Monetization of Environmental Impacts of Roads
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Chapter 1--Introduction and Background

The state of the environment is of increasing concern in Canada and the world. Road and highway transportation have a significant impact on the environment, resulting in increased public concern about how the environment is affected by transportation projects.

The emergence of environmental issues has necessitated a new approach to project planning and evaluation. Traditional evaluation approaches have been criticized for their failure to account for the intrinsic values of the environment. Thus, there is an increasing demand for considering environmental impacts when making decisions about the management or expansion of the highway system.

This report discusses how monetized costs of environmental impacts can be included in traditional evaluation approaches, such as cost benefit analysis, providing decision makers with a greater appreciation of the environmental impacts of transportation projects. The report is intended primarily for decision makers, policy analysts, transportation and environmental planners, highway engineers and transportation economists who are interested in the monetization of environmental impacts for cost benefit, cost effectiveness, life-cycle cost analyses and road pricing. The report may also be useful to readers who are generally interested in environmental impacts of land transportation. The report is also

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.

This chapter discusses the objectives and limitations of the report and provides background on transportation planning in British Columbia and elsewhere. A brief description of the content of subsequent chapters is also included.

1.1 Objectives, Scope and Limitations of the Report The objectives of this report are to: · Investigate ways to include environmental costs in the SCBA framework.

· Define generic types of environmental impacts due to road construction and usage.

· Identify which transportation activities produce which pollutants and how they lead to environmental impacts.

· Review evaluation frameworks and monetization methods for costing environmental impacts.

· Compile and develop cost estimates for environmental impacts specific to British Columbia.

· Assess the relative importance of environmental impacts in SCBA evaluations of road transportation projects.

· Identify some uncosted impact categories for further study.

This study, along with feedback from stakeholders, will provide the ministry with preliminary costs per unit of many of the environmental impacts that are currently excluded from high-level road planning and cost benefit analysis of projects. The 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 the environmental cost estimates as well.

Environmental impacts have consequences for human health and well-being, for human-made objects and for natural assets. Chapter 3 discusses the environmental impacts we have considered for this report. For each environmental impact and its relative severity, causes and relevance in project and policy evaluations are described with reference to activities specific to road construction and vehicle use. Environmental impacts embodied in the manufacture of vehicles, road construction and fuel production are also considered where data is available.

This study draws on an extensive review of international sources on the measuring and monetization of environmental impacts associated with transportation activities (both published and research in progress), supplemented by our own estimates. Currently known generic estimates of environmental impact costs are included whenever they are available. For more difficult to monetize impacts, preliminary estimates are derived. Since monetization methods and unit costs are not well developed for all environmental impacts, these estimates should be re-evaluated when new results become available.

The total cost of an environmental impact is the product of the quantity of the impact times the cost per unit amount of the impact, or its shadow price. Shadow prices represent values that are based in many cases on historical information about traffic, human behaviour, vehicle technology, meteorological conditions, etc. This bias is particularly true for ground-level ozone, particulates, water pollution and waste disposal. Consequently, the unit costs need to be adjusted for future policy, regulation, vehicle technology, climate, travel behaviour and other new conditions. The unit costs would still be useful in appraisals of the "business as usual" case. However, the estimated shadow prices for local and regional air pollution should not be extrapolated to conditions that markedly differ from those in British Columbia.

This report introduces a discussion on shadow prices of environmental impacts for road transportation planning and project appraisals. We have assumed that these decision-making situations are subordinate to a pre-determined, socially optimal strategy concerning the direction of different sectors towards government goals. For lower-level applications, the average damage of transportation activities is less relevant than the marginal environmental damage from an additional unit of transportation. The latter is crucial to determining socially optimal transportation policy and to appraising different project alternatives. But marginal costs are also much more difficult to determine than average costs, and it has not been done in this report for a number of impact categories. The average cost estimates per kilometre of vehicle travel should not be used as a substitute for marginal costs in applications, such as cost benefit analysis of abatement measures, road pricing or other economic instruments for dealing with external environmental impacts. However, where marginal cost estimates are not available, average costs can be used tentatively until more complete information is available.

