International Journal

on Marine Navigation

and Safety of Sea Transportation

Volume 3

Number 2

June 2009

207

1 CONCEPT OF THE TRANSPORT EXTERNAL

COSTS INTERNALIZATION

1.1 Definition and characteristic of the external

costs of transport

The transport sector have today a significant im-

portance in global economy and development. Bring

the people closer together, help in the production

and service activity. Simultaneously, is itself the

crucial part of economy. In Europe, is responsible

for 10% of European gross domestic product and

employs about 10 million people (2001.White Pa-

per. European transport Policy for 2010: time to de-

cide. European Commision). Despite the whole posi-

tive influence on the global economy and society,

transport is also the source of unwelcome effects.

Unfortunately, only the part of that negative influ-

ence is bore by the transport providers (private

costs). Huge amount that effects, called ‘external’ is

burdening of society, environment of national budg-

ets. The current methodology of calculation is mak-

ing possible a financial expression of these effects –

external costs of transport. What is more, these costs

are not borne by the transport users and hence not

taken into account when they make a transport deci-

sion (2008. Handbook on estimation of external

costs In the transport sector. Delft, Netherlands).

The most important categories of the external

costs of transport are:

− transport congestion (infrastructure scarcity);

− accidents;

− air pollution;

− noise;

− impacts on climate change;

− nature and landscape;

− water and soil pollution;

− costs in sensitive areas;

− up- and downstream;

− urban effects;

− costs of energy dependency.

The costs of congestion could be reflected by:

travel time increases, vehicle provision and operat-

ing costs, disamenities in crowded system, addition-

al fuel costs reliability, scarcity of slots. In case of

accidents costs the external part is connected with

the part of costs are not covered by risk oriented in-

surance premiums, like: material damages, adminis-

trative costs, medical costs, production losses and

the so called risk-value as a proxy to estimate pain,

grief and suffering in monetary values. Air pollution

is the next kind of costs, reflected mostly by health

costs, building and material damages, crop losses in

agriculture and impacts on the biosphere or impact

on biodiversity and ecosystems. Noise is also im-

portant negative effect of transport activity. Its level

could be estimated on the basis of costs of annoy-

ance or health costs (hearing damages or nervous

stress reaction). The key areas of climate change

costs assessment are sea level rise (additional protec-

tion), energy use (heating), agriculture impacts

(crops changes), water supply, health impact (heat or

cold stress), ecosystems and biodiversity (extinction

of vulnerable species). The following sorts of exter-

nal costs are regarded as the less important and more

difficult to estimate. Nature and landscape effects

influencing on habitat loss, habitat fragmentation or

habitat quality loss. The water and soil pollution are

Maritime Safety in European Concept of the

Internalization of External Costs of Transport

M. Matczak

Gdynia Maritime University, Gdynia, Poland

ABSTRACT: Efficient and effective transport system is the key element for the future development of Euro-

pean economy. Simultaneously, the process of transport development is connected also with the negative ef-

fects for environment and society. For that reason, the concept of internalization of all external costs of

transport is developing in European Uni

on. The concept characteristics and specificity in the maritime

transport is the main issue of the following analysis. The special interest is focused on the maritime safety,

one of the key external cost category.

208

connected with the repair costs or health costs for

human beings. The indication of sensitive areas ex-

ternal costs is caused by higher environmental pres-

sure in that places and taking into consideration the

all kinds and types of costs. The up- and down-

stream costs are generated in the other areas of

economy by there are caused by transport develop-

ment (energy production, vehicle production, infra-

structure construction). The next sort of external

costs – urban effects are made by other participants

of motorized traffic on the urban areas (pedestrians,

cyclists, etc.). They are mostly regarded as time

losses or scarcity problems. The last sort of external

costs is the energy dependency resulted from the un-

equal distribution of energy sources. For that reason,

the costs due to transfer of wealth, potential GDP

losses or macroeconomic adjustments costs could be

foreseen.

According to the estimation the EU financial

losses connected with the environmental or conges-

tion problems are indicated on the level of 1% of EU

gross domestic product each (2006. Keep Europe

moving – Sustainable mobility for our continent. Eu-

ropean Commission). The important issue is also the

modal and structure of the transport external costs

category (Table 1).

Table 1. Total external costs (excluding congestion) by cost

category and transport mode in 2000 (million Euro per year).

