Monetization of Environmental Impacts of Roads
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Ministry of Transportation and Highways

Monetization of Environmental Impacts of Roads

Peter Bein, Ph.D., P. Eng.

Transportation Planning Economist

Highway Planning and Policy Branch

Information Management Section

March 1997

This document is accessible on Internet: Comments and inquiries about this report can be directed to: Branch Secretary; Highway Planning and Policy Branch; Ministry of Transportation and Highways 940 Blanshard Street Victoria, British Columbia Canada V8W 3E6 Phone: (250) 387-5251 Fax: (250) 387-7549The findings, interpretations, and conclusions expressed in this document are entirely those of the authors and as such they do not necessarily represent the official policies of the British Columbia Ministry of Transportation and Highways.

Canadian Cataloguing in Publication Data

Bein, P. (Peter)

Monetization of environmental impacts of roads

Also issued in electronic format through the Internet computer network.

Includes bibliographical references: p.

ISBN 0-7726-2605-7

1. Highway planning - Environmental aspects - British Columbia. 2. Highway planning - Economic aspects - British Columbia. 3. Roads - Environmental aspects. 4. Transportation - Environmental aspects. 5. Pollution - Economic aspects. 6. Man - Influence on nature - Economic aspects. I. British Columbia. Highway Planning and Policy Branch. Information Management Section. II. Title.

HE336.E3B44 1997 388.1'1 C95-960327-1

About This Report

The Ministry of Transportation and Highways has carried out a study of monetization of environmental impacts with a view on being able to include the results into evaluation of highway and transportation investments. The study involved an extensive "state of the art" review of current literature. The study also commissioned a number of reports and working papers, from both internal staff and external specialists on topics specific to British Columbia.

This report endeavours to present current thinking on the social costs of roads as they affect the environment and the society they serve. Since the original research was conducted from 1992 to 1995, and the field is evolving rapidly, the reader is encouraged to monitor literature for a fuller understanding of how the application of monetization methods may evolve.

The intent of this report is to focus discussion on the areas of environmental impact that must be considered when assessing the costs to society of a road investment. To meet this end, many of the cost categories have been given preliminary values based on the most current research available at the time the report was prepared. Non-monetized values and intangibles have also been identified. The ministry recognizes that additional work is required and stakeholder consensus must be reached to further refine the values and promote their application to a specific range of impacts.

The ministry also acknowledges that this report is a selective overview of approaches to shadow pricing. Extensive research and data collection must be done to further define the impacts of road and transportation activities and the methodology for estimating their related shadow prices.

The study was carried out under the direction of Dr. Peter Bein, P. Eng., Transportation Planning Economist, who was assisted by Chris Johnson and Todd Litman, Research Contractors.

Executive Summary

The environmental cost of highway and road transportation has increasingly become a concern of governments and the public. Traditional approaches to project planning and evaluation have been criticized for not taking into account the intrinsic values of the environment. Thus the ministry undertook a study of environmental costing and its use in transportation decision making. This report presents some of the background material required to incorporate monetized environmental costs into evaluations supporting highway and road planning and projects.

In 1992, social cost benefit analysis (SCBA) was chosen as the ministry’s recommended framework for appraisals of road investments and policies. In 1993, multiple account evaluation (MAE) guidelines were issued by the provincial government for multi-objective decision making. The MAE guidelines provide a comprehensive general reference for a more structured base of decision making. Environmental impacts comprise one of the major accounts in the guidelines and the guidelines state that the "significance of the environmental impacts can be assessed in monetary and non-monetary terms."

What This Report Attempts and Why

This report discusses how monetized costs of environmental impacts can be included in evaluation approaches and provides a selective overview of shadow pricing. It is intended to initiate discussion among experts in environmental economics, cost benefit analysis and highway transportation planning about how the ministry could monetize environmental impacts in planning and project studies.

The objectives of this report are to: · Investigate ways to include environmental costs in the SCBA framework.

  1. #Shadow prices for environmental amenities, which are not necessarily seen in the market, but which represent the economic worth of the environment in SCBA, just as user costs represent the values of time and safety of road users.
  2. #Non-monetizable and intangible values, which cannot be translated into monetary costs and may have uncertain outcomes.
This report presents preliminary shadow prices and also identifies the non-monetized values for further study.

