When the Airports Commission published its final report in July 2015, it endorsed the NWR scheme based on its potential to deliver reported £147 billion in wider economic benefits it was expected to deliver. Even though the Commission was advised by its own economic advisors to use caution in attaching significant weight to the £147 billion figure, it was the only figure published in its announcement. The Commission also made it clear that the economic benefits delivered by a Gatwick scheme were “considerably smaller” than the NWR scheme at Heathrow. It is clear from the figure below, that very little separated the economic cases of the three schemes when the Commission completed its work and in fact, Gatwick was the economically favourable scheme under a carbon capped scenario.
Figure 22: Net Economic Benefits estimated by the Airports Commission, Central Case, £bn (2014 prices)
There still appears to be very little separating the economic cases of the NWR, ENR and Gatwick schemes. The most recent figures show that the gross economic benefits over the appraisal period are now marginally in Gatwick’s favour at £74.1 billion in benefits; compared with a Heathrow NWR at £72.8 billion (table below).
Once costs are considered, the net economic benefits of the NWR scheme are relatively small at a maximum of £3.3 billion over 60 years, and in fact may be negative depending on the demand scenario assumed in the appraisal. The ENR scheme also has a similar profile of net benefits to the NWR scheme. Gatwick’s net economic benefits are also relatively small but remain positive under all demand scenarios.
It has become apparent that there are inaccuracies and inconsistencies in the way the economic case supporting the NPS has been developed. These errors, discussed below, undermine the economic case for the NWR scheme which already depended on marginal net present value benefits at a maximum of £3.3 billion over 60 years. The Government explicitly acknowledges in the NPS that “in monetary terms, the environmental impacts of all three schemes are small when compared to the size of the benefits, or considered over the 60-year appraisal period.” Upon examination, it has become apparent that there are issues with the way the environmental costs have been monetised.
Table 3: Monetised impacts under the DfT’s central case (present value, £bn, 2014 prices)
The Government has stated in both the NPS and in oral evidence to the Committee that the NWR’s economic benefits would be realised sooner than in the other schemes (figure below). The DfT stated that “there is a very clear difference in the dynamic profile between the two schemes” and that “by 2030, a third runway at Heathrow would deliver three times the number of benefits that a second runway at Gatwick would deliver.” The only way this profile of benefits would be realised is if the runway is open by 2026 and at capacity after two years.
As discussed in Annex A, this is inconsistent with HAL’s own plans for phased passenger growth. If the appraisal assumed a phased approach, the monetised benefits would be lower and would not be realised until later in the appraisal period. The Department conducted sensitivity analysis assuming “a very conservative phasing over 10 years.” Under this scenario, the economic benefits are reduced by £0.5 billion, which was described by the Department as being a “very marginal difference.” However, the difference accounts for 15% of the maximum net present value benefits estimated in the economic case. The Airports Commission previously estimated that the economic benefits of the scheme would be reduced by £1.3 billion with phasing. It is not clear how the benefit reductions are smaller under the Department’s scenario given that the demand and the subsequent benefits from the scheme are coming from a higher base. Also, the Airports Commission’s ‘assessment of need’ scenario has a smoother profile of growth when compared with that produced by the Department in its central case.
Figure 23: Cumulative benefits to passengers and the wider economy by forecast year (present value, £bn, 2014 prices)
The Department has included £5 billion of surface access costs as part of their appraisal. This figure only includes those schemes deemed essential by the Airports Commission to support expansion, including Southern Rail Access, M25 tunnelling, M4 widening and other road works. The schemes which have already been committed and funded, including Crossrail, HS2 and Piccadilly line upgrades, are not included in this figure. The appraisal assumes that Western Rail will be delivered but its costs are not included.
It should also be noted that these estimates have not been updated since the Airports Commission completed their work in 2015. The DfT’s aviation passenger demand forecasts are now higher and growth is anticipated to occur much more rapidly by 2030. This means more people will be accessing the airport and much sooner than was previously assumed. While the Department has not published a comprehensive surface access reanalysis based on updated passenger demand forecasts, the air quality reanalysis indicates that there could be as many as 17% more cars on the road than was previously assumed by the Airports Commission. Transport for London forecast an additional 76,000 vehicles on the road. If the ambition of no more road-related traffic is to be realised, additional surface access measures will be required, adding unknown costs to the scheme appraisal. TfL, for example, estimate that £15 billion will be required to cover the surface access and to support the background passenger growth in West London. There is also the possibility that an emissions charge of some sort may need to be introduced around the airport. We do not know what such a scheme might cost, how it would affect the appraisal or what impact it could have on passenger numbers. The DfT acknowledge that “surface access cost estimates remain uncertain given schemes different stages of development.”
The Airports Commission factored optimism bias into its estimate of surface access costs, but given the scale and nature of the schemes being proposed, there is a possibility that the cost increases may be greater than those assumed as part of the £5 billion. Highways England, for example, concluded that “there is significant potential for cost overruns of these large-scale proposals on the M25 and M4 J2-3 because of the high level of uncertainty over the scope of works.”