Estimates expressed per unit of impact (for example, climate change damage in $/tonne of CO2 equivalent), however, can be converted to marginal costs if appropriate emission rates specific to a given vehicle under given operating conditions are applied. Quantification (as opposed to valuation) of road transportation environmental impacts using emission rates is not the subject of this report. Social impacts, such as additional municipal costs due to roads and urban sprawl, community degradation, and over-dependence on roads and automobiles are not considered to be environmental impacts and as such are not covered in this report.

1.2 Transportation Planning and Evaluation This section briefly describes the context of transportation planning evaluation, within which the assessments of environmental impacts are carried out.

1.2.1 British Columbia

In British Columbia, the need for economic analysis of ministry projects was specified by a number of organizational reviews and a formal request from Treasury Board in 1989. The Economic Analysis Project was launched to address the needs. By 1992, the international experience of leading agencies led to the selection of social cost benefit analysis (SCBA) as the ministry’s recommended framework for appraisals of road investments and policies. A set of guidelines and evaluation tools based on SCBA was developed for ministry rural highway project planning and programming by 1992 (MoTH 1992a). These tools, based on road-user economics, were tested on selected projects and capital programs in 1992-94, using a computerized analysis program called User Benefit Cost Spreadsheets (UBCS) (MoTH 1992b).

Major project planning and implementation, urban transportation project appraisal, pavement rehabilitation policy evaluation and development of highway standards by the ministry (Bein 1993; Bein 1993a; Bein 1993b; Kawczynski and Bein 1993; Bein 1994) confirmed the importance of environmental and social costs due to roads and vehicle traffic. Contributions to the Greater Vancouver Regional District’s Transport 2021 (Bein 1996) and Air Quality Management initiatives, selection of toll collection schemes for the Transportation Financing Authority (Bein and Biggs 1996) and evaluations of the interagency South Coast Transportation System Plan, also indicated this need. Thus in 1992, the ministry Economic Analysis Project embarked on a study to:

· define environmental impacts of road construction and motor vehicle traffic, · assemble existing environmental cost information and estimates, and

· develop methods for monetizing impacts for which estimates are lacking.

In 1993, the Transportation Financing Authority was created. Its mandate is to ensure that different mode-specific agencies co-operate in developing transportation strategic and tactical plans congruent with the goals and objectives for British Columbia. The TFA authorizes projects and programs and approves their funding. In effect, the TFA has become the transportation planning and financing co-ordinator for the province.

In February 1993, the provincial government issued general guidelines for multi-objective decision making (CCS 1993). Known as Multiple Account Evaluation Guidelines, the document is the first formal and comprehensive general reference for a more structured base of decision making in the provincial government. One of the major accounts in the guidelines concerns environmental impacts.

An important piece of legislation was enacted in June 1995. A new British Columbia Environmental Assessment Act (BCEAA) requires that environmental impacts must be identified at a much earlier stage compared to past planning processes for transportation and other projects, and project proposal development must involve public consultation. Each project is subject to the BCEAA, regardless of the existence of an equivalent process, unless the project falls under federal jurisdiction. Project applications filed prior to June 1995, the enactment date of BCEAA, must also comply.

Multiple Account Evaluation Guidelines and the Environment

There is a wide range of environmental impacts [whose effects] on human health, commercial and non-commercial resource use, and on aesthetic, ecological and cultural attributes of the environment should be... presented... from a local, regional and provincial perspective. Where relevant (e.g., with respect to greenhouse gases), a global perspective should also be presented. The significance of the environmental impacts can be assessed in monetary or non-monetary terms.

British Columbia Crown Corporations Secretariat

Multiple Account Evaluation Guidelines, Vancouver, 1993

Also in June, 1995, British Columbia enacted Growth Strategies Statutes Amendment Act (GSSAA). The Act encourages cooperation of local and regional governments in developing growth strategies for regions of the province. The purpose of a regional growth strategy is to promote human settlement that is socially, economically and environmentally healthy and that makes efficient use of public facilities and services, land and other resources. GSSAA should work towards limiting urban sprawl and promoting settlement that minimizes the use of automobiles while encouraging non-motorized modes of transportation and the efficient use of public transit.

