Jack Short's Blog

 

 

Financing Infrastructure: Transport's Double Squeeze

5 January 2011

Transport is at the heart of the global economy, and it relies on ever more complex and far-reaching infrastructure to deliver goods and move people. Yet countries' ability to finance the all-important transport system is being squeezed from two sides. Public money, the traditional source of most infrastructure spending, is increasingly scarce. The major Western economies, including France, Germany, the UK and the USA, are all experiencing severe pressures to limit or reduce transport investment levels. In many countries, even maintenance spending, essential to keep vital assets in reasonable condition and arguably too low already, is under threat.

And private money, often argued to be plentiful given a global savings glut, is not exactly flowing to the transport sector. With the downturn, revenues derived from traffic tolls are down. As a result, private companies are now looking for protection from this source of revenue risk, by turning to the public partners. This increases the costs and risks for the public side. Whatever the merits and drawbacks of public-private partnerships, they should not be expected to fill up the funding gap created by dwindling public funds.

What ways exist to maintain transport investment funds despite this double squeeze? There are only partial answers.

First, the justification for steering public money towards transport will need to be more convincing. Transport has a strong appraisal methodology in cost-benefit analysis (CBA). This tool is rarely used in other sectors, despite its strengths in comparing alternative projects. Continued reliance on CBA will help transport make its policy case. Rather than reducing its role, the realm of CBA would be expanded. Consistent use of CBA in transport will help channel funds to where returns are highest. This may well mean that unspectacular, marginal improvements to networks get priority over highly visible large scale projects, as the productivity impacts of such smaller projects may be large.

Second, where they exist, tolls or charges are likely to increase. Where new infrastructure is build using private money, tolls are likely to be higher than on similar structures elsewhere. Where rail services are subsidised, fares can be expected to rise. And finally, the idea of introducing charges on existing networks is gaining traction. In short, the user will have to pay more.

Finally, the Green Growth agenda that all countries embrace enthusiastically should not lead to money being wasted. Projects which aim to change the energy base of transport, for instance by pushing for a large scale switch to electric cars, or by stimulating the use of more energy efficient modes, attract political and financial support. But here too, money needs to be spent carefully. A new dimension to the financing of alternative vehicles is the erosion of fuel tax revenues, which their use implies. If electric vehicles take a significant share of the market there will be pressure to increase taxes on conventional fuels or charge for road use directly.

Click here for the PowerPoint presentation on the topic by Jack Short at Les Echos annual conference on transport infrastructure in Paris, 19 November 2010.

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Subsidising Alternative Fuels: Right or wrong, Short or Long?

21 December 2010

A fascinating exchange was recently triggered by two papers on electric and on alternative fuelled vehicles at a seminar on “Green Growth in Transport” which the International Transport Forum had organised with the Korean Transport Institute (KOTI) in Paris.

In his contribution, Rémy Prud’homme, professor emeritus of economics at the University of Paris XII, provides detailed cost estimates for electric vehicles compared to conventional vehicles. He shows how electric vehicles are still much more expensive and seem likely to remain so. Therefore, they will require large subsidies to achieve even small market shares.

Prud’homme’s figures indicate that the difference in cost and therefore the subsidy level required is about USD 10,000 per vehicle. The total cost, therefore, of subsidising 20 million electric vehicles - a not unreasonable global figure for the next 10 years - would be around USD 200 billion. That is a large sum indeed, and one that, he argues, represents an enormous risk for cash-strapped governments.

Car manufacturers he had spoken to, explained Prud’homme, see electric vehicles as a niche product that might account for 10% of sales in 10 or 20 years time - even without subsidies. But in their view electric cars might never account for more than 10% of the market - even with subsidies.

Lew Fulton of the International Energy Agency (IEA) does not dispute Rémy Prud’homme’s detailed figures. But he gives a different perspective, one based on the longer term.