How Environmental Cost Estimates Can Be Used

Environmental costs can be included in planning and project evaluations using the SCBA framework developed by the ministry from 1990 to 1992. When expressed in monetary terms, environmental costs are treated the same way as agency and user costs and benefits. Environmental costs, however, are much more complex and varied than those already established in SCBA. The challenge of including them, especially for policy analysis and strategic planning, lies in accounting for their complexity in the decision-making stage.

Environmental cost estimates can be incorporated into the ministry’s road investment and policy appraisal tools. Applications at the project level would also be appropriate in some cases. Those environmental costs that are calculated on a "marginal cost" basis are appropriate for road pricing. The methodology and selected data may also prove useful in evaluations of other transportation modes, and in appraisals of projects, programs and policy in other sectors, such as forestry, land use or energy planning. Application of the multiple account evaluation guidelines in the provincial government would be enhanced by including environmental cost estimates, within a SCBA framework.

Where Monetization of Environmental Values Stands Today

Until recently planners and decision makers frequently assumed that environmental values could not be easily monetized, although other non-market goods, such as travel time and traffic safety, are routinely monetized in transportation planning. Tools for monetizing environmental externalities are becoming available, although more work is needed to improve methodologies and expand the available data. The range of cost data for identical impacts is wide due to lack of agreement on what needs to be evaluated, and what the most appropriate measurement method should be.

Monetizing environmental costs is as much art as it is science, and ongoing research and appropriate application of monetization techniques are essential. The field continues to evolve and the application of monetization methods may change, as may cost estimates. Ministry practitioners must be knowledgeable about the application of monetized costs within SCBA and must apply monetized values consistently. To do this, the ministry requires approved benchmarks for practitioners to apply, which entails using the most current information available and achieving consensus among stakeholders. This is critical to effectively incorporating environmental costs into assessments of road and transportation projects across the province.

Developing a Usable Tool

The ministry recognizes that incorporating environmental costs into current evaluation methods of transportation planning and projects and developing cost estimates are initial steps. To ensure that the groundwork represented by this report becomes usable, the following next steps are necessary.

  1. The work begun in this report must continue with the goal of selecting an appropriate and defensible per unit cost for different environmental impacts and to identify the non-monetizable values. It is essential to continue to promote and direct efforts to develop a usable tool and ensuring that the information supporting this tool is kept current.
  2. Stakeholders must be involved in the process of developing a framework for better defining the environmental costs. This framework will result from developing appropriate public policy, gaining the informed consensus of experts and meeting ministry business requirements. The objective is the application of this framework to determine the "cost" of a transportation investment, as it is driven through the multiple account evaluation process.
  3. The ministry’s current thinking about how it uses social cost benefit criteria should be made available to the public. This can be accomplished by developing a web site and beginning to upload published ministry manuals, working papers and current work plans. The site could provide current information about the costs used for environmental impacts. The site could also be a communication vehicle for internal ministry practitioners and external stakeholders interested in commenting on or contributing to developing the direction and tools used for evaluating road investments.
  4. Currently approved government procedures relating to road investment problem identification, solution option generation, analysis and decision making must be promoted. Education should begin with ministry staff to ensure that ministry business solutions support the effective implementation of government procedures. The value of developing economic costs for environmental impacts of road investments will become apparent when the ministry employs MAE and SCBA principles to determine the costs and benefits of proposed projects.
Initial Shadow Price Estimates

The following represent an initial attempt to estimate the shadow prices for a number of environmental impacts of a highway investment. Readers are cautioned that these shadow prices are not firm and some are locality-specific. The ministry recognizes the need to develop a framework with stakeholders to further define the impacts of road and transportation activities and the methodology used for estimating the shadow prices and accounting for the non-monetized and intangible aspects.

Priority for further work in shadow pricing is determined as follows:

Priority I concerns potentially serious longer term impacts which are not well understood. Shadow prices are highly uncertain. Priority II impacts have a widespread effect on the community today. Shadow prices calibrated to British Columbia are generally lacking. Priority III impacts are automatically addressed with Priority I and II impacts. Shadow prices are available or can be readily developed.

