Estimates of the Full Cost of Transportation in Canada

Synthesis report prepared by
the Economic Analysis Directorate of Transport Canada
in collaboration with the Full Cost Investigation Task Force
for the Policy and Planning Support Committee of
the Council of Deputy Ministers Responsible of Transportation and Highway Safety
August 2008

Executive Summary

The entire final report is available in English and French. If you would like a copy please contact the Full Cost Investigation Task Force Secretariat in specifying your name, your mailing address and the version you want (English or French) . The file is available in PDF format (file size 744 KB). PDF file may be viewed using version 3.0 or higher of the Adobe® Acrobat Reader. This reader may be downloaded free of charge by visiting the Adobe® web site.

The Full Cost Investigation project (FCI) was undertaken with a view to produce defensible estimates of the financial and social costs of transportation for Canada. It was felt that these estimates, once developed, would allow for a better understanding of the relative full costs of the different modes of transportation. The estimates represent an additional analytical tool transportation analysts can use to take into consideration a large number of impacts associated to transportation activities.

In developing the FCI estimates, a number of challenges were encountered: some pertaining to data availability and limitations, others related to methodologies, such as the methodology to use to allocate costs and to quantify and monetize impacts of transportation activities. Data availability delimited the coverage and scope of the FCI initiative. In terms of the social impacts of transportation activities, the project team had to limit itself to addressing congestion delay costs, accident costs, as well as damage caused by air pollutants, noise and greenhouse gas (GHG) emissions.

The estimates that were developed do discriminate between passenger and freight transportation as well as between local and intercity passenger movements. All estimates are for year 2000. The work was spearheaded by Transport Canada and a federal-provincial task force. Stakeholders were invited to attend five consultation sessions at which overviews of the project and progress reports were delivered. The work was conducted in a transparent and inclusive way, allowing all parties to offer views, comments and suggestions all along the project.

In order to take into account the uncertainty of some values supporting the estimates, two sets of estimates (a low and an high) have been generated in addition to the middle estimates. When all elements in scope are accounted for, the project team estimated the full costs of transportation in 2000 to range between $ 198 billion and $ 233 billion. Of that total, the share of infrastructure-related costs was between $ 43 billion and $ 55 billion. The bulk of the infrastructure costs of the country’s transportation system are attributable to the infrastructure capital assets (between $ 28.5 billion and $ 37.5 billion), while operating costs associated to this infrastructure were between $ 8.5 billion and $ 9.2 billion. The remaining portion of infrastructure-related costs has to do with the estimated value of the land used by the infrastructure. The major source of transportation’s financial costs is related to the vehicle assets and the operation costs of the vehicles – between $ 145 billion and $ 153 billion.

The social costs associated with the impacts of transportation activities in 2000 were in the order of between $ 24.4 billion and $ 39.5 billion. In terms of relative importance, the five social costs considered rank as: accidents, air pollution, congestion, GHG emissions and finally noise.

When assessed in terms of modes of transportation, the annual full cost of the transportation activities within the scope of the FCI range between $ 198 billion and $ 233 billion with road transportation alone accounting for $ 169 to $ 201 billion. Air transportation is the second mode in terms of the annual full cost, followed by rail and marine transportation.

When it comes to road transportation, the share of social cost in the full cost of road transportation varied between 5 per cent for the Territories to 20 per cent for the province of Quebec. For rail transportation, Ontario had the largest share of social cost with 17 per cent of the full cost of rail transportation allocated to that province. In air transportation, Newfoundland and Labrador had the most significant share of social cost in the full cost of air transportation with 9 per cent.

For costing transportation physical assets, the perpetual inventory method was used where it was possible to do so. The approach allowed to establish the original capital asset net book value adjusted with a conversion factor to change original dollars into current (2000) dollars; the capital expenditure flows were calculated and an asset index price used; straight-line depreciation was applied, and a social opportunity cost of capital came into play to determine the full financial costs.

A methodology was developed to generate an estimated value of the land used by transportation assets and facilities. For this first set of estimates of the full costs of transportation, it can be with or without land value. Figures presented herein generally include land opportunity cost in the total.

Congestion cost estimates were developed for roads only in the FCI and it was estimated for the nine largest metropolitan areas of the country by taking into account both recurring and non-recurring congestion. For GHG emissions, after establishing the quantity of GHG emissions of each mode, a range of value of a tonne of CO₂ equivalent was used to cost out this impact of transportation activities. For air pollution costs, the approach used was more complex as it was based on three steps which started with an estimate of changes in air quality associated to transportation, followed by the monetization of the health and environmental impacts of such pollution, and finally with allocating the air pollution costs to each mode of transportation. Noise related costs were estimated using engineering and hedonic models for the establishment of the unit price to associate to noise.

An international comparison between the FCI social costs of transportation estimates and estimates from other international studies point to lower estimates of full cost of transportation in Canada. The differences may be due to methodological and scope differences and more in-depth analysis of the estimation approaches would be required before firm conclusions are drawn.

A number of areas for improvements have been identified, ranging from data-related improvements to alternate and/or refined methodological approaches. An updated set of estimates of the full cost of transportation could be used to get a sense of the changes in the demand for/supply of transportation activities and their resulting impacts on the FCI estimates.

This first set of estimates of the full cost of transportation comes with a number of caveats and limitations. Nevertheless, the estimates presented herein represent an important first step in furthering our understanding of transportation activities and of the relative costs of modal activities. Both private and public transportation decision-makers may show interest in cost elements of relative significance and for that reason may lead to some special attention on their part.