Fulton argues that the market value of vehicles and fuel sales over the decade could be over USD 30 trillion. If an investment of USD 200 billion in electric vehicles can tip the balance so that the market starts to move in a significant way to this new technology, this could be seen as a good investment. Viewed in the longer term, against the broader objective to reduce transport's oil dependence and switch its energy base, such an outlay for a groundbreaking technology may not be unreasonable.

Which view is right?

It is evident that without incentives - or much higher taxes on conventional cars - electric vehicles have little hope of competing in the existing market and manufacturers will be reluctant or unable to develop them. So subsidies are needed, as without them the transformation that is wanted will not take place in the short term. So, in different senses, both Prud’homme and Fulton have a point. In the short term the vehicles are costly, but in the longer term they can bring large environmental benefits. This transformation will not happen without government intervention.

A key question for governments is, how much do they need to pay to get this transformation under way? Could the suite of policies needed be more effective and implemented less expensively? Amar Bhidé, now a professor at the Fletcher School of Law and Diplomacy at Tufts University in the US, argued in a more general sense at the 2010 International Transport Forum in Leipzig that major industrial transformations, driven by consumers, do indeed occur, but somewhat more slowly than if there is government aid.

One message for governments is that if they are prepared to accept that the transformation in transport’s energy base could take a few years longer, then it could also be much cheaper for them.

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The Uses of Longevity

15 December 2010

Doris Leuthard, President of the Swiss Federation, became new Swiss Minister for Transport on November 1st. In most countries, a new transport Minister is interesting but not earth shattering news. Ministers of Transport change regularly and the average "life expectancy" of a transport Minister is only about two years. But in Switzerland things are different. It is more than 15 years since this job last became vacant. And before that another 8 years. So there have been two Ministers of Transport, Moritz Leuenberger and Adolf Ogi, for the last 23 years. And the reign of Moritz Leuenberger for over 15 years far exceeds the time in office of any Ministers in the modern era.

This longevity leads to a remarkable consistency in policy. Swiss transport policy, especially on modal shift from road to rail, has been a constant over this period, and has been supported by all the instruments available. The recent breakthrough in the Gotthard tunnel is a potent symbol of this policy consistency. The policy took shape almost twenty years ago. And a key element was public support which was won in the two general referenda and been maintained. The Gotthard tunnel and its sister through the Lotschberg, which opened last year, represent remarkable achievements in engineering in financing and in political terms.

But is the model transferable? Can other Countries or Europe as a whole learn from Swiss policy? The answer is obviously yes, but it requires far more coordination in policy and much stronger long term commitment to railways than Countries have been ready to give. International cooperation is needed as the advantages of railways lie in moving sufficiently large volumes over longer distances. But this coordination between Countries and companies has been too slow and too weak to counteract the efficiency that road transport delivers. Crucially too, other Countries are reluctant to apply the Swiss financing model, where 2/3 of the rail tunnel cost is paid for by road tolls.

But we can be certain that Swiss policy will remain consistent. The new Minister has a large portfolio and many challenges, but, if history is a guide, she will have several years to implement them. We wish her luck.

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Drugs and Driving

9 December 2010

A new report from the International Transport Forum, entitled "Drugs and Driving: Detection and Deterrence" identifies an emerging challenge to improving safety on the roads: The use of drugs by drivers.

This is a complicated area to deal with: First, a multitude of drugs are involved. Second, their effects on drivers, individually or in combination, are hard to measure. But the evidence now presented shows that drug use by motorists is a growing problem in many countries, and that it needs more attention. The report underlines how impairment due to drugs is seriously aggravated if even small quantity of alcohol are taken as well.

The experience of some countries - perhaps especially Australia, which has introduced random road side testing for drugs - provide valuable lessons. Clearly though, further work is needed to identify the key substances involved and to devise effective means of measuring their impacts.

In addition, road authorities and policy need special training in recognising the problem and in dealing with it. Countries in the lead which have experience in the different aspects of the problem have an opportunity to share their emerging knowledge and test the conclusions more widely. This is vital so that the policy responses are effective. It will also help other countries to benefit quickly.

