Tuesday 16 April 2024

Reader mailbag: really long tunnels edition

I'd been wondering about the proposal to dig a really long tunnel to route through traffic away from Wellington's central city

It seems the kind of thing that you might decide to do, after running congestion charging for a while and seeing that the project is warranted, rather than deciding on ahead of having that information from revealed preferences and prices. The thing won't be cheap. 

So I was happy to see this in my inbox this afternoon to help me think through it. 
The Wellington Long Tunnel could be a transformative project to take enough traffic out of the city, especially Te Aro, but also the Quays along the waterfront and Oriental Bay, to improve amenity, relieve congestion at bottlenecks at the Terrace and Mt Victoria Tunnels and make it easier to walk and bike, as well as move buses, delivery vehicles (and cars) within central Wellington. Plenty of other cities of broadly have taken traffic out of their downtowns through purpose-built bypasses, such as Bergen, Antwerp, Basel and Tampere. Bergen is paying for some of the cost of its bypass with a toll.

Saving 15 minutes between the airport and the Hutt, Porirua and the rest of the region seems worthwhile, but both the travel time (and fuel) savings, and uplift of amenity would come at considerable cost. In 2021 Let’s Get Wellington Moving estimated the project might cost $3.1b, but we know how reliable such forecasts have been lately.

Yet it poses the obvious question. If Wellington got time-of-use pricing (congestion pricing) introduced during weekday peaks, focused on the CBD (leaving SH1 out of it as a bypass to a cordon), would the change in behaviour it enabled be enough to relieve congestion on SH1, and so determine then if the Long Tunnel idea was still