Guidance

Mode shift benefit values: update

Updated 28 January 2022

Introduction

Background to the mode shift benefit values update

Mode shift benefit (MSB) values are estimates of the benefit of removing a lorry mile from the road network in Great Britain, by transferring the goods to rail or water freight instead. In economics, these are known as ‘externalities’ or ‘external costs’.

MSB values form the basis for modal-shift grants which are fixed for a period of 5 years.

This note should be treated as an update to the Mode shift benefit values: technical report^{[footnote 1]} (hereon ‘Technical report’) published in April 2009, which was updated with a refresh in December 2014.

The Technical report summarises how the MSB values for 2010 to 2015 were calculated and have been updated for use in the 2020 to 2025 grant period.

MSB values are planned to be updated every 5 years, however, there have been some substantial updates to some of the inputs, which significantly outdates the current MSB values. Hence justifying the unscheduled update.

New mode shift benefit values 2020 to 2025 provides the updated MSB values. Updates to the mode shift benefit values provides a short explanation of the change for each updated component.

A note on price and value base year

When we quote values for externalities, we need to determine the appropriate:

• price base – this takes account of inflation.
• value base – values people place on external costs vary over time; for example, people tend to place a higher value on noise over time as their incomes increase, and the impacts also change by year. For example, the prevailing level of congestion varies and the impact of a lorry mile may be higher or lower in the future

The MSB values used for this period are given in 2020 prices but reflect 2025 values.

While MSB values could be updated every year, we believe it helps guarantee to keep the rates stable for several years as well as reducing administration costs for the Department for Transport (DfT).

The practice for expressing the MSB values in this way has been in place since the introduction of the Mode Shift Revenue Support Scheme in 2010.

As mentioned, deviating from this practice is justified in this case due to the significant impact as a result of the updates and better accounts for the benefits of modal shift within the grant rates and their allocation.

New mode shift benefit values 2020 to 2025

To calculate the final MSB values in this report, we determine both the benefit of removing a lorry (pence per lorry mile) from the network at a disaggregate level and then for the specific road types used for the MSB values.

These values consider the rail externalities associated with diverting road freight to alternative modes^{[footnote 2]}.

These values present the net effect of moving freight from road to rail or inland waterways^{[footnote 3]} by accounting for the benefits of reducing road freight traffic while taking to account the negative impacts of additional rail freight traffic.

At the disaggregate level, we estimate the benefit for each component by area type and road type, which provides an average congestion rate taking account of differing congestion levels in the road network.

Table 1 shows these updated values (which updates table 4 in the Technical report^{[footnote 4]}).

Table 1: variation in components of MSBs by area type and road type (pence per lorry mile, 2025 values in 2020 prices)

Pence per lorry mile 2025 values, 2020 prices	Motorways (London and conurbations)	A roads (London and conurbations)	Other roads (London and conurbations)	A roads (Other urban)	Other roads (Other urban)	Motorways (rural)	A roads (rural)	Other roads (rural)	Weighted average
Congestion	29.0	291.6	107.3	83.3	76.9	22.5	16.8	6.1	63.3
Greenhouse gases	22.4	30.5	34.9	27.7	33.3	22.2	22.9	25.0	23.2
Air quality	1.4	2.3	1.9	1.6	2.7	0.4	0.4	0.5	0.7
Infrastructure	11.9	82.1	402.2	21.0	76.9	6.2	19.8	112.1	18.4
Accidents	1.5	8.4	18.9	4.5	7.2	0.6	3.0	3.9	2.1
Noise	6.9	48.7	295.0	26.5	117.1	0.6	3.9	16.8	7.8
Other road costs	3.5	8.6	5.0	3.0	2.0	1.7	1.7	1.6	2.3
Taxation	-30.2	-42.1	-48.5	-37.9	-46.2	-29.9	-31.0	-33.9	-32.1
Net rail externality	-15.2	-15.2	-15.2	-15.2	-15.2	-15.2	-15.2	-15.2	-15.2
Total MEC	31.3	415.0	801.6	114.4	254.8	9.2	22.3	116.7	70.5

Notes on table 1

‘Weighted average’ refers to the weighted average calculated by articulated traffic in each area or road type.

These disaggregated values are then combined into values for four road types. This is calculated based on the proportion of articulated lorry miles travelled in each road type.

Table 2 presents the final MSB values by road type and component (this updates table 7a in the Technical report^{[footnote 5]}).

Table 2: MSB values by road type and component (pence per lorry mile)

Pence per lorry mile 2025 values, 2020 prices	High (motorways)	Low (motorways)	A roads	Other roads	Weighted average
Congestion	159.1	8.5	87.8	56.4	63.3
Greenhouse gases	22.4	22.4	25.7	30.4	23.2
Air quality	1.4	1.4	1.1	1.6	0.7
Infrastructure	11.9	11.9	32.3	172.8	18.4
Accidents	1.5	1.5	4.4	8.8	2.1
Noise	6.9	6.9	18.5	122.0	7.8
Other road costs	3.5	3.5	3.4	2.6	2.3
Taxation	-30.2	-30.2	-34.9	-41.9	-32.1
Net rail externality	-15.2	-15.2	-15.2	-15.2	-15.2
Total MEC	161.4	10.7	123.0	337.5	70.5

Updates to the mode shift benefit values

This section describes how each element of the input values have been revised, including an explanation of the differences between the new values and those published in 2019, where applicable.

TAG data book inputs

The TAG data book provides all of the appraisal and modelling values referred to in TAG guidance and is used within the determination of the MSB values.

This is updated at least twice a year to stay relevant and up to date, an updated version was published in November 2021 which contained several important updates, detailed below.

Fuel inputs

The ‘TAG data book’ provides a breakdown of the fuel and electricity prices and components in table A1.3.7, these values are derived from supplementary Green Book guidance.