But as we approach Christmas, the main crash risk on the roads in many countries still is alcohol. Here, discipline by drivers and vigilance by the authorities are the watchwords at this time.

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Walking: The Forgotten Mode

16 November 2010

In my 25 years of organising ministerial meetings the topic of walking has never been on the agenda. It is a fact that transport ministers' attention is more attracted to heavy infrastructure, to the planes, trains, cars and trucks that use it, and the complex economic issues of competition and harmonisation that dominate international agendas.

But the simplest, most sustainable and cheapest means of locomotion has been mostly ignored - despite the fact that all trips begin or end on foot. The lapse is confirmed by the fact that published data hardly ever include walking, resulting in its exclusion from analysis and policy discourse. And there is so much to do to make this safe, agreeable and healthy means of locomotion more attractive. Even if it is mainly a local matter, governments and transport ministers can do a lot to support and encourage it.

The needs of people

Pedestrians make the most efficient use of scarce space in cities. Pedestrian areas and the intermingling of people bring life and vitality to these areas and economic benefits to the commerce and shops there. The 1960s practice of driving pedestrians underground to preserve the surface for cars is, happily, being reversed in many cities.

Pedestrians are the greatest victims of vehicle crashes. In countries where motorisation is growing, up to 40% of the victims of car crashes are pedestrians. The main culprit is speed and the lessons are clear. Speeds above 30 km/h are too dangerous in mixed traffic zones and cities in any case should not allow more than 50 km/h. Moreover, street and urban design is often flowed, focusing on the needs of vehicles, while those of people are not considered adequately.

Mobility Policies under the Microscope

Walking is healthy. In societies where obesity is growing the benefits for all of more exercise are becoming better known. Supporting cycling and walking will reduce risks of heart attacks, and will contribute to healthier lifestyles. It is obvious that the safety and comfort of pedestrians needs higher priority in traffic planning and management.

Over the next six months, the mobility policies and practices to facilitate community living will be under the microscope in the preparation of the 2011 International Transport Forum in Leipzig (Germany) on the theme of Transport for Society. This week, Walk21, the annual conference on walking and liveable communities, is taking place in The Hague, Netherlands, with the support of the International Transport Forum. So walking, the forgotten mode, is claiming the attention it deserves, and the error of not considering it as an integral part of mobility policy will, I hope, be corrected when ministers get together at their annual summit in May. In Leipzig, they will be able to demonstrate their interest and support for this healthy and practical means of transport.

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Figuring Out the Future of Transport

20 October 2010

Every second, a plane takes off somewhere on this planet. Every day more than 82 million people board a train. At any moment, 80% of the volume of world trade is on a ship. Planes, trains, cars, trucks and boats are the white blood cells of the global economy and the infrastructure, its roads, ports, rail tracks are its arteries.

Transport accounts for about 7% of world GDP. Households spend 15% of their income on transport. But these data belie transport's real importance, for trade and for social and business contacts. Our dependence was illustrated earlier this year by the fact that a volcano in Iceland completely disrupted European air traffic with costs that were estimated by some to be as high as 5 billion US dollars.

Transport brings great benefits. But it also carries a cost. Every year, more than 1 million people are killed in road crashes. And transport, for all the talk about e-mobility and clean high speed trains, is still 97% dependent on oil. The transport sector emits 23% of CO2 emissions from fossil fuel combustion (30% for OECD countries) and approximately 15% of all greenhouse gas emissions.

Transport is at the heart of everyday life. It influences, even determines, where we live and work, it shapes our leisure and relationships, and what we know of the world. The degree of access to transport affects people's quality of life and the possibilities to participate in society. Poverty and exclusion are the lot of those without access to transport.

So there are plenty of reasons to think - and to re-think - transport. And this is where statistics come in, on the United Nation's World Statistics Day being celebrated for the first time one 20.10.2010.

