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The perils of ignoring induced demand

Streetsblog draws our attention to an interesting Danish study into the impact of induced demand on the cost-benefit analyses of motorway projects.

Here’s the abstract of the article:

Although the phenomenon of induced traffic has been theorized for more than 60 years and is now widely accepted among transport researchers, the traffic-generating effects of road capacity expansion are still often neglected in transport modelling. Such omission can lead to serious bias in the assessments of environmental impacts as well as the economic viability of proposed road projects, especially in situations where there is a latent demand for more road capacity. This has been illustrated in the present paper by an assessment of travel time savings, environmental impacts and the economic performance of a proposed road project in Copenhagen with and without short-term induced traffic included in the transport model.

The available transport model was not able to include long-term induced traffic resulting from changes in land use and in the level of service of public transport. Even though the model calculations included only a part of the induced traffic, the difference in cost-benefit results compared to the model excluding all induced traffic was substantial. The results show lower travel time savings, more adverse environmental impacts and a considerably lower benefit-cost ratio when induced traffic is partly accounted for than when it is ignored.

By exaggerating the economic benefits of road capacity increase and underestimating its negative effects, omission of induced traffic can result in over-allocation of public money on road construction and correspondingly less focus on other ways of dealing with congestion and environmental problems in urban areas.

Digging a bit further into the article,  we see that concern around the accuracy of assessing benefits of transport projects is spreading around various academics involved in this field:

Within the community of scholars and practitioners dealing with cost-benefit analyses (CBAs) of transport infrastructure projects, there is widespread acknowledgment of a number of flaws in the existing use of this method (Ackerman and Heinzerling, 2004; Mackie, 2010; Næss, 2006; Salling and Banister, 2009, van Wee, 2011). In a recent seminar4 on the use of CBAs in the transport sector, virtually all presentations highlighted problems associated with the method and its use in planning and decision-making, including the valuation of traffic time, environmental pollution, deaths and injuries from traffic accidents, and not the least the forecasts of future traffic volumes and time savings (Debenardi, Grimaldi, and Beria, 2011; Mackie, 2010). Estimates of construction costs and traffic demand have also often turned out to be highly inaccurate and most often too optimistic (Flyvbjerg, Bruzelius, and Rothengatter 2003; Holm 2000; National Audit Office 2007; Odeck 2004; Parthasarathi and Levinson 2010; Welde and Odeck 2011). Yet, there was the almost unanimous opinion of the participants of this seminar that the solution to these problems was to refine the CBA method and its usage, not to shift to a different way of evaluating project proposals. Apparently, the problem is not that the medicine has been misplaced, but that the dose has not been appropriate.

For road projects, the accuracy of traffic demand forecasts are crucial to the validity of any subsequent impact assessments, whether this is in the form of CBAs or other appraisal techniques. These forecasts form the basis for estimates for a wide range of impact factors, including time savings, emissions, and noise. Since traffic demand seems to be underestimate for road projects on average (Flyvbjerg, Bruzelius, and Rothengatter, 2003; Holm 2000; Næss, Flyvbjerg, and Buhl, 2006; Parthasarathi and Levinson, 2010; Rodier, 2004; Welde and Odeck, 2011), one might assume that this would cause benefits to be underestimated as well. However, underestimating the demand for road traffic also means that the expected time saving benefits might not materialize due to additional traffic, since demand could become so high on the new infrastructure that congestion occurs. It is this latter effect that will be the focus of the present article.

