External Costs Associated with Interregional Transport

The environmental and social costs of transport are becoming an important issue in Europe as car ownership and usage levels continue to rise. A subject of current debate is the internalization of these external costs by means of road-use pricing in a fair and efficient way, particularly in urban areas. Similar theory can be applied in an interregional transport context, but little research has been conducted in this area to date. The TRENEN model has been developed under the European Union TRANSPORT Program to quantify the marginal external costs of transport. Case studies have been completed for several European cities, using the urban version of the model, and for Belgium, Ireland, and Italy, using the interregional version. The calibration of the interregional model and the related case study results for Ireland are presented. The conclusions suggest users of all transportation modes currently pay less than the marginal external costs of their transportation activities. Another finding is that traffic congestion is a major externality. The model allows comparison of different transportation policy options with a full optimum scenario (the external costs are internalized precisely). Typically, such a policy would be difficult to implement, given the sophisticated pricing instrumentation required. However, it serves as a good baseline for testing other policies. In the case of Ireland, when a congestion pricing policy—similar to that used for motorways in France—was compared with the full optimum case, it achieved 60 percent of the maximum achievable welfare.