.

A2 P1: Existing transport pricing

RU2: Equal distribution I1: Two new railway tunnels.


RU3: Partial cross-financing

I1: Two new railway tunnels.


RU4: Full cross-financing



RU1: No cross-financing I2: New railway and road tunnels.


RU2: Equal distribution I2: New railway and road tunnels.



I2: New railway and road tunnels.




B B1 P2: Existing taxation and internalisation

RU1: No cross-financing I1: Two new railway tunnels.

B2 P2: Existing taxation with internalisation

RU2: Equal distribution I1: Two new railway tunnels.








RU1: No cross-financing I2: New railway and road tunnels.


RU2: Equal distribution I2: New railway and road tunnels.







C C1 P3: Congestion charging RU1: No cross-financing I1: Two new railway tunnels.

C2 P3: Congestion charging RU2: Equal distribution I1: Two new railway tunnels.

C3 P3: Congestion charging RU3: Partial cross-financing


C4 P3: Congestion charging RU4: Full cross-financing


C5 P3: Congestion charging RU1: No cross-financing I2: New railway and road tunnels.

C6 P3: Congestion charging RU2: Equal distribution I2: New railway and road tunnels.

C7 P3: Congestion charging RU3: Partial cross-financing


C8 P3: Congestion charging RU4: Full cross-financing


16ECOPLAN

Price changes (vs. benchmark)(average prices, 2000-2040)

4 Main results

Freight

PassengerRail

Freight

PassengerRoad

Congestion charging

Peak Off peak

Existing tax. plus

internalisation

Sub modeMode

Increase of price (toll, charge, tax) Decrease of price (toll, charge, tax)

17ECOPLAN

Earmarking of HVF/toll revenues(existing pricing, investment only in railway tunnels)

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0/3 1/3 2/3 3/3Cross-subsidy from road to railway fund (share of net HVF

revenues)

Cha

nge

of to

tal s

ocia

l wel

fare

(pr

esen

t val

ue,

in %

)

Benchmark

4 Main results

18ECOPLAN

Earmarking of HVF/toll revenues(existing pricing, investment only in railway tunnels)

Key messages:

Once investment is decided, use a tax with low marginal costs

of public funds (MCF) to finance the investment

Heavy vehicle fee: Low MCF, “Pigouvian-type of tax”

For given investment: Increasing earmarking improves

result (“transport money is cheaper than tax money”)

Neglected: Benefits of an alternative use of the transport

money

Political reasoning: NART and HVF = ONE package

4 Main results

19ECOPLAN

Investment in rail only or in rail and road?(earmarking: status quo. i.e. 2/3)

4 Main results

0.00

0.10

0.20

0.30

0.40

0.50

Cha

nge

of to

tal s

ocia

l wel

fare

(pr

esen

t val

ue, i

n %

)

New railway tunnels

New railway and road capacity

Existing pricing regime Congestion charging

Benchmark

20ECOPLAN

Investment in rail only or in rail and road? (earmarking: status quo case)

4 Main results

Key messages:

Investment in both modes (limited switch from road to rail, low

elasticity of substitution)

Important limitations:

- Alpine-specific and growth impacts: Neglected

- No analysis of alternative road investments

- Misinterpretation = “Gotthard road tunnel is most urgent”

Too low road transport prices increase pressure to invest:

Potential welfare gains under the existing pricing regime are

higher than with “Congestion charging”

21ECOPLAN

Pricing rules(earmarking: status quo case)

4 Main results

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Ch

ang

e o

f to

tal s

oci

al w

elfa

re

(pre

sent

val

ue, i

n %

)

Existing taxation plus internalisation

Congestion charging

New railway tunnels New railway and road capacity

Benchmark

22ECOPLAN

Pricing rules: Decomposition of effects(earmarking and investment: status quo case)

4 Main results

-2'500

-2'000

-1'500

-1'000

-500

-

500

1'000

1'500

2'000

2'500C

han

ge

of

tota

l dis

cou

nte

d w

elfa

re (

mill

. EU

R)

Welfare transport

Welfare federal gov.

Welfare local gov.

Total welfare change

Existing taxation plus internalisation Congestion charging

23ECOPLAN

Different pricing regimes (earmarking: status quo case)

4 Main results

Key messages:

A joint view of the welfare effects from pricing and revenue

use is needed

Distributional effects between government levels matter

Best case (full earmarking, existing pricing plus internalisation,

investment in both modes): Relevant welfare gain (EUR 215 /

capita)

24ECOPLAN

Equity: Domestic versus transit road freight trsp.4 Main results

-0.20

-0.15

-0.10

-0.05

0.00

0.05

0.10

0.15

Ch

ang

e o

f d

isco

un

ted

to

tal w

elfa

re (

%)

Domestic freight transport

Transit freight transport

Existing taxation

plus internalisation

New railway tunnels New railway and road capacity

Congestion

charging

Existing taxation

plus internalisation

Congestion

charging

25ECOPLAN

4 Main results

Key messages:

Freight transport benefits from increased pricing AND road

investment

High relevance of time gains through investment (could also

be through rail investment, e.g. rolling motorways)

Transit freight traffic benefits more than domestic freight

transport (smaller price increase for transit than for domestic,

assumption on truck weight is decisive = specific case)

Equity: Domestic versus transit road freight trsp.

26ECOPLAN

Policy recommendations5 Conclusions

Using revenues from road pricing to finance investments in

other modes can be welfare improving.

Transport pricing, investment, and revenue use must be

considered together to derive conclusions on efficiency.

Earmarking for transport or not: Benefits of alternatives?

An overall positive effect may still have winners and losers: A

sound analysis of the distributional effects is needed.

Limits: Basis is a partial equilibrium model, a general

equilibrium approach would yield additional insights

27ECOPLAN

Case Study Switzerland: Railway Investment Fund

Stefan Suter

ECOPLAN, Economic Research and Policy Consultancy

REVENUE Final Conference

Brussels, 29 and 30 November 2005

case study switzerland: railway investment fund

Documents