Strategic policy projects for transport 2014–2016 Ngā kaupapa here whai rautaki mō ngā waka 2014–2016

This project came out of strategic papers released in 2014, particularly Future demand and Economic development and transport, which showed that it is unwise to make decisions about investment in transport infrastructure based on existing information and simplistic projections from past trends. We researched an alternative approach that uses ‘real options’.

Relying on past trends to decide investment in long-lived transport infrastructure such as roads, railways or ports is subject to uncertainty. Failure to manage this uncertainty can result in costly mistakes.

The real options approach helps deal with this problem because it aims to encourage decision makers to consider uncertainty when they develop options, and incorporate flexibility into their investment decision-making process. It helps planners reduce the risk of a worse-than-expected outcome and take advantage of positive opportunities as they emerge. It is conceptually simple and is a useful adaptive investment management tool.

Our paper explained how this approach can be applied to transport projects and how to carry out a real options analysis. It was informed by a report on adaptive investment management that we commissioned from ACIL Allen Consulting in 2014.

We concluded that this approach is particularly helpful to decisions about investments in road, rail and port infrastructure because it:

• is relevant to decisions about preserving future opportunities and deciding whether to mothball redundant facilities
• offers the potential to achieve good transport outcomes while spending substantially less than with the classic approach that is limited by the information available at the start of a development.

Our Future Demand project explored how our personal travel needs might change by developing 4 scenarios for the future of transport through to 2042. They were not predictions or preferences for the transport system, but rather a range of plausible ideas that could help to inform government transport investment decisions.

Changes to the patterns of demand for personal travel after 2004 meant that our traditional forecasting models had consistently overestimated demand and could no longer be relied upon to help us decide how to invest in transport.

The 4 future scenarios explored the possible impacts on travel of our use of digital technology and also the impact of energy costs on future travel demand. They were:

• Cooperative and close — While people value face-to-face contact, high energy costs have forced them to adapt. New Zealanders have persevered through challenges by simplifying their lifestyles. They value strong communities, resourcefulness and simplicity.
• Global locals — In response to rising energy costs, society has invested in energy-efficient technologies and virtual interfaces. Society has moved from car dependency to virtual confidence. People value adaptability, efficiency and ingenuity.
• Travellers’ paradise — New Zealand is awash with cheap energy, which powers rapid growth. Citizens prefer to connect with one another face-to-face as digital life feels less authentic. People support network pricing to ensure they have the transport system they need. They value individual liberties, privacy and self-reliance.
• Digital decadence — People enjoy a vast array of experiences and services anywhere, anytime, via their digital interfaces. Many people now feel more comfortable in digital worlds than their own skins. They value openness, collaboration and innovation.

Download transcript [DOCX, 14 KB]

Our conclusions were that we need to:

• improve access to transport and not just mobility — for example with good spatial planning or by improving digital access
• refresh our demand models to reduce uncertainty and better understand the factors affecting the changing patterns of demand — this includes looking at social trends and the impact of new technologies
• have flexible investment models that respond to changing patterns in demand
• recognise that the investment decisions we make will shape patterns of demand and not just respond to them — we should debate the sort of access we want to help us decide how to invest for the future.

This project examined how our transport system can best support New Zealand‘s economic development. We explored international theories of economic development and the specific contribution of transport, future transport options for New Zealand out to 2042, and then invited discussion about the implications of these for our transport system.

Transport innovation and investment influence economic growth

Historically, innovations in transport have had significant effects on economic growth. For example, in New Zealand, railways opened up new areas of the country for the primary industries, refrigerated container shipping provided us with access to new international markets, and passenger planes provided the basis for a thriving tourist industry. Transport can also have a significant impact on the location of economic activity. The Auckland Harbour Bridge is a good example of this, as it opened up significant opportunities for economic development and activity north of central Auckland.

Insights from our research

In this project we modelled the impact of agglomeration — that is, businesses being located near each other to increase their access to resources and markets — and a range of other factors that have an effect on the location of economic activity in New Zealand. We modelled 7 different possible futures and the main insights from our work were that:

• as a developed nation our focus is on responding to the transport pressures created by economic growth
• the decisions we take on transport investments will affect the location of economic activity in New Zealand
• investment in transport in areas of economic decline will not on their own support growth
• when we invest in transport it is important to look at access as well as mobility
• as we are in a time of growth we need to ensure we do not add to inflationary pressures through our approach to investment in transport infrastructure.

This project explored different options to test the level of government investment in land transport and considered different approaches to setting funding bands based on affordability and need. We released the papers with the aim of informing and stimulating wider debate.

Raising revenue to invest in land transport

The overall scale and focus of investment in the land transport system is set out in the Government Policy Statement (GPS) on Land Transport, which the Government produces every 3 years.

By 2014 our methods of collecting and investing revenue had been in place for many years. They had proved to be effective because they balanced a wide range of interests and, during this time, New Zealand saw a significant reduction in road fatalities alongside significant increases in capacity on the roading network and in public transport use.

The focus of this project

Recognising this success, and reflecting the importance of seeking continuous improvement in delivering public services, this project explored these questions.

• What is the right framework to decide the right overall level of investment?
• What is the right approach to decide how much to invest in each category, for example local roads versus state highways, or new infrastructure versus maintenance?
• What should land transport revenues cover and what mechanisms should we use to collect it?
• What are the pros and cons of different approaches to collecting revenue?

Conclusions from our research

We concluded that we could make improvements to current practice by improving our access to relevant data and our ability to analyse that data. This needed to managed within a framework that ensured systematic and repeatable integration of the data and analysis.

We also found that the way revenue is collected sets up the expectation among road users that it should not be used for activities unrelated to road use, and should:

• mainly be spent on roads
• cover related services whose costs are caused by road use, such as traffic policing, safety programmes and Waka Kotahi NZ Transport Agency overheads
• contribute to services that result in less road congestion.

With regard to the amount of revenue raised for land transport, we concluded that central government’s existing revenue tools could cope with foreseeable changes for about the next 10 to 15 years, but that we needed indicators to monitor these changes. 

We assessed other ways of raising revenue and used this assessment to identify which tools could best help those making decisions about how the transport system is funded. We concluded that:

• the fact that we can raise more revenue does not mean we should, and
• we need to think carefully, not just about tools central government can use in the future to collect transport revenue, but also the needs of local government and the role that pricing tools can play in bringing about the transport system New Zealand wants.

The main findings of the project suggested further work that we could do, and these were considered when we developed our programme of work for 2015 and beyond.