___________________________________________________

Road Rail Air

In. navig. Total

___________________________________________________

Accidents 155,588 262 590 0 156,439

Noise 40,410 2,136 3,098 0 45,644

Air pollution 164,282 4,447 4,235 1,652 174,617

Climate change 112,383 2,894 79,931 506 195,714

Nature & 18,359 266 1,298 91 20,014

landscape

Up/Downstream 43,483 1,748 1,762 383 47,376

Urban effects 9,909 563 0 0 10,472

Total (EU 17) 544,415 12,315 90,914 2,632 650,275

% 83.7% 1.9% 14.0% 0.4% 100%

___________________________________________________

Source: 2004. External costs of transport. Update study. Sum-

mary. INFRAS, Zurich/Karlsruhe, October.

The most important sort of external costs, respon-

sible for about 30% of total sum is climate changes.

The following position are occupied by air pollution

(27%) and accidents costs (24%). The next kinds of

external costs have only about 7-5% of total share.

Two third of total cost is connected with the passen-

ger transport (private passenger cars). The modal

comparing indicates on the leading role of road

transport (83.7%). For that reason the road traffic is

the best reconnoiter mode of transport in the aspect

of external costs.

1.2 The concept of internalization of the external

costs of transport

The internalization concept is based on the assump-

tion, that, external effects should also be taken into

consideration in the decision making process. It is

connected with the rapid growth of global transport

and increasing role of external, negative effects

which are produced.

These initiative has been presented in the Europe-

an Union documents for years (e.g. Green Book

(1995), White Papers (1998, 2001, 2006)).

The aims of implementation of the external costs

internalization are defined like, the following:

− Improvement of transport efficiency, both eco-

nomical and environmental (use of infrastructure

and rolling stock);

− Guarantee fairness between transport modes (fair

price considering);

− Improve safety and reduce environmental nui-

sances of transport.

According to the European concept, the most ef-

ficient way of internalization is the proper regulation

of the transport activity. The market - based instru-

ments, like taxes, charges, emission trading should

be used. In accordance with the theory assumption,

the calculation should be based on the marginal

costs.

The most important challenge is the detailed es-

timation of the regulation (financial burden) level.

The two main approaches to the marginal external

costs estimation are indicated in the literature: bot-

tom-up or top-down approach. In first case, the cal-

culation is based on the specific case studies. These

approach could bring the detailed outcomes but it is

costly and difficult to generate. On the other hand

(top-down approach), the total value of external

costs is divided between particular modes. The dif-

ferentiation of traffic condition or stock categories

make the method very imprecise (2008. M. Bąk, B.

Pawłowska: kalkulacja kosztów zewnętrznych trans-

portu – krok naprzód w polityce Unii Europejskiej.

Materiały konferencyjne, EuroLog 2008, Warsza-

wa).

Despite the advanced works on the methodology

of external costs calculation, it is difficult to recapit-

ulate that the ‘system’ is ready for implementation.

It is still very complicated and difficult for the

transport practice. What is more important, there no

exist the proper ‘political climate’ for implementa-

tion. On the one hand, the transport companies and

users will protest against the increasing burden of

service activity (especially road haulers), on the oth-

er the financial crisis is additionally postponing the

potential date of start. It is crucial, that there no ex-

ists reliable analysis of the influence of internaliza-

209

tion on the functioning of the European transport

market.

2 THE EXTERNAL COSTS OF MARITIME

TRANSPORT

2.1 Crucial aspects of maritime transport external

costs calculation

The external costs of maritime transport are the most

poorly recognized category among the transport

modes. There exist several reasons of that situation.

First is the international character of maritime

traffic, separated from the land areas. Thanks that,

maritime traffic have limited influence on society

and its activities (spatial separation). The next rea-

son is restricted scope of maritime infrastructure

problems and its relatively high capacity (observed

only in case of particular seaports, straits or canals).

The other incentive of low importance of maritime

traffic in the internalization concept is the relatively

low level of generated costs. The crucial aspect of

the maritime traffic analysis is also discrepancy be-

tween infrastructure and shipping in the light of ex-

ternal costs characteristics.

Simultaneously, the essential problem in the

analysis process is the limited access to the detailed

and proper data concern the maritime traffic.

Despite the problems indicated above, all costs

categories in maritime transport could be indicated

and calculated. For the simplification of the analysis

the scope of interest is limited to the accidents costs

resulted from maritime shipping activity.