In July 2021, the Department for Business, Energy, and Industrial Strategy (BEIS) published an update to these values, and these were incorporated into table A1.3.7 of the updated TAG data book, released in November 2021.

The result of this update was a general decrease in fuel and electricity values, although some remain unchanged.

The methodology and source within the MSB calculations remain unchanged. However, to remain aligned with the most recent data, these values have been fully updated for use within these benefit values.

This has contributed to a fall in the indirect tax component in road costs, the final value has fallen by 0.95p per mile. It has also contributed to a decrease in the final fuel duty component for rail by 57p per mile, as the decrease in fuel price and duty has complemented the improved fuel consumption mentioned below.

Annual parameters

Within this section of the TAG data book, there are various measures of gross domestic product (GDP), the MSB calculations require the input of GDP deflator values and average GDP per person, sourced from the TAG data book.

These values had been updated in the TAG data book in line with new releases of data from the Office for Budgetary Responsibility (OBR) and Office for National Statistics (ONS) based on their assessment of long-term forecasts.

This will affect most MEC components as GDP is an underlying factor of many calculations, the average change in the GDP deflator was -4% and -1.4% for average GDP per person with a similar impact expected on most components.

Pollutant – damage cost values

Table A3.2.1 in the TAG data book monetizes the effect of air quality on human health and the environment.

This was updated in the July 2021 release as Department for Environment, Food and Rural Affairs (Defra) had published updated damage costs in 2020 to incorporate new emissions data and modelling for nitrogen oxides (NOx) and particulate matter (PM).

As a result of these adjustments, the national value for NOx has seen an increase of 11% and the national value for PM10 has seen a significant decrease of 26%.

The damage costs table in the MSB inputs breaks down each pollutant by area type for more accurate costs.

This has affected the air quality components of the calculations where there has been a reduction in the air quality component of both road and rail.

The decrease in the value of final air quality since the last update for roads and rail is on average -52% and -56% respectively.

Emissions (climate change and air quality)

The non-traded values of carbon are used to estimate the cost of emissions within MSB values, these are published and owned by BEIS.

In September 2021, BEIS updated its approach to carbon valuation to better reflect the monetary value of emissions. Alongside this, new carbon values were published. These values have significantly increased (the central value has increased by 236%) and now better reflect the decarbonisation objectives of the UK.

The updated values in the source have been reflected in the MSB inputs.

These updated values feed into multiple components of the calculation process, including National Transport Model calculations for road and the greenhouse gas value for rail.

As a result, the final components affected are greenhouse gases (GHG) and rail externality.

For road, the final value for GHG has increased by an average of 234%, increasing the benefit of the modal shift.

For rail, the final value for GHG has increased by 141%, this is less significant than road due to the updates made to fuel consumption of rail mentioned below.

Rail

The methodology determining the social costs of additional rail freight traffic remains unchanged from before, though some key inputs have been updated.

As mentioned above, there have been changes to the rail components of GHG, air quality and indirect taxation because of the updated TAG data book.

Since the last update, revisions have been made to the calculation of emission factors (of NOx and PM10) for rail by the source National Atmospheric Emissions Inventory (NAEI).

The updated values better reflect the actual operation of diesel engines and the non-linear relationship between engine power output and emissions of air quality pollutants.

The changes in the values are outlined below in table 3, the NOx value has fallen by 2.16%, while the PM10 value has increased by 39.5%. This has increased the benefit of the modal shift.

As a result, the air quality component within the final rail externality has significantly decreased by 56%.

Table 3: emissions factors for NOx and PM10 for ‘gas oil railway freight trains’

Emissions factors for railway freight (Kt per Mt)	2019	2021
Nox	31	30.33
PM10	1.2	0.73

Combined estimates for fuel usage by fully laden and empty Class 66 trains were provided by Network Rail using a Rail Safety and Standards Board (RSSB) report as source, where averages were calculated to obtain 7.64 litres per mile for all duty cycles (a decrease of 28.4%).

These values impact 3 components of the final rail externality value – GHG, air quality and fuel duty.

The total rail MECs have been uplifted by 20% in this update to account for other rail MECs. This increases the disbenefits of moving goods via rail freight instead and better reflects the wider social costs of rail.

DfT doesn’t have any empirical evidence to date that monetizes all external costs of rail freight and therefore must use the best evidence available to estimate the externalities associated with rail.

The Technical report has further information on the derivation of the 20% uplift.

The overall value for rail externality has increased by 3.7 pence per mile because of this update, the air quality and fuel duty components acted to decrease the final rail externality which was more than offset by the increase in GHG values and the 20% uplift.

Overall impact – final MSBs

The total weighted average road externality has increased by 29% (around 19.2 pence/mile), while rail externalities also increased by 12% (1.6 pence/mile).

The combination of these has led to a net increase in the overall MSBs by 15.5 pence/mile for the weighted average of all roads (an increase of 28%).

The MSB for low motorways has experienced the most significant increase, which has largely been driven by the large increases in GHG benefits for removing road freight.

Next steps

Currently, there are no expected updates until the next planned update in 2023 to 2024. However, if there is a significant evidence change before this point, the MSBs will be updated to reflect this in advance of the next financial year.

1. The 2009 will be referred to as the ‘Technical report’ in the remainder of this document. All page references are to the Technical report. ↩

2. To note, an assumption used here and previously outlined in the Technical report is that rail externalities equal water externalities on a per mile basis. ↩

3. We assume the net cost of rail represents the net cost of water transport. ↩

4. See page 39 of the Technical report. ↩

5. See page 42 of the Technical report. See pages 40 to 43 of the Technical report for a full explanation of how ‘input values’ are used to derive the final output values. ↩