The Airports Commission monetised the present value costs from worse air quality in the economic appraisal. It estimated these at £835 million, including £72 million for NOx and £764 million for PM10. A ‘damage cost’ approach was used to calculate the costs in accordance with the cost per unit mass values (in £/tonne) specified by Defra in their guidance at the time. These damage costs were updated by Defra in September 2015 and are now considerably higher at £64,605/tonne (in 2015 prices), compared with £875/tonne (in 2008 prices) in the 2011 guidance. Adjusting for inflation, this damage cost is around 63 times higher than that used by the Airports Commission. On this basis, if the DfT applied the damage costs approach in its updated appraisal, the total damage costs from NOx emissions could rise to around £5.9 billion, taking the total damage costs to around £6.8 billion including PM10 costs (though for several technical reasons the increase may not be as considerable as that). In the updated October 2017 appraisal, the aggregate damage costs of air quality are 90% lower than this estimate, at £30 million for NOx. It is not clear how this can be the case given the substantial rise in unit damage costs for NOx. In response to questions on the plausibility of the DfT’s estimates, Professor Helen ApSimon, former expert air quality advisor for the Airports Commission, concluded “I have no idea how DfT can have calculated their value - it seems quite wrong!”. More detail on this is provided in Annex F.
Jacobs, on behalf of the Airports Commission, initially estimated the monetised costs of carbon for the NWR scheme at £19.2 billion, including £18.5 billion for air travel. In the DfT’s latest appraisal, the damage costs of carbon from air travel are removed, and only those costs from passenger surface access, airport operations and construction are included. Based on these assumptions, the DfT’s approach assumes that the additional damage cost from carbon dioxide emissions, is completely and effectively ameliorated by effective trading within a carbon trading scheme.
Expert evidence given to the Committee suggested that carbon trading would not work effectively or on the scale anticipated by the DfT and that it was ‘optimistic’ to not include these costs in the economic case. While it is impossible to know with certainty how effective carbon trading will be in the future, an assumption of a linear improvement in trading practises towards a perfect trading platform over the 60 year appraisal period, would “very indicatively” lead to between 10% and 25% residual damages (£1.8 to £4.5 billion using the Jacobs estimate of emissions and carbon price). More detailed on this is provided in Annex I.
The monetised health impact of noise is based on the population exposure over a full day, accounting for health and annoyance impacts at differing noise levels. The monetised costs of noise for a NWR scheme were initially estimated by the Airports Commission at £1 billion. This figure was later revised down by the DfT and estimated at around £600 million (see table below). At face value, it was not immediately clear how the costs decreased by 40% when the estimated number of air traffic movements from a NWR have increased, particularly during the early years of the appraisal. This would typically have resulted in a much greater noise footprint from a NWR and presumably greater monetised noise costs.
Table 4: Cumulative monetised noise impacts by 2084/5 under DfT17 forecasts, central estimates (present value, £bn, 2014 prices)
When the profile of noise annoyance impacts is examined, it becomes clear that the noise impacts, despite being much higher in 2030, are lower in 2040 and 2050. The monetisation is determined over a 60-year appraisal between 2025 and 2085. Costs are interpolated between zero in 2025 and the estimates for 2030, 2040 and 2050 and remain constant thereafter. Because of this, the lower population impacts, and thus the lower noise costs dominate for most of the appraisal period, even with discounting being applied. This is reflected in the steep decline in changes in the numbers of lost ‘Disability-Adjusted Life Years’ (DALYs). This is an estimate of the potential healthy life years lost due to premature morbidity or mortality and upon which the monetisation figures are derived. In other words, the steeper the decline in the figure below, the less of an impact there will be in terms of the monetised costs of noise over the appraisal period.
Figure 24: Estimated Changes in Total DALYs Lost Due to All Assessed Health and Amenity Effects Compared with Do Minimum (Central)
As discussed in detail in Annex H, the lower noise footprint for the 2040, 2050 and the remainder of the appraisal period is driven almost entirely by more optimistic fleet mix and flight path assumptions.
312 Professor Peter Mackie and Brian Pearce. “”, May 2015
313 Airports Commission, , 1 July 2015
314 Airports Commission, , July 2015
315 It should be noted that the appraisal methodologies were scrutinised in much more detail for the Northwest scheme, compared with the other two schemes. In some cases, these methodological issues apply across all three schemes and would proportionately impact their respective business cases.
316 Department for Transport, , October 2017, p 28
317 Department for Transport, , October 2017, p.44
318 Department for Transport, , October 2017, p 31
321 Discussed in detail in Annex A
324 Airports Commission, , July 2015
325 Department for Transport, , October 2017, p.47
326 The overall cost of surface access is considered to total £4,962m and a spend profile is illustrated over the years 2021 to 2026.
327 Airports Commission, , July 2015
328 Airports Commission, , July 2015, p 76
329 Department for Transport, t, October 2017, p 32
330 WSP, , October 2017, Appendix B
331 Transport for London, , January 2018
334 Airports Commission, , July 2015, p 104
335 Highways England, , October 2016
336 Airports Commission, , July 2015, p 65; Present Value in 2014 prices.
337 Department for Environment, Food and Rural Affairs (DEFRA), Interdepartmental Group on Costs and Benefits, Air Quality Subject Group, , February 2011
338 See Annex F for more discussion.
339 Correspondence from , 3 February 2018
340 Jacobs, , May 2015, p.29
341 Professor Piers Forster ()
342 See Annex F for full discussion
343 Professor Piers Forster ()
344 Department for Transport, , 2017
345 Department for Transport, , October 2017
346 Department for Transport, , October 2017, p 41
Published: 23 March 2018