Policies should follow a vision, but be built on facts. Before spending billions on one technology or infrastructure, and not on another, serious analysis is needed. And for this, data on present traffic, or projected traffic and on costs are all needed.

But, sadly, transport is not very good at, literally, figuring out what it does. This may be surprising given its importance, but few sectors make do with such flimsy statistics. The transport sector is crying out for "better data for better policies".

Timeliness is one issue. Many economic indicators are available with a lag of only a few weeks. But transport data are often only available from 6 to 12 months after the fact.

Data quality is another. Data on kilometres travelled are notoriously unreliable, being often derived from fuel consumption data. It is the same for comparative data on investment or on traffic injuries or congestion.

A key issue is the narrow focus of existing transport statistics. Many of the challenges the world is facing - such as climate change - are not reflected in transport data. Transport emissions are badly measured - for example few cities know their emissions. Data on walking or cycling are absent from most publications, despite our policy wish to increase them. Transport reliability or performance data are rare; there are few measures of accessibility or congestion. Noise data, or the number of people injured in collisions are sketchy. Cost information is scattered and incomparable. Most governments make huge investments in transport infrastructures, but the data they have to use are unreliable, limited in scope and difficult to compare.

On the positive side, the International Transport Forum is engaged in a joint effort with EUROSTAT, the statistics arm of the European Union, and the United Nation's Economic Committee on Europe (UNECE) to better harmonise transport statistics. Among other things, the three organisations have created a glossary for transport statistics. It comprises 735 definitions and is a much-used reference for those involved in transport statistics. And we are constantly improving our website to try and make it relevant and useful.

Small steps, but in the right direction. But much more is needed to ensure policy-makers can make good decisions in transport. Spending on producing international comparable data is minuscule. And the consequences can be seen every day in flawed analysis and bad decisions.

There are massive opportunities to obtain an improved understanding of mobility. Traditional sources can be used better but new sources need to be tapped. As a simple example, GPS tracking of mobile phones provides a powerful new data source.

The transport sector needs a jump start to improve its data collection, its analysis and publication of key information. Unless we do this we will not succeed to better understand the role of transport in our economies and societies.

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Innovation for Safer Roads

"Every driver shall at all times be able to control his vehicle or to guide his animals"
(Vienna Convention 1968, Article 8, clause 5)

26 April 2010

This text was drawn up in another era but remains a key international legal cornerstone for driving. The principle that a driver should be able to control his vehicle is evident and undisputed. But the interpretation of this and similar national texts is at the heart of a crucial debate on improving safety on the road. Narrowly interpreted, this text could be an obstacle to making the best use of technology to improve safety on the road.

We need to move away from an over restrictive interpretation of this text. Technology is now emerging that has untold potential to improve driving safety. This technology will require rethinking our laws, our liability and insurance regimes and our attitudes and practices.

Vehicles can now be slowed or braked automatically. Some cars are already equipped with technologies which intervene directly on the engine. Adaptive Cruise Control slows the car when it is too close to the vehicle in front and then accelerates to maintain the preselected headway. Electronic Stability Programme applies automatic braking and/or reduces engine power in each individual wheel to bring the vehicle back under the driver's control. Cars can park automatically. In existing models Anti-lock Braking System (ABS) manages the braking as humans cannot react quickly enough to the changing adhesive relationship between tyres and roads. Advanced driver assistance systems include features which warn on lane departures and which assist with pedestrian detection and collision avoidance.

Human reaction times to emergencies are of the order of 0.5 to 1 second. In one second at 36 km/hour, a car will have travelled ten metres. These ten metres, before human action to deal with an emergency even starts, can be the difference between life and death. Imagine if the car began to brake immediately an incident was detected. Of course, we don't yet know how this will all work but it has such enormous potential that it is essential to move ahead with research, tests and trials and also get started on the policy and political debates.