Initial Shadow Price Estimates

Type of Impact 
Comments  Issues  Price Range 
Green-house Gases 
Automobiles produce several greenhouse gases, which are measured in terms of their CO2 equivalents.  uncertain socio-economic model of global warming selection of discount rate and other model parameters incomplete knowledge of damages in terms of GDP a case for precautionary principle  Order of magnitude $1,000 per tonne of CO2 equivalent 
Fine Particles 
Fine particle matter (PM2.5) is the most significant of local air pollutants. PM2.5 from road vehicles cause a number of deaths in Greater Vancouver, which is comparable to the number of crash fatalities.  value of statistical life mortality is directly related to vehicle speed, emission control technology and distance driven diesel trucks and buses account for approx. 1/4 to 1/2 of particulates in Greater Vancouver urban vs. rural conditions  Example low to high estimate for 1994 vehicles at 40 km/h in $ per kilometre in Greater Vancouver (based on $3 million per statistical life) Light Duty gas $0.006 to $0.010 diesel $0.025 to $0.063 Heavy Duty gas $0.02 to $0.04 diesel $0.09 to $0.29 
Ozone Depletion 
Vehicles are major contributors to ozone layer depletion because of air-conditioner leaks. Emissions are measured in chlorofluorocarbon (CFC) equivalents.  uncertain socio-economic model of ozone depletion costs selection of discount rate and other model parameters incomplete knowledge of damages in terms of GDP a case for precautionary principle  For each 1% of global GDP presently damaged: $800 per kilogram of CFC equivalent or $0.027 per kilometre driven by average car with air -conditioner 
Ground-Level Ozone 
Economic costs of health problems, crop damage, material damage and visibility problems caused by smog.  costs insignificant compared to other air pollution impacts B.C. costs of visibility reduction and material damage due to smog are lacking.  Average $0.001 per kilometre driven 
Noise and Vibrations 
Traffic noise is a widespread nuisance Its impact on humans and economic costs have received much of the research.  most estimates are incomplete, use European estimate cost data specific to B.C. is lacking better data needed about impacts on wildlife and effects of vibration  $1000–$1500 per affected person per year 
Land Use Impacts 
When road projects and vehicle traffic alter land use, the resulting change in environmental benefits of the land can be valued.  consider indirect and cumulative impacts B.C.- and site-specific ecological economic values data are needed to fully cost the restoration of land use in B.C.  Example lower bound estimate of loss in converting land use to pavement . $ per hectare per year . Wetlands $30 000 Urban Greenspace $24 000 2nd Growth Forest $18 000 Farmland $12 000 Road Buffer $6 000 
Resources and Energy 
Consumption has external environmental and social costs, e.g. environmental damage during production of energy and processing of materials. Roads and transportation consume large volumes of mineral resources and energy.  energy absorbed by vehicle and fuel production and distribution constitutes 20% to 45% of energy consumed to propel vehicles opportunity cost of non-renewable fossil fuels is not measured  Marine oil spill portion alone of this environmental impact in B.C. (lower bound) $480 million per year 
Waste Disposal 
Automobile use produces used fluids, tires, junked vehicles and other wastes..  new recycling programs internalize or reduce impacts additional cost data collection may be necessary  Lower bound estimate $0.0005 per kilometre driven 
Water Pollution and Hydrologic Impacts 
Roads, parking space and automobile use cause water pollution and changes in the surface and ground water flow..  difficult to measure the impact from a single activity, as water distributes impacts long term ecosystem damage costs unknown a case for precautionary principle  Lower bound estimate $0.02 per kilometre driven 
Barrier Effects 
Increased travel time, discomfort and danger that road traffic causes pedestrians and cyclists.  Scandinavia values these impacts in the same order of magnitude as total traffic noise costs of barrier effects on wildlife and agriculture unknown  $1000–$1500 per person affected per year 
Impacts on Biodiversity 
Transportation has a significant effect on the flora and fauna of B.C., through loss or degradation of habitat, insularization of habitats, and direct mortality of wildlife.  total cost is not likely to be known may be better handled in the non-monetized framework of environmental impacts  Refer to Land Use Impacts for lower bound estimates Example lower bound estimate of loss in converting land use to pavement . $ per hectare per year . Wetlands $30 000 Urban Greenspace $24 000 2nd Growth Forest $18 000 Farmland $12 000 Road Buffer $6 000 