With the creation of TFA, the establishment of provincial guidelines on multiple account evaluation (MAE) and the recent enactment of the BCEAA and GSSAA, planning and implementing transportation solutions seem to be heading in a new direction. The development of a land use and growth strategy for the province is tied in with its transportation strategy and has supported regional and municipal planning, as recommended by the GSSAA and Transportation Association of Canada (TAC). (See below.)

1.2.2 Other Initiatives

The Transportation Association of Canada (TAC) issued a briefing (New Vision for Urban Transportation) in March 1993 to serve as a focal point for national debate on more sustainable transportation (see below). TAC is a national umbrella association of all levels of governments, transportation service providers and users, and other groups. The TAC briefing concluded that continuation of current trends in land use, urban design, transportation planning and financing do not support sustainability. Environmental considerations need to be included in every stage of decision making. One recommendation placed greater onus on leadership by elected municipal officials, who should be supported and encouraged by provincial governments.

In September 1993, TAC endorsed a vision to be achieved by the year 2003. Recognizing the need to develop Canada’s transportation systems to enhance prosperity and competitiveness, while also addressing environmental concerns, TAC called for the use of methodologies based on cost benefit analysis to enhance decision making for maximum returns from limited resources. By November 1994, TAC provided A Primer on Transportation Investment and Economic Development, which supports TAC’s 2003 vision. It describes the relationship between capital investment in transportation infrastructure on the one hand, and productivity and economic growth on the other.

A Primer on Transportation Investment and Economic Development

...The executive must ensure that transportation policy and investment opportunities are appraised, quantified and qualified through methodologies appropriate to the objectives at hand. Externalities...must be explicitly identified in order to estimate the dollar value of project revenues or required subsidies relative to the initial goals and objectives of the project.

...Transportation investments can create measurable environmental costs, [but] the economic benefits are often far greater. ...Negative impacts should not necessarily mean the project is not worthwhile. Its worth should depend on the net present value of all costs and benefits.

...All direct and indirect costs should be included in the economic appraisal. All environmental costs should, to the fullest possible extent, be quantified and incorporated.

Transportation Association of Canada, November 1994
The Greater Vancouver Regional District (GVRD), comprising 20 member municipalities in the region, adopted the Creating Our Future vision in 1990 (GVRD 1990), with the idea that Greater Vancouver could become a better place to live. From that base, jointly with the Ministry of Transportation and Highways and the British Columbia Transit Authority, the GVRD conceived the Transport 2021 project. The goal of the project was to produce a long-range transportation plan for the region by the end of 1993 (GVRD 1993b). Among the objectives and evaluation criteria published in May 1993 were the impacts on the physical environment and on the urban community (GVRD 1993a). By 1995, the 1990 vision reached the phase of a strategic plan (GVRD 1995). Other regions in the province launched similar initiatives.

The South Coast Transportation System Plan is being developed for the Greater Vancouver region. It is the first application of multiple account evaluation (MAE) to a transportation system plan in British Columbia, and as such is an important opportunity to include environmental costs along other historically better-defined road and transportation costs.

1.2.3 Transportation Planning Hierarchy

Transportation services society’s economic and social functions. Transportation planning is thus subordinate to broad socioeconomic goals and is most efficiently conducted in two stages. The first stage defines the general direction for longer term, multi-modal transportation plans congruent with projected land use and other socioeconomic goals. The second stage provides the detail of individual mode-specific projects in different parts of the transportation network. The two stages take place within political and technocratic processes, with technical decisions bearing more weight at the more detailed planning levels.