2.2 Maritime accident external costs in the

internalization process

The estimation of the maritime accident costs needs

the detailed indication of the most important catego-

ries of the effects. It is caused by the much more

complicated nature of sea accidents than in other

mode of transport. The main difference is the ap-

pearance of couple of cost categories caused by the

occurrence. The following cost categories could be

observed:

− Costs of damage to ships;

− Costs of damage to infrastructure;

− Costs resulting from human injury and death;

− Environmental damages (e.g. pollutions, nature

and landscape costs);

− Operational damages (e.g. sunken vessels block-

ing the waterway);

− Administrative costs (2001. UNITE. P. van Don-

selaar, H. Carmighelt. Workpackage 5/8/9., s.

40).

It is extremely difficult to present complete anal-

ysis of the external accidents cost of maritime traf-

fic. However, there is some data reflected this issue

(Table 2).

Table 2. Accidents costs in maritime shipping in selected Eu-

ropean countries in 1998 (million €).

___________________________________________________

External accidents Internal accidents

costs costs

___________________________________________________

Finland 0.5 91

Greek 30 37

Italy 0.5 5

Sweden 6 75

Spain 15 236

Netherlands 1 4

___________________________________________________

Source: 2003. UNITE. Deliverable 8&12.

It could be stated that the part of about 10.6% is

the external costs of maritime accidents. That is

mean they are ‘covered’ by environment or society.

The following part are the private one. The most im-

portant are human injury or death and of course en-

vironmental damages.

Table 3. Estimated values for casualties avoided in transport

(thou. €2002)

___________________________________________________

Country Fatality Severe injury Slight injury

___________________________________________________

Austria 1 760,0 240,3 19,0

Belgium 1 639,0 249,0 16,0

Cyprus 704,0 92,9 6,8

Czech republic 495,0 67,1 4,8

Denmark 2 200,0 272,3 21,3

Estonia 352,0 46,5 3,4

Finland 1 738,0 230,6 17,3

France 1 617,0 225,8 17,0

Germany 1 661,0 229,4 18,6

Greece 836,0 109,5 8,4

Hungary 440,0 59,0 4,3

Ireland 2 134,0 270,1 20,7

Italy 1 430,0 183,7 14,1

Latvia 275,0 36,7 2,7

Lithuania 275,0 38,0 2,7

Luxembourg 2 332,0 363,7 21,9

Malta 1 001,0 127,8 9,5

Netherlands 1 782,0 236,6 19,0

Norway 2 893,0 406,0 29,1

Poland 341,0 46,5 3,3

Portugal 803,0 107,4 7,4

Slovakia 308,0 42,1 3,0

Slovenia 759,0 99,0 7,3

Spain 1 122,0 138,9 10,5

Sweden 1 870,0 273,3 19,7

Switzerland 2 574,0 353,8 27,1

United Kingdom 1 815,0 235,1 18,6

Ave. 1 302,1 177,1 13,1

___________________________________________________

Source: 2008. Handbook on estimation of external costs In the

transport sector. Delft, Netherlands.

The problem of the value of human health or life

is one of the basic in the external costs concept. It is

extremely difficult to express the life’s value in fi-

nancial category, therefore the theory call these kind

of costs like ‘value of casualties avoided’. The table

3 present the accessible outcomes of the studying is-

sue.

210

The average value of fatality avoidance is count-

ed on 1.3 m Euro, severe injury 177.1 thou. Euro

and slight injury 13.1 thou. Euro.

The analysis of these costs structure indicates that

the total premium paid by insurance companies

amounts to 50% of the injury and death costs for

victims (Calculation for inland navigation. 2001.

UNITE. P. van Donselaar, H. Carmighelt. Work-

package 5/8/9., s. 42). Therefore, the half of the cost

could be indicated like ‘external’. Looking into mar-

itime statistics, the average annual number of fatali-

ties at sea accounts for 608 (based on the period

1989 – 2004) (2005. Casualty statistics and investi-

gations. Annex 2. IMO, London 23 February). It

could be resumed, that the annual external accidents

cost referring to human life in the maritime transport

is about 3.95 billion Euro.

The second type of external effects caused by

maritime accidents are environmental damages. The

various categories of costs could be indicated with

correspondence to environment. There are: pollu-

tions, nature and landscape costs, costs in sensitive

area, etc. In maritime practice, the following kinds

of costs are defined:

− Natural Resource Damage Costs (NRDA), which

are based on estimated costs to restore equivalent

resources and/or ecological services.

− Socioeconomic costs including damages to real

and personal property, loss of use of natural re-

sources (parks and recreation areas), and loss of

income and expenses (fishing, tourism, recrea-

tion, shipping and other commerce).