Table of Contents

Executive Summary/iv

Chapter 1: Introduction and Background/1-1

1.1 Objectives, Scope and Limitations of the Report/1-2
1.2 Transportation Planning and Evaluation/1-4 1.2.1 British Columbia/1-5
1.2.2 Other Initiatives
1.2.3 Transportation Planning Hierarchy/1-6
1.2.4 Use of Evaluation Models in Transportation Planning/1-8
1.3 Organization of the Report/1-10

Chapter 2: Evaluation and Monetization Concepts and Techniques/2-1

2.1 Evaluation Methods/2-1
2.1.1 Multiple Account Evaluation Framework/2-1
2.1.2 Traditional Approaches for Including Environmental Costs in Planning/2-3
2.2 Sustainability Issues/2-6
2.3 Principles of Monetization/2-9
2.4 Criteria for the Evaluation Approach/2-11
2.5 Proposed Framework for Social Cost Benefit Analysis/2-15
2.6 Costing Environmental Impacts/2-16
2.6.1 From Sources to Environmental Damage Costs/2-16
2.6.2 Functions and Values of Natural Ecosystems/2-21
2.6.3 Defining Cost Categories/2-23
2.7 Monetization Techniques/2-27
2.7.1 Damage Cost Approach/2-29
2.7.2 Control Cost Approach/2-30
2.7.3 Hedonic Pricing Methods/2-30
2.7.4 Contingent Valuation and Conjoint Analysis Methods/2-31
2.7.5 Travel Cost Method/ 2-32
2.7.6 Integrated Cost Approach/2-33
2.8 Technical Problems/2-35
2.8.1 Analysis Period and Discount Rate/2-35
2.8.2 Risk and Uncertainty/2-37
2.8.3 Value of Statistical Life/2-38

Chapter 3: Environmental Impacts/3-1

3.1 Air Pollution/3-1
3.1.1 Transportation Sources of Air Pollution
3.1.2 Types of Emissions/3-2
3.1.3 Air Pollution Damage/3-18
3.2 Noise and Vibrations/3-27
3.2.1 Traffic Noise/3-27
3.2.2 Traffic-Induced Vibrations/3-29
3.3 Land Use Impacts/3-30
3.3.1 From Land Use Impacts to Environmental Damage Costs/3-30
3.3.2 A Simplified Method for Assessing External Environmental Benefits/3-34
3.3.3 Impacts of Roads and Traffic on Land Use/3-36
3.3.4 Urban Sprawl/3-40
3.4 Resource Consumption/3-42
3.4.1 Energy Consumption/3-43
3.4.2 Embodied Emissions and Other Impacts of Energy Use/3-47
3.4.3 Process Materials/3-49
3.5 Waste Disposal/3-51
3.5.1 Used Lubricating Oil/3-52
3.5.2 Waste Tires/3-53
3.5.3 Lead Acid Batteries/3-54
3.5.4 Vehicle Bodies and Waste Dumping Sites/3-54
3.5.5 Ozone-Depleting Substances/3-56
3.5.6 Construction and Road Wastes/3-57
3.5.7 Non-Petroleum Liquid Wastes/3-58
3.6 Water Pollution and Hydrologic Impacts/3-59
3.6.1 Water Pollution Impacts/3-59
3.6.2 Road and Urban Runoff Pollutants/3-60
3.6.3 Environmental Damages/3-65
3.6.4 Hydrologic Impacts/3-67
3.7 Barrier Effects/3-67
3.7.1 Roads as an Obstacle to Human Activities/3-67
3.7.2 Highways as Barriers to Wildlife/3-69
3.7.3 Roads as Barriers to Farm Operations/3-71
3.8 Transportation and Biodiversity/3-71
3.8.1 What Is Biodiversity?/3-72
3.8.2 Biodiversity in British Columbia/3-73
3.8.3 Preserving Biodiversity in British Columbia and Canada/3-74