Ideally, government goals that reflect the social, economic and environmental aspirations of society are at the top of the hierarchy of goals to guide decision making in transportation planning. A subset of goals is formulated for land use and associated transportation. Analysis of overall strategies aimed at achieving these goals operates on multiple criteria and flexible evaluation frameworks and processes, which can accommodate social, economic and environmental considerations. The analytical tools may be applied within a combination of political, consultative and prescriptive processes. This is the strategic phase of transportation planning. The product may be a statement of preferred modes for different transportation functions, urban form and spatial development of the countryside.

Once the direction is charted, perhaps in the form of national, provincial and regional transportation and land use strategies, road and transportation initiatives are assessed at different levels (MoTH 1992). High-level studies of system needs assess the travel demand needs in the context of the overall strategies of the government. With the policy established, reconnaissance and corridor planning identify and evaluate alternative corridors to serve the demand, assuming the optimal mix of land use, transportation modes and demand management measures described in the overall strategy and policy

Taking the corridor studies as a point of departure, concepts for specific routes and nodes are developed in functional planning. They are then refined to provide the necessary design detail through the preliminary and detailed design stages of a project. The planning thus leads to detailed design that enables tactical planning, that is, planning the implementation of the preferred projects. In rational processes, the preferred projects are also the most economically efficient, while serving the social, environmental and other goals above. Programming alternative investments is the process of prioritizing these projects within a fixed budget.

Moving through the high-level studies to the detailed design and programming, the scale of the maps used to document existing conditions and planned impacts is gradually reduced. The spatial and time scales of environmental impacts also tend to narrow down from mostly long-range, global and regional concerns at the policy level to noise, local air quality, water pollution and effects on local species at the detailed design level.

Accordingly, the set of decision criteria narrows down from a broad-brush social, economic and environmental basis at the strategic levels, to mostly technical parameters and design standards at the tactical level, which reflect the higher-level choices deemed best for society. For example, design standards may reflect an emphasis on preserving vanishing habitats. By specifying that a causeway should not be built through a slough, the higher-level goal of preserving wetlands is dealt with by the designers, who focus on minimizing the residual impact of alternative solutions to cross the slough.

Many jurisdictions address environmental concerns of transportation projects through the Environmental Impact Assessment (EIA) within the planning process. EIA is a study of the probable changes in the various socioeconomic and biophysical characteristics of the environment that may result from a proposed project or impeding action. EIA typically includes methods and conditions for reducing or compensating for adverse impacts. Some governments now require that EIA be one of many information sources considered in a broader environmental assessment process. Environmental assessment is a process required by regulation, by which all available information and public concerns associated with a single proposed project are reviewed. This serves to bring the broader socioeconomic and environmental issues to a wider audience outside the transportation-operating agencies.

1.2.4 Use of Evaluation Models in Transportation Planning

Evaluation models are needed at each transportation planning stage to support decision making. Evaluation models inform politicians, technocrats and stakeholders of how alternative choices will affect the attainment of goals and objectives.

The models that support the evaluation of decision criteria become more detailed and more concerned with local specifics at the design level. At higher levels, transportation-demand models may be used to project travel demand for a given set of land use, mode mix and network assumptions. The set of decision criteria usually contains a larger number of qualitative accounts than at lower levels, because social, some economic, and many environmental aspects cannot easily be quantified.

Further down the planning hierarchy, a refined transportation-demand model, which is programmed for a subsystem of the whole network, may be used to project travel volumes for different proposals of a new or altered link or node in the system. But as the hierarchy is descended, the planning and design of the facilities increasingly depend on project-level tools. These tools operate on data requiring increasingly detailed descriptions of movements, modes, vehicles and speeds, as well as the facility and its social and natural environment, to assess impacts, such as noise, human and ecological community severance and local air pollution.

The impact quantification tools for supporting appraisals at various levels are not a subject of this report. However, a general understanding is required of their capabilities, limitations and the data they can provide in order to proceed with the design of evaluation frameworks for road and transportation planning. The suite of models used varies as much as the planning processes in different jurisdictions. Much depends on professional traditions, mandate, leadership and the organizational culture of the agencies responsible.

