CBA and climate change mitigation

(1)

CBA and climate change mitigation in transport - an urban case study

Patrizia Fagiani & Paul Riley 29

^th

October 2021

Climate policy evaluation seminars

EEA/ETC-CME

(2)

• Technical assistance partnership between EC and the EIB

• Managed by EIB on the basis of a Framework Partnership Agreement with the EC

• Multi-sector, multi-disciplinary advisory services to public sector recipients of EU grants

• Experienced technical experts supporting strategy, programming and project preparation

(3)

• Introduction to CBA in transport – context, principles and elements

• Case study in urban transport – metro line

• Focus on GHG emissions assessment in CBA, illustrated by the case study

• Conclusions

Content of the presentation

(4)

Planning and CBA in Transport

Good projects need good

strategies/plans behind them - to be in the right ball-park with policy coherence

and synergy

National Transport Strategy

(Integrated/multisector or sectorial)

• e.g. national and international traffic

Local/regional plans (e.g. SUMPS)

• e.g. local and regional traffic

Projects

• Feasibility Study, looking at options and viability

CBA is a tool used in the decision-making

process

Ranking investments for prioritisation according to socio-

economic performance

Comparative options assessment in project studies

Go-no go investment decisions – initial and final

Proof of viability for external funders

(5)

I. Avoiding unnecessary traffic /Reducing need for long-distance travel (sustainable development, spatial planning)

• Economic planning, social measures

• Integrated land use and transport planning

II. Shifting traffic to more environmentally friendly modes and decarbonizing all modes

• Transport planning, operations concept and Measure/Project identification/definition

Maximum results when I & II done in parallel coordinated way - holistic analysis of mobility + land-use with reference to GHG emissions

III. Implementing the transport plan

• Project’s detailed aspects –> unlock achievement of the full CC potential at feasibility stage

• Ensuring maximum integration of various complementary measures at project level

• If the planning is poor, this stage does more work

Effective Climate Change Mitigation in Transport

Biggest potential of CC mitigation is at Planning level

(6)

Key principles for economic (transport) CBA

• Incremental approach : project Costs minus without project Costs (Creates net Costs and Benefits)

• Discounting future cash flows accounts for opportunity cost : Present Value (PV)

• Economic CBA knows no physical or admin.

borders – e.g. CO2 is global impact

• Key indicators to show viability :

➢ NPV: Net Present Value = PVB-PVC > 0

➢ IRR: % Internal rate of return > Discount rate

➢ BCR or B/C : Benefit to Cost ratio > 1

-3500 -2500 -1500 -500 500 1500 2500 3500 4500 5500 6500

0 1 2 3 4 5 6 7 8 9

0% 3% 5% 8% 10% 15% 20%

(7)

Transport CBA typical economic costs and benefits

1. Incremental economic costs All costs of the project, taken at economic cost, typically :

• Investment CAPEX

• Project OPEX (e.g. O&M)

• Asset Replacement

2. Incremental economic benefits/disbenefits Monetised socio-economic benefits, typically

• Travel time

• Other impacted public transport OPEX

• Private vehicle OPEX

• Externalities:

• GHG emissions

• Air pollution

• Safety

• Noise

• Other impacts if justified

3. Residual value of assets or economic cash flows

(8)

Critical transport input data

• Traffic model + add-ons :

• Demand forecast with and without project

• Perceived time savings – door to door

• Emissions/noise calculations

• Accident rates

• CAPEX and OPEX with + without project

• Unit monetisation of economic benefits :

• Willingness to pay

• Damage estimation

• Market value minus distortions

• Alternative cost avoidance

(9)

Think of CBA as a calculator

Parameter values (e.g., discount rate, value of time)

Investment (&

O&M) costs

Demand,

emissions and operational model outputs

Project net present value

Benefit to cost ratio

Internal rate of return

INPUTS OUTPUTS

• Calculator can work in different ways but is only as good as the inputs

• Need to recognize uncertainty/distortions in the inputs

• Hence the importance of due-diligence and sensitivity testing

(10)

Case study: Extension of a metro line - I

• Strategic context:

• The City has a recent Strategic Sustainable Mobility Plan in force.

• At the national level, the country has established a strategic framework for climate related policies.

• Metropolitan transport system:

• Metropolitan area population of around 1.7 m inhabitants, spread over a large area (around 2000 km2), high number of trips/day (average

3.4m)

• Comprehensive public transport network: bus, metro, rail.

• Public transport network carries around 150 mppa.