Chapter 4: Shadow Price Estimates/4-1

4.1 Air Pollution/4-3
4.1.1 Fine Particulates/4-3
4.1.2 Global Warming/4-7
4.1.3 Stratospheric Ozone Depletion/4-13
4.1.4 Ground-Level Ozone and Precursors/4-17
4.2 Traffic Noise and Vibration/4-18
4.2.1 Traffic Noise/4-19
4.2.2 Traffic-Induced Vibrations/4-23
4.3 Land Use Impacts/4-23
4.3.1 Review of Land Use Impact Cost Studies/4-25
4.3.2 Simplified Valuation of Land Use Impacts/4-30
4.4 Resource Consumption/4-36
4.4.1 Energy Consumption/4-36
4.4.2 Vehicle Manufacturing and Road Construction/4-37
4.5 Waste Disposal/4-40
4.6 Water Pollution and Hydrologic Impacts/4-42
4.6.1 Review of Existing Estimates/4-43
4.6.2 Estimate of Water Pollution and Hydrologic Costs/4-44
4.7 Barrier Effects/4-45
4.8 Biodiversity/4-46
4.8.1 Biodiversity and Monetization/4-48
4.8.2 Current Estimates/4-49
4.8.3 Estimate of Shadow Prices for Biodiversity/4-52

Chapter 5: Applications of Environmental Transportation Costs/5-1

5.1 Light Vehicle Passenger Transportation Costs/5-1
5.2 Assessment of Toll Collection Schemes/5-4
5.3 Urban Arterial Project Evaluation/5-6
5.4 Level of Service Warrants for Low-Volume Rural Roads/5-8
5.5 Road Rehabilitation Policy Appraisal
5.6 Urban Transportation System Plan Evaluation/5-9




Units and Conversions/U-1

Economic Analysis Project - Publications/P-1

List of Tables

Table 2.1 Characteristics of Multiple Criterial Evaluation Methods
Table 2.2 Classes of External Costs of Road Transportation/2-25
Table 2.3 Examples of Transportation Costs/2-26
Table 2.4 Suitability of Environmental Impact Costing Methods/2-28

Table 3.1 Contribution of Motor Vehicles to Air Pollution in Selected Cities
Table 3.2 Methane Emissions from Upstream Oil and Gas Operations in Alberta/3-4
Table 3.3 Emission Rates of Motor Vehicles in City and Rural Driving, grams per vehicle-kilometre driven/3-4
Table 3.4 Emissions for Canadian Freight Train and Truck Engines, grams per litre of fuel burned/3-5
Table 3.5 1995 Environmental Performance of Canadian Freight Train versus Truck/3-6
Table 3.6 Particulate Emission Rates of Motor Vehicles in City Driving/3-10
Table 3.7 Global Warming Potential Relative to CO2/3-12
Table 3.8 Summary of 1990 Canadian Greenhouse Gas Emissions, kilotonnes per year/3-13
Table 3.9 End-Use CO2 Emissions in British Columbia by Sector/3-15
Table 3.10 Ozone Depletion Potential of Selected Halocarbons/3-17
Table 3.11 Greenspace External Environment Benefits/3-31
Table 3.12 External Environmental Benefits of Land Uses/3-35
Table 3.13 Roadway Environmental Impacts/3-36
Table 3.14 Four-Lane Highway Direct Land Requirements/3-37
Table 3.15 Space Requirements of Transportation/3-39
Table 3.16 Energy Used for Upstream Vehicle and Fuel Activities/3-44
Table 3.17 Comparison of Upstream and Direct Energy Use by Vehicles/3-45
Table 3.18 Division of In-Home and Transportation Energy, trillion J/km2 per year/3-46
Table 3.19 Estimated Material Consumption of an Average Motor Vehicle/3-50
Table 3.20 Used Oil Generation Estimates/3-53
Table 3.21 Vehicle Air Conditioners in British Columbia/3-56
Table 3.22 Water Pollution and Hydrologic Impacts of Vehicles, Roads and Parking Facilities/3-59
Table 3.23 Percent of Urban Runoff and Combined Stormwater Overflow as a Contribution to Impaired Water Bodies in the United States/3-61
Table 3.24 Summary of Typical Stormwater Pollutant Concentrations/3-62
Table 3.25 Road Runoff Constituents and Their Primary Sources/3-63
Table 3.26 Washington State Highway Contribution to Water Quality/3-64
Table 3.27 Major Groups of Protected Areas