For transport projects there is a range of impact factors that lend themselves to appraisal via CBA, but in practice only a few of them have any noteworthy impact on monetized appraisal results. This is especially the case of projects concerned with expansion of road capacity. Usually, travel time savings make up most of the expected benefits for new road projects (Banister 2008; Mackie, Jara-Diaz, and Fowkes 2001). For example, in the CBA of a recent proposal for a new motorway in Denmark5, travel time savings amount to 84 % of the total benefits on average. The price and volume of time savings are thus without comparison the most decisive benefit parameters in a CBA for road capacity expansion. Although the monetary values given to time savings are contested and represent an important source of inexactness, this will not be dealt with in the present study. Instead we shall focus on the second source of uncertainty, which is the expected savings in terms of reduced travel times for drivers as a result of added capacity. More precisely, the purpose of the paper is to illuminate how the neglect or underestimation of induced traffic can seriously distort the results of cost-benefit analyses of road projects in congested urban situations.

If you’re interested in learning more about what induced demand is, and how it can have a destructive effect on the justification for roading projects, the article is well worth a read. I suppose the question that’s in my mind a lot is whether the bigger problem with estimating future demand is that we’re going to over-estimate it (due to stagnating traffic growth), or under-estimate it due to induced demand. With neither of these scenarios representing good news for benefits from roading projects, and with so much money at stake, perhaps it’s worthwhile understanding all of this a bit better.

I wonder if NZTA read this kind of thing?

6 comments to The perils of ignoring induced demand

  • Ash

    To answer your final question, I believe the NZTA wonks face two obstacles to accepting the evidence for induced demand and other drawbacks of roading-centric transport systems. Firstly, and I don’t have a lot of evidence to support this I’ll admit, but I think it’s safe to say they believe in a form of New Zealand exceptionalism, which renders any overseas-conducted transport research non-applicable. In a sense they’re right, because of the exceptional bias towards private motor vehicle-based transport NZ has seen through most of the post-war years.

    I’d also question their objectivity, both in terms of their independence from the influence of government transport policy, and in light of justifying emphasis on transport modes throughout the history of the organisation and its predecessors.

  • Dan

    NZTA policy is directed by men of a certain age who believe with all their hearts that motorways bring unqualified Good and closely associate NZ’s post-70′s economic liberalisation with the rise of suburban retail and leisure tourism – and by extension the necessity of automobile predominance. I’m not saying it’s right, but the correlation between economic prospertiy and car-dominated suburbia is very real for Kiwi’s 50+ years of age and this bias has achieved the status of basic, cultural fact among younger cohorts as well. Good luck trying to convince such people with facts, data and peer-reviewed (foreign) policy research that roads might actually create more problems than they solve.

  • Patrick

    Last time I attended an EPA Board of Inquiry on a RONS project, they made it clear that Benefit Cost ratios aren’t the only factor in appraising projects. That’s just as well, as many RONS projects have more costs than benefits – even by NZTA’s flawed analysis.
    To get Transmission Gully over the line they claimed it would add resilence after an earthquake, and basically that lots of people wanted it.
    So the decision was more about politics than facts.
    If we want to improve transport decisions, we need to win on both facts and politics.

  • Mr Anderson

    This is why it’s so important for NZTA to conduct post-implementation reviews of their projects. Justification of projects is always guess work, but in order to get better at our guess work we need to learn from what has happened in the past.

    The only post-implementation review I’ve ever seen is that one on the Northern Busway posted a month or so back. Has NZTA ever assessed any other projects in hindsight to see whether their guesses were right? Or are they too embarrassed to try?

  • They did do random reviews in the past but that was just to compare time and cost projections with what eventuated. It really shouldn’t be too dificult to get projects from 10, 20 or 30 years ago and compare traffic growth on those road segments with overall traffic growth to see how accurate their estimates have been, paying close attention to the variability of the results and not just the average ot the results.

  • Richard D

    Of course the other exercise is to carry out project-free review of the model itself – pick somewhere where no interventions have taken place, put in all the factors as if the evaluation were being done 5 – 10 years previously and see how closely the ‘do nothing’ results reflect reality. It could be that some underlying premise on which the model is based is no longer valid, and the model is now giving flawed results. Otherwise there is a risk that in re-evaluating situations where an intervention has taken place a flawed model could erroneously give results that support the original case.

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