The general argument to use technology is overwhelming. It is the scale of the problem and our inability to resolve it using the tools we have. Globally, 1.3 million people are killed in road crashes each year and several millions severely injured. We know how to reduce this dramatically, for example, to the level in the best performing countries using existing policies and technologies. This in itself would be a major achievement and doing it globally would be fairly miraculous. Bus this would still mean that over half a million people would die on the roads annually. This is obviously unacceptable. And we need new instruments and especially technology to contribute. In very many countries the number of fatalities has come down but the number of collisions remains more or less the same. We have reduced the consequences, but not yet made our system safe. We need all the help we can get.

A second reason to use technology is the human factor. Human errors are a contributing factor in over 90% of road crashes. Technical faults with vehicles or the infrastructure play a more or less secondary role, contributing mainly to the severity of crashes. Errare humanum est, and losses of concentration, errors of perception, risk taking, have always been with us and there is no likely legal or fiscal measure or punishment that will eliminate them. What has to be done is to reduce the consequences of human error. Unless we do so, the price we pay for our mobility will remain inordinately high.

A third argument is that technology is improving so fast that we cannot yet say what will be possible. Already trials with what is called Intelligent Speed Adaptation (ISA) have shown great promise in reducing risk. This can be introduced and tested, initially with what is known as informative ISA (where the driver is informed and makes the decision). But we must look to the next generation and test more interventionist versions of this technology.

A fourth reason to use technology in road transport is that is that we already use it in other transport modes. And these modes are much safer than roads. Aviation has long used advanced technology to improve safety. Roads, airspace and rail all have different characteristics but there are lessons to share from aviation and rails experience.

Of course there are problems and challenges to be resolved.

The legal issue, mentioned above, is a very important one. If driver liability in case of a collision becomes ambiguous or reduced there are risks of endless legal battles and also of compensatory risk taking behaviour by drivers. This is complicated but discussion on it needs urgently to be engaged. The potential gains are so evident that these hurdles need to be overcome.

There are technical challenges too. If some vehicles are equipped and others not, then we may avoid some accidents and cause others. But this has occurred in the past and has been dealt with.

In any case, we should not pretend that the driver actually has control of his vehicle at present. When travelling at the speed limit of 130km/hour, how can it be claimed the driver has control? When vehicles skid, even at 10 km/hour, the driver has lost control. When he hands over to a speed limiter or regulator, he cedes some control. When drivers are telephoning or reading their route maps or, as is increasingly the case texting, they are not in control. So, even if the present legal text is not appropriate for future challenges, it poorly reflects the present reality.

The road transport system is not safe. With the instruments and tools we have we can already do a lot. But we need to go much further and technology is the key. All actors, including the car industry, governments, insurance companies and researchers need to work together so that this opportunity is grasped. Let's continue to guide our animals by ourselves but let's get technology to help us drive our cars.

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Innovation in Transport: What Role for Public Policy?

26 April 2010

Innovation can be defined as the improvement over current practice through the exploitation of advances in knowledge. This is a broad definition, but makes clear, for example, that innovation is much more than just R&D. It also raises the question "improvement compared to what"? Many innovations are introduced through normal market mechanisms. An innovator or entrepreneur has an idea, develops a product or service, brings it to market and if enough consumers like it and buy it, the entrepreneur makes profits and the consumers are also better off. Everyone wins.

There are numerous innovations of the type just described in the transport sector. Just to name a few, low cost airlines, better cars and trucks, software for freight logistics management, in-car GPS, etc. came about mainly through private initiative. In order to stimulate this type of innovation, public policy needs to establish smoothly functioning markets and needs to take care that regulations - potentially justified for all kinds of reasons - do not discourage efforts to innovate.

However, left to the market, innovation efforts in transport will not solve all or even the most important problems in the sector. Congestion, air quality, crashes, and infrastructure provision are all areas where there are market failures or externalities, so that it is unlikely that the results that are sought will occur automatically. This implies clearly that at least some innovations in transport need to be steered or managed. That, as such, is uncontroversial. However, precisely what needs to be done to steer innovation in the right direction, is a topic of strong disagreement.