63%

21%

16%

Mode split

Private transport Public transport Walking

45%

41%

14%

Public transport demand (pass)

Bus Metro Rail

Problem:

Some sections of the metro system in dense and mature central urban areas are reaching capacity, triggering problems of congestion and transport related carbon emissions

(11)

• Project objectives:

• Reduce congestion and transport related pollutant emissions in densely populated central areas by improving accessibility to the metro system.

• Contribute to national/local transport decarbonisation policies.

• Project scope

1. Extension of 3 km of metro line, including stations, track infrastructure, traction power supply, traffic management system.

2. Purchase of additional 8 bi-directional, low floor trains to run the additional service.

Case study: Extension of a metro line - II

• CBA input data:

• Project costs (including 1 and 2): EUR 210 m.

• Increased metro service: additional 160k train-km/year, associated OPEX increase at opening year EUR 2.3m.

• Restructuring of competing bus routes as feeding service to metro (-650k v-km/year, EUR -1.6m OPEX).

• Demand forecasts based on transport model.

• Unit costs for socio-economic benefits.

(12)

Case study: Extension of a metro line - Results

Discount rate 5% Year 1 2 3 4 5 10 15 20 25 30

Constant prices 2019 VAT-net, EUR m

Socio-economic costs Undiscounted Discounted

Project investment cost -190.0 -170.4 -46.2 -50.7 -45.2 -47.9 - - - - - -

Project O&M costs (incl. replacements) -95.8 -46.1 - - - - -2.3 -6.9 -3.2 -6.9 -3.4 -3.5

Total Economic costs -285.8 -216.5 -46.2 -50.7 -45.2 -47.9 -2.3 -6.9 -3.2 -6.9 -3.4 -3.5

Socio-economic benefits Undiscounted Discounted

Value of time 281.2 130.4 - - - - 8.0 9.2 10.1 11.2 12.5 14.1

Vehicle Operating Costs (individual transport) 95.0 44.0 - - - - 2.6 3.1 3.4 3.8 4.2 4.7

Bus carriers OPEX (reduction) 42.3 20.6 - - - - 1.6 1.6 1.6 1.6 1.6 1.6

Road maintenance cost (reduction) 1.0 0.5 - - - - 0.0 0.0 0.0 0.0 0.0 0.1

Residual value 212.2 56.7 - - - - - - - - - 212.2

Externalities:

Climate Change 26.2 10.7 - - - - 0.2 0.5 0.8 1.1 1.5 2.0

Air pollution 4.2 1.9 - - - - 0.1 0.1 0.1 0.2 0.2 0.2

Accidents 6.0 2.7 - - - - 0.2 0.2 0.2 0.2 0.3 0.3

Noise 5.2 2.4 - - - - 0.1 0.2 0.2 0.2 0.2 0.3

Total Economic benefits 673.4 269.9 - - - - 12.8 15.0 16.5 18.4 20.7 235.5

Net economic benefits (ENPV) 53.4 -46.2 -50.7 -45.2 -47.9 10.5 8.1 13.2 11.5 17.3 232.1

ERR 6.2%

B/C RATIO 2.36

Construction Operations

Socio-economic benefits %

Value of time 48.3%

Vehicle Operating Costs (private transport) 16.3%

Residual value 21.0%

Bus carriers OPEX (reduction) 7.6%

Road maintenance cost (reduction) 0.2%

Externalities:

Climate Change 4.0%

Accidents 1.0%

Noise 0.9%

Air pollution 0.7%

Total 100.0%

Metro: from 73m/year to 81m/year at year 5 (+11%,

modal shift)

(13)

Project GHG emissions: basic principles - I

• Absolute/relative/baseline emissions

• Project difference in GHG emissions (relative emissions compared to baseline) triggered by:

a. Project operations:

• Project leads to increase in service production in v-km and related consumption/emissions (e.g.

new line, extension of an existing line) (+)

• Project leads to reduced consumption/emissions per v-km with same service production (e.g.

rolling stock replacement with Low Emission Vehicles, traffic management improvement such as bus lanes, new traffic lights, etc.) (-)

Methodological reference:

EIB Project Carbon Footprint Methodologies

c. Restructuring of services in other PT modes connected to the Project mode lead to increase/reduction of v-km and related

consumption/emission (+/-)

d. Modal shift from private vehicles to PT lead to reduction of consumption/emissions (-)

(14)

Project GHG emissions: basic principles - II

Consumption (KWh/veh-km or KWh/train-km or

litre/veh-km)

Carbon content (g CO2e/kWh, g

CO2e/MJ g CO2e/litre)

GHG emission of a transport project for the base year and reference period:

Emissions (t CO2e) in a year

Production/

transport mode (veh-km, pas-km, t-km or train-km)

Emission factor (g CO2e/veh-km)

Source: traffic model, or other tool to forecast

transport demand

Degree of accuracy of this calculation

depends on accuracy of project demand forecasting

Source: project data Source: national guidance, EIB, etc.

