Calculating externalities in transport: how intermodality significantly reduces external costs

What are externalities?

 External costs or externalities are the social costs generated by transport operations due to their negative impact, both locally and globally, on the environment and the welfare of society. These are mainly CO₂ emissions, pollution and also accidents, lost time due to congestion, noise, and the wear and tear of infrastructures, mainly.

These costs are not perceived as such and are not being borne directly by the user, unlike the so-called internal costs like wear and tear on the vehicle itself, the cost of fuel, time and transport fees, among others. If the user does not take into account external costs when making a transport decision, he or she has no incentive to reduce them by using alternative and  more sustainable  modes of transport with the environment and society.

What does the European Commission say?

For a few years now, European transport policy has addressed the improvement of sustainability of the transport system. Recently, in 2020, the European Commission has published its Sustainable and Smart Mobility Strategy – putting European transport on track for the future (AS 2020 789 final) for the decarbonisation of the sector, in line with the European Green Deal and which aspires to climate neutrality by 2050 and a reduction in the 90% of the emissions derived from transport compared to 1990. For this reason, it promotes numerous initiatives, such as the internalization of the external costs of transport through the concept of "who pollutes pays" and the transfer of traffic to more sustainable modes of transport, favoring the rail and river and / or sea transport whenever possible. The Commission plans to boost freight transport by rail, which needs to double by 2050, promote intermodality and make short sea shipping more sustainable, smart and resilient.

In this context, quantifying the external costs linked to the different modes of transport is key to establishing any internalization measure and assessing the impact on improving the sustainability of modal shift from road to rail and short sea shipping . The Commission has developed a methodology for these calculations, as we will see below, and the Port of Barcelona has used it to quantify the savings in externalities resulting from the Port's intermodal offer.

How externalities are calculated 

The procedure used is based on the official calculation methodology of the European Commission, the Handbook on the external costs of transport, which is periodically updated and improved. The latest version is from 2019. 

In this methodology, a very detailed analysis of the marginal costs involved in each new transport unit introduced in the distribution networks is carried out, whether by road, rail or sea. The impact on various elements that form what we call transport externalities is assessed individually, with rigorous scientific studies, and a price is eventually assigned. This allows to establish the unit cost of transporting goods in terms of externalities for each mode, highlighting the important differences that exist between these modes.

The following items are included in the calculation: 

• Congestion - adding new traffic increases travel times and this results in financial losses.
• Pollution - fossil fuel transportation generates gases that cause diseases and even death.
• Climate change - burning fossil fuels for transportation adds greenhouse gases to the atmosphere, accelerating climate change.
• Noise - especially in urban environments, noise associated with the movement of vehicles affects people's lives in a negative way.
• Accidents - the increase in traffic produces a greater number of accidents, with an economic damage, and very often victims.
• Infrastructures - traffic accelerates the wear and tear of infrastructures. This is partially recovered on toll roads with payment of fees, but not on the rest of the network, which is usually free.
• Avant-post processes - certain directly related pre and post transport processes have an environmental impact. These processes include the deployment of the necessary energy to the vehicles (fuels / electricity), which is known as “well-to-tank emissions”, and the manufacture, maintenance and disposal of the vehicles and infrastructure used in transport.

The results of this methodology for evaluating externalities shows that road transport has a much higher negative impact than rail and maritime transport, up to 10 times higher for each tonne and kilometer transported. The following table shows the average values of externalities for each of the modes:

Table 1 Economic valuation of externalities by concept and mode in c € / ton-km: