Transport Economics Conference 2012

I spent Friday afternoon with my A2 pupils at the 8th annual Transport Economics conference at the University of Huddersfield, hosted by well-known transport economist Professor Colin Bamford and his team. The theme for the day focussed around market failure and government intervention in transport. My notes below are some of the themes discussed on the day and provide some context and application to a lot of transport theory that economists may study in the classroom.

The first presentation was based on an economist’s perspective on Heathrow’s potential 3^rd runway. Heathrow is a ‘hub’ airport operating at +99% capacity and it seems that the recession has had very little impact on dampening passenger demand; Gatwick is close to capacity too whilst Stansted is not popular with passengers or firms. Heathrow does not have the capacity to provide opportunities to key growth markets, in particular flights to major emerging economies and is currently losing out to EU hubs – the CBI have also stated how investment opportunities are by-passing the UK as a result.

Domestically, currently 225,000 people are exposed to +72dBA – judged to be a level which has an adverse effect on lifestyle. If the 3^rd runway was constructed Heathrow would generate 25% of UK’s CO2 emissions target by 2050! A well-timed report in the media today also showed a study reporting that the 3^rd runway would ‘treble air pollution deaths’

Professor Bamford introduced the CBA procedure that takes a ‘long and wide’ view and the difficulties of trying to identify, measure and monetarise all private and external costs and benefits. He then considered the negative externalities involved, such as noise, CO2, blight, traffic congestion and positive externalities such as increases in competitiveness, multiplier effects and the impact on businesses/suppliers. The problem of arriving at a decision was clearly demonstrated by the Department for Transport 2009 CBA returning a £5bn net benefit whilst the New Economics foundations returning a £5 net cost. The delay by previous, and current political parties on any decision highlights the uncertainty involved in such a major decision.

Robert Mayer, a Senior Lecturer in Air Transport and Tourism Management then gave a wide-ranging talk on APD – air tax on a per passenger basis that the government (clearly aware of the price-inelastic consumers reaction to this tax) have increased in 2007, 2008, 2009, 2010 and 2012, and discussed whether or not a per plane duty would be a better tax. Airlines clearly want APD to be scrapped and it was rare to see Willie Walsh and Michael O’Leary agreeing on something!

David Warwick-Smith, Lecturer in Air Transport, Public Transport and Tourism, then presented a view on ‘HS2 – value for money?’ The current capacity on the UK rail network will see scenarios such as the Rugby to London line being completely out of capacity by 2025. HS2 provides an opportunity for a dedicated HS line and to relieve capacity on the clustered west coast main line. Arguments for the proposal include the improvements in regeneration of underdeveloped stations and infrastructure, environment benefits (assuming passengers shift modal use of transport), employment, speed and multiplier effects. Arguments against include the £36bn cost (£1000 per UK income tax payer!), construction costs and timeline and the huge assumptions being made for a project running until 2026 (phase 1) and 2033 (phase 2) when the 225mph, 1100 seat trains (14 per hour) will be in action. An interesting point was that HS2 supposedly benefits business men/women who will see their daily commute time reduced but with wi-fi and current technology, productivity during train transport is improving – and of course the reduction on journey time will reduce the most productive part of the journey (the middle) whilst ‘settling down’ and ‘end’ of journeys (least productive) remain unchanged. David finshed with detailed CBA that HS2 has a positive benefit to cost ratio but other options (particularly given the overall financial cost) must remain viable alternatives.

It was great to allow pupils to hear some of the key current topics in UK transport which are so wide-ranging and serious such as estimates of UK road congestion costing the economy £25-£35bn a year – I kindly organised a massive amount of motorway traffic on the way back to York to allow pupils to see first-hand the problems that we as a society face! Things are only going to get worse and it seems a sustainable, integrated transport policy is still a long way from reality based on the current situation.