Table 4.1 Annual Mortality from PM10 from Mobile Sources in the Lower Fraser Valley, Present Conditions/4-4
Table 4.2 Shadow Prices for Selected Annual PM2.5 Mortality Rates of Types of Vehicles at 40 km/h in the Lower Fraser Valley/4-7
Table 4.3 Comparison of Model Assumptions
Table 4.4 Shadow Price for Global Warming, C$ per tonne of CO2 equivalent/4-13
Table 4.5 Shadow Prices of Ozone Depletion, assuming 1% GDP Damage in 1995, C$ per kg of CFC-equivalent/4-16
Table 4.6 Impact of Noise above 50 to 60 dB(A) on Residential PropertyValues/4-19
Table 4.7 Selected Estimates of Road Traffic Noise Costs/4-20
Table 4.8 Washington DOT: Typical Noise Reduction Investment Limits, $ per residence/4-21
Table 4.9 Noise Abatement Expenditure Limits in Sweden, Denmark and Norway, per person affected/4-21
Table 4.10 Expenditures on Protection from Traffic Noise/4-22
Table 4.11 Estimates of External Environmental Benefits of Wetlands/4-26
Table 4.12 Pacific Northwest Environmental Product Net Values/4-29
Table 4.13 Lower Bound Estimated Annual Ecological Economic Values of Land Use Changes, $/hectare, per year/4-33
Table 4.14 Lower Bound Estimated Annual Ecological Economic Values of Land Use Change: Calculation Example/4-34
Table 4.15 Estimated Average Material Consumption for Passenger Vehicles Registered in British Columbia in 1992/4-38
Table 4.16 Framework for Calculating Environmental Costs of Material Use in Annual Manufacture of Vehicles Operated in British Columbia/4-39
Table 4.17 Framework for Calculating Environmental Costs of Energy Use in Annual Manufacture of Vehicles Operated in British Columbia/4-39
Table 4.18 Annual Costs of Passenger and Commercial Vehicle Waste Disposal Exclusive of Recycling Costs/4-41
Table 4.19 Estimates of Water Pollution Associated with Transportation/4-43
Table 4.20 Total US Highway Road De-Icing Impact Costs/4-44
Table 4.21 Total Value Matrix for a Sample of Species and Ecosystem Services/4-47
Table 4.22 Examples of Monetary Estimates of Selected Species and Ecosystem Values/4-50

Table 5.1 1991 Greater Vancouver Region Light Vehicle Transportation Costs, $ billion/5-3
Table 5.2 Economics of Toll Collection Alternatives Relative to No-Toll,
$ million/5-5
Table 5.3 Cost Benefit Analysis of Hastings Street Improvements/5-7
Table 5.4 Economics of Hot-in-Place Recycling Policies Relative to Mill-fill-overlay
Table 5.5 Year 2021 Morning Peak Hour System Performance with East-West Connector in Place
Table 5.6 Account Summary of Transportation System Investment Options

List of Figures

Figure 2.1 Environmental Cost Flow Chart/2-17
Figure 2.2 From Exhaust Emissions to Valuation of Local Effects/2-20
Figure 3.1 Contribution of Canadian NOx Sources/3-7
Figure 3.2 Relative Contribution of Greenhouse Gas Emissions to Global Warming/3-12
Figure 3.3 Sources of Reported Freshwater Hazardous Material Spills in British Columbia 1991-1992/3-48
Figure 3.4 Sources of Reported Marine Hazardous Material Spills in British Columbia Waters 1991-1992/3-48
Figure 3.5 Significant Marine Spills Recorded by Environment Canada/3-39
Figure 4.1 Estimated Linear Value Function for Land Uses/4-32
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