− Response costs comprise appropriate spill re-

sponse operations based on procedures outlined

in local contingency plans and historical case

studies for mechanical-recovery operations

(Bickel P., Sieber N., Kummer U.. 2006. Margin-

al environmental costs case studies for air and

water transport. GRACE, IER, University

Stuttgart., s. 34).

Table 4. Selected major oil spills In Europe.

___________________________________________________

Name of ship Year Location Oil lost (t)

___________________________________________________

Amoco Cadiz 1978 Off Brittany, France 223 000

Haven 1991 Genoa, Italy 144 000

Torrey Canyon 1967 Scilly Isles, UK 119 900

Irenes Serenade 1980 Navarino Bay, Greece 100 000

Urquiola 1976 La Coruna, Spain 100 000

Independienta 1979 Bosphorus, Turkey 95 000

Jakob Maersk 1975 Oporto, Portugal 88 000

Braer 1993 Shetland Islands, UK 85 000

Prestige 2002 Cape Finistere, Spain 77 000

Aegean Sea 1992 La Coruna, Spain 74 000

Sea Empress 1996 Milford Haven, UK 72 000

Erika 1999 Brittany, France 20 000

___________________________________________________

Source: 2007. Panorama of Transport. Edition 2007. European

Commission.

The oil spills are the most important type of sea

accident. They effects influence significantly the

marine environment. Unfortunately, these kind of

periodical occurrences has been noticed for years

(Table 4).

In case of oil spills, the negative effect on the en-

vironment is unquestionable. The part of the effects

could be limited by cleanup activity (table 5), consti-

tuting the private part of social costs.

Table 5. Oil spill cleanup costs in Euro

___________________________________________________

Continent Euro 1999 /ton

___________________________________________________

North America 19,815

Latin America 3,056

Africa 3,164

Europe 10,808

South Pacific 5,699

Middle East 1,058

Asia 27,496

World Wide Average 8,073

___________________________________________________

Source: Bickel P., Sieber N., Kummer U.. 2006. Marginal en-

vironmental costs case studies for air and water transport.

GRACE, IER, University Stuttgart., s. 34.

The other losses connected with the accidents are

‘covered’ by the environment and citizens.

The presented elements of the maritime accidents

external costs calculation do not fulfill the whole

abundance of issue. Unfortunately, there no exists

the exact and complete calculation of the external

environmental costs of maritime accidents. Simulta-

neously, it is hard to define the proper way of the in-

ternalization of these negative effects.

3 CONCLUSIONS

The concept of internalization of external costs of

transport is today the crucial element of European

transport policy. So far, the theory and the methodo-

logical base for the concept implication have been

done. Unfortunately, the financial and economic cri-

sis on the global markets has limited the tempo of

further steps.

Maritime transport is also regarded as the poten-

tial area of the internalization. Fortunately, the share

of maritime transport in total sum of external costs is

marginal. The crucial cost category of maritime ex-

ternalities are costs of accidents. In case of these

kind of disaster the majority of external costs are

borne by environment.

The current EU action and regulation concerning

maritime safety will, hopefully, limited the number

of the maritime accidents. The packages Erika I,

Erika II or the newest third package of measures

should bring the gradual improvement of maritime

safety (2006. Maritime Transport Policy. European

211

Commission). On the other hand, the internalization

could be regarded as the positive action for maritime

transport. The heavy increase of financial burden for

road transport should enable the practical implemen-

tation of the old EU’ challenge, expressed in form

‘from road to sea’, stimulating, at the same time,

demand for maritime transport services.

REFERENCES

2001. UNITE. P. van Donselaar, H. Carmighelt. Workpackage

5/8/9.

2001. White Paper. European transport Policy for 2010: time

to decide. European Commission.

2003. UNITE. Deliverable 8&12.

2004. External costs of transport. Update study. Summary. IN-

FRAS, Zurich/Karlsruhe, October.

2005. Casualty statistics and investigations. Annex 2. IMO,

London 23 February.

2006. Keep Europe moving – Sustainable mobility for our con-

tinent. European Commission.

2006. Maritime Transport Policy. European Commission.

2007. Panorama of Transport. Edition 2007. European Com-

mission.

2008. Handbook on estimation of external costs In the

transport sector. Delft, Netherlands.

Bąk M., Pawłowska B 2008..: kalkulacja kosztów zewnętrznych

transportu – krok naprzód w polityce Unii Europejskiej.

Materiały konferencyjne, EuroLog 2008, Warszawa.

Bickel P., Sieber N., Kummer U.. 2006. Marginal environmen-

tal costs case studies for air and water transport. GRACE,

IER, University Stuttgart., s. 34.