Some of the most advanced modelling of environmental impacts is happening in North America and leading transportation planning agencies should take a closer look at them. International lending agencies made a tremendous contribution to cost benefit highway planning tools in the 1970s and 1980s. However, projects such as the ISOHDM (International Study of Highway Development and Management Tools), sponsored by the World Bank and the Asian Development Bank, have not addressed the importance of developing emission and environmental impact models. Instead, ISOHDM has focused on improving its vehicle-operating cost and pavement-deterioration models. Considering that these models are to be used primarily in regions with a rapid growth in automobile utilization (Asia, South America, Central and Eastern Europe), failure to include environmental impacts in the models means that the goals of emission reduction will not be well served in these regions.

The United States Federal Highway Administration and state transportation departments have similarly concentrated on project evaluation models such as MicroBENCOST, which do not adequately address environmental impacts. MicroBENCOST does not mention particulates and CO2 as pollution from vehicles, yet it does assess CO. MicroBENCOST is based on dated vehicle-operation parameters and speed-flow assumptions and generally contains default values which do not apply to Canadian conditions. Canada, faced with the option of resurrecting the Highway User Benefit Assessment Model (HUBAM) or adopting MicroBENCOST or UBCS, opted for the US model. However, some administrations have state-of-the-art procedures in place (such as the Swedish National Road Administration or Transit New Zealand). Efforts could be made to obtain their knowledge and adapt their procedures and models.

In British Columbia, EMME/2 travel demand forecasting model has been relied on for provincial highway and urban transportation planning. By international standards, EMME/2 is slow, lacks graphics capability to provide instantaneous feedback to the user, is not transparent and, therefore, not easy to use, causing delays in transportation studies. The database is insufficient to model realistic traffic speeds, goods movement, and 24-hour operation in urban areas. The results need to be supplemented and transferred to an outside model in order to carry out accurate multiple account evaluations. User expertise needs upgrading (Kawczynski and Bein 1996). By contrast, more efficient travel-demand models produce answers to multiple account evaluation questions, including air emission and noise impacts of individual links and nodes in the network. Most of the travel-demand models, however, suffer from an inability to represent the dynamic relationships between trip-making behaviour and land use (GVRD 1995c).

Supporting models on traffic behaviour, fuel consumption, emission rates, etc., do not have a long tradition in British Columbia. For example, the Australian Road Fuel Consumption Model (ARFCOM), which was calibrated in 1992 for typical vehicles by the Economic Analysis Project, is only used sporadically in the design of road facilities. The MOBILE 5C model of vehicle emissions is too demanding for most staff and consultants to use on a routine basis. Speed-flow relationships are looked up in outdated versions of the Highway Capacity Manual, rather than being measured on the road. With models like ARFCOM and MOBILE, local data needs to be developed and then aggregate results produced in a simple form so they can be widely used in planning and design.

However, changing the supporting analytical tools at the working level seems to be occurring with the establishment of the Multiple Account Evaluation Guidelines for British Columbia and the takeover of the Transportation Financing Authority of the planning and funding co-ordination functions of provincial transportation. While time and resources are required more than ever to satisfy this emerging approach, fiscal restraint remains a reality.

1.3 Organization of the Report Chapter 2 reviews traditional evaluation methods and discusses the principles of monetization. An evaluation framework for incorporating environmental impacts into social cost benefit analysis is discussed. The chapter summarizes monetization techniques and discusses their suitability for costing environmental impacts. Chapter 2 also outlines ecological economic concepts, from sources of pollutants to the consequences of environmental impacts of road transportation activities.

Chapter 3 catalogues environmental impacts. For each impact, its causes and relative severity are described with reference to road transportation activities.

Chapter 4 presents the estimated ranges of shadow prices of environmental impacts. Some estimates are compiled from the sources reviewed, while others are estimated within the current study.

Chapter 5 presents real applications in which environmental impact costs have been included in project and policy appraisals in British Columbia.

The remainder of the report includes a list of references, a glossary, lists of the abbreviations, units and conversions used in this report, and a list of other resources on cost-benefit analysis produced by the Ministry of Transportation and Highways.

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