Source: national guidance, EIB, etc.

Production/

(15)

Project GHG emissions: basic principles - III

• Ref. EIB methodology as in CBR 2021-2025, Annex 5 (Aligned carbon prices)

• Monetisation in CBA through shadow cost of carbon: “cost of carbon required to drive the economy to meet the 1.5˚C global temperature target “ (Paris aligned). It is a measure of

changes in emissions induced by the project. It is not an indication of the required value of any one policy instrument.

EIB Group Climate Bank Roadmap 2021-2025(CBR)

Total climate change benefit/cost

EUR / year

Emissions (t CO2e) in a year

Shadow cost of carbon

EUR 2016/tCO2e

Source: EIB CBR 2021-2025

(16)

Project GHG emissions: results

NET GHG emissions over 30 years reference period in t CO2e

Project NET -58,487

t CO2e

Metro +1,363 t CO2e

Bus

-9,075 t CO2e

Cars

-50,775 t CO2e

Project NET EUR –10.7 m Input to CBA

(monetisation with shadow cost of carbon)

The project mitigates climate change (=saves

GHG emissions)

Discounted value over reference period

(17)

Project GHG emissions: calculations Metro

Consumption KWh/train-km1.2

Grid emission factor g CO2e/kWh273

Metro (at start of operations)

Emissions t CO2e/year52

Production + 160k train-km

Emission factor g CO2/train-km328

Source: project demand

analysis Source: calculated

Source: Project data Source: Table A1.3, EIB Project Carbon Footprint Methodologies

(18)

Project GHG emissions: calculations Bus

Emissions t CO2e/year-349

Production -650k bus v-km

Emission factor 1074

TTW g CO2e/v-km

Source: project demand analysis

Bus (at start of operations)

Source: Table A1.3, EIB Project Carbon Footprint Methodologies, average for

standard and articulated buses

litre/veh-km)

Carbon content (g CO2/kWh, g

CO2/MJ g CO2/litre)

(19)

Project GHG emissions: calculations Road

Emissions -1,820 t CO2e/year

Production -5.5m car v-km

Emission factor 0.277

kg CO2e/v-km

Source: project demand analysis

Private cars (at start of operations)

Source: Table A1.3, EIB Project Carbon Footprint Methodologies, average for

standard and articulated buses

litre/veh-km)

Carbon content (g CO2/kWh, g

CO2/MJ g CO2/litre)

(20)

Concluding remarks

• CBA is a tool standardly used in many parts of EU to appraise the viability of major transport projects.

• Accuracy of CBA evaluation depends on accuracy of input data (demand forecasting, unit costs of benefits, investment cost estimation, emission factors etc.).

• Climate mitigation impact of a transport project can be reliably quantified and evaluated in the framework of a CBA.

• Impacts of climate policies on relevant input parameters can be factored in, for instance with sensitivity analysis (e.g. evolution of energy mix over time and grid emissions factors).

• GHG emissions and mitigation during the project construction phase (e.g. disruptions, congestion, etc.).

• Climate change mitigation at the level of plans/strategies (e.g. SUMP): assessing impacts, setting targets.

• CBA can be used for assessing economic impacts of adaptation measures as well as mitigation (e.g. JASPERS on-going work with Poland on national road climate change adaptation).

(21)

Methodological references

General approach to CBA, sectoral guidance:

• Guide to Cost-Benefit Analysis of Investment Projects. Economic appraisal tool for Cohesion Policy 2014- 2020 (2014) and Economic Appraisal Vademecum 2021-2027 - General Principles and Sector Applications (2021).

• Economic Appraisal Vademecum includes references to several national guidance to CBA.

• Unit values for socio-economic impacts: national values, EU average and country unit costs Handbook on the External Costs of Transport (check Handbook + Annexes).

GHG emissions calculation and monetisation (project, plans)

• EIB Project Carbon Footprint Methodologies

• EIB Group Climate Bank Roadmap 2021-2025 (Annex 5 - Aligned carbon price)

• Webinar on Climate Change Mitigation through Sustainable Urban Mobility Plans (SUMPs) - Events - JASPERS NETWORK

Climate change adaptation in transport

• Climate Change Adaption in Transport Sector - Events - JASPERS NETWORK

(22)

For more information:

22

Please visit JASPERS website for more information about our activities and projects: http://jaspers.eib.org/

p.riley@eib.org p.fagiani@eib.org