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Case Study Switzerland: Railway Investment Fund

Case Study Switzerland: Railway Investment Fund. Stefan Suter ECOPLAN , Economic Research and Policy Consultancy REVENUE Final Conference Brussels, 29 and 30 November 2005. Overview. Introduction (Background, questions) Model implementation: MOLINOinGAMS Scenarios Main results

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Case Study Switzerland: Railway Investment Fund

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  1. Case Study Switzerland:Railway Investment Fund Stefan Suter ECOPLAN, Economic Research and Policy Consultancy REVENUE Final Conference Brussels, 29 and 30 November 2005

  2. Overview • Introduction (Background, questions) • Model implementation: MOLINOinGAMS • Scenarios • Main results • Conclusions

  3. HGV Mt-Cenis - Brenner (in 1'000) 2’000 1’600 1’200 800 400 1994 1998 2000 2002 2004 1996 1992 1984 1986 1988 1990 Austria Switzerland France 1 Introduction Transalpine freight transport 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%)

  4. 1 Introduction Swiss Policy for Transalpine Transport • 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)

  5. 1 Introduction The new railway tunnels through the Swiss Alps Two transalpine base tunnels (approx. EUR 10 billion): • Lötschberg: 34 km, opening 2007 • Gotthard: 57 km, opening 2015+

  6. HVF Fuel tax VAT PPP Loans (2/3) (< 25%) (1 ‰ ) Federal government • determines level of revenues FinöVFund • oversees fund management Debt limit: EUR 2.8 billion Federal Parliament • approves credits for specific projects New Alpine rail tunnels High speed Improvements of Noise connections railway network reduction 1 Introduction The railway investment fund (“FinöV” fund)

  7. 1 Introduction Questions • 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?

  8. 2 Model implementation: MOLINOinGAMS Model overview • 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

  9. Road link: Gotthard (2015) (80 / 80 km): Peak vs. off-peak traffic Investment: Extension of Gotthard tunnel from 2 to 4 lanes Erstfeld Biasca Railway link: Lötschberg-Simplon (2007) vs. Gotthard (2015) (88 / 68 km) Investment: Railway base tunnels Thun Brig Biasca Erstfeld 2 Model implementation: MOLINOinGAMS Geographical scope

  10. 2 Model implementation: MOLINOinGAMS 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

  11. 200 Existing pricing 180 Taxation with internalisation 160 Congestion charging, railway investment 140 Congestion charging, railway & road investment 120 Road freight toll (EUR / vehicle-trip) 100 80 60 40 20 0 7 9 1 3 5 35 37 39 33 31 11 13 15 17 19 21 23 25 27 29 Years 2 Model implementation: MOLINOinGAMS Price changes over time: Example of road freight

  12. HVF (2/3) Rail infrastructure manager (public) Rail infrastructure operator (public) Road infrastructure manager (public) Road infrastructure operator (public) Subsidyinvestment Subsidyoperation Railway investment fund(Lifetime-balanced budget) Road investment fund (budget not balanced) Vehicle tax, fuel tax, labour tax Federal government Local government HVF (1/3) 2 Model implementation: MOLINOinGAMS Accounting module

  13. - Existing pricing (exogenous) - Existing taxation plus internalisation (exogenous) - Congestion charging (endogenous congestion charge) Road Railway Public Treasury Pricing / taxation Fuel tax HVF Track charges Local/national taxes Road fund Railway fund Use of revenues Investments Extension of existing tunnel to 4 lanes 2 new trans-alpine tunnels 3 Scenarios: Regulation schemes Pricing of transalpine transport

  14. 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) Railway Public treasury HVFRP Pricing / taxation Track charges Fuel tax Local/national taxes Road fund Railway fund Use of revenues Investments 2 new trans-alpine tunnels (2007 and 2015+ = benchmark) Extension of existing tunnel to 4 lanes (2015) 3 Scenarios = Regulation schemes Use of HVF/toll revenues and investment

  15. 3 Scenarios = Regulation schemes 24 scenarios

  16. Mode Sub mode Existing tax. plus internalisation Congestion chargingPeak Off peak Road Passenger Freight Rail Passenger Freight Increase of price (toll, charge, tax) Decrease of price (toll, charge, tax) 4 Main results Price changes (vs. benchmark)(average prices, 2000-2040)

  17. Benchmark 4 Main results Earmarking of HVF/toll revenues(existing pricing, investment only in railway tunnels)

  18. 4 Main results 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 moneyPolitical reasoning: NART and HVF = ONE package

  19. 0.50 New railway tunnels New railway and road capacity 0.40 0.30 Change of total social welfare (present value, in %) 0.20 0.10 Benchmark 0.00 Existing pricing regime Congestion charging 4 Main results Investment in rail only or in rail and road?(earmarking: status quo. i.e. 2/3)

  20. 4 Main results Investment in rail only or in rail and road? (earmarking: status quo case) 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”

  21. 0.8 Existing taxation plus internalisation 0.7 Congestion charging 0.6 0.5 Change of total social welfare(present value, in %) 0.4 0.3 0.2 0.1 Benchmark 0.0 New railway tunnels New railway and road capacity 4 Main results Pricing rules(earmarking: status quo case)

  22. 2'500 2'000 1'500 1'000 500 Change of total discounted welfare (mill. EUR) - -500 Welfare transport -1'000 Welfare federal gov. -1'500 Welfare local gov. -2'000 Total welfare change -2'500 Existing taxation plus internalisation Congestion charging 4 Main results Pricing rules: Decomposition of effects(earmarking and investment: status quo case)

  23. 4 Main results Different pricing regimes (earmarking: status quo case) 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)

  24. 0.15 Existing taxationplus internalisation Congestioncharging Existing taxationplus internalisation Congestioncharging 0.10 Domestic freight transport 0.05 Transit freight transport 0.00 Change of discounted total welfare (%) -0.05 -0.10 -0.15 -0.20 New railway tunnels New railway and road capacity 4 Main results Equity: Domestic versus transit road freight trsp.

  25. 4 Main results Equity: Domestic versus transit road freight trsp. 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)

  26. 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 5 Conclusions Policy recommendations

  27. Case Study Switzerland:Railway Investment Fund Stefan Suter ECOPLAN, Economic Research and Policy Consultancy REVENUE Final Conference Brussels, 29 and 30 November 2005

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