The minimal view is that it is enough to correct market failures. If there are environmental market failures, then charges to cover damage or property rights to create markets are needed. If there are knowledge spillovers, then there is a rationale for public subsidies or public provision of R&D. Beyond that, the case for policy involvement is weak.

However, it is far from clear that just getting the prices right gets us where policy wants us to go. For example, European fuel prices are high, implying a very high implicit cost of CO2-emissions. Yet, the fuel economy of new cars is too low to attain emission abatement targets. It seems, then, that mroe is needed than just an arms-length policy approach. We discuss this example in a subsequent piece.

The point is that innovation policy in transport needs to address some major policy challenges in the sector, and in that context routine statements that government must provide a flexible yet reliable framework for innovators to thrive and not much else, seem too facile. We mention just one of the issues: if government has specific goals, it is difficult for it to be entirely neutral and not "pick winners". A modal share target is obviously not neutral in providing access or mobility. The present support for electricity in reducing CO2 emissions is not neutral.

These and similar issues will be explored in May in Leipzig, and in the next few articles we will look at them in more detail.

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What Are Transport's Greatest Innovations?

7 April 2010

The wheel, domestication of horses and sailing ships allowed our ancestors to move beyond their immediate localities. In the 19th century, steam ships and railways dramatically extended the range and speed of human travel. The 20th century belonged to the car, and the number grew from virtually none to over 500 million. The internal combustion engine has lasted for over a hundred years, and has improved dramatically. As just one example, the modern Mercedes 500 has a smaller engine and is ten times more powerful than its 1901 counterpart the Mercedes 35. And there have been more than 600 significant innovations in cars in the 20th century.

But perhaps the most significant transport innovation of the 20th century is the container. Just a metal box, it allowed goods to be transported and stored in standard ways and on ever larger vessels and vehicles and trains. It led to massive changes and productivity improvements in ship loading and unloading, to safety and security advances, and huge transport cost reductions.

A much more pleasant experience

Another simple, but enormously significant 20th century innovation is the safety belt, designed in 1959 by Nils Ivar Bohlin of Volvo. A simple idea, it has saved millions of lives.

Of course there have been dramatic technological improvements. High speed trains, first in Japan in 1964 and then in France, have given a new elan to rail travel. And the record is impressive. For example, the Tokaido line between Tokyo and Osaka carries 130 million people a year with peak headways of three minutes and an average delay of 24 seconds. The jet engine, perhaps the most significant transport engineering invention of the 20th century, has transformed air travel into an everyday option for millions of people.

Now, GPS-based route guidance systems are making motorists' trips easier. In public transport, passenger information systems, providing waiting times for buses and trains, and integrated ticketing have made public transport a much more pleasant experience in many cities. Innovative software has allowed the logistics business to emerge and flourish and, among many other benefits, provides for the transparent tracking of goods along the entire delivery chain.

Stream of new ideas

Innovations have not just been in technology; policy innovations, notably deregulation, have brought massive gains to economies and consumers.

So the transport sector has a solid record of achievement with a stream of new ideas and actions. But look at the problems that remain - such as the sector's 97% oil dependence, its responsibility for a quarter of CO2 emissions from combustion, the 1.3 million road deaths, the billions of hours lost in congestion and inefficiencies, as well as the millions of people without proper access to schools, jobs and social contacts. This shows how much there is to do and underlines how much the sector needs significant additional innovation.

This subject will be at the heart of the discussions among Ministers and other leading figures of the transport world when they meet in Leipzig at the 2010 International Transport Forum, on 26-28 May.

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COMMENTS

Well written blog ...
29 April 2010
by Anjan Cariappa, Muckati Electronic Arts & Interactive Systems

A very well written blog indeed Mr. Jack Short. Innovation is the key to development and the transport industry has been trying to keep pace with the times. Like you rightly pointed out, policy makers play a very crucial role in bringing innovations into the mainstream. The industry as such should encourage innovators by the way of transparent and innovator-friendly policies. Kudos to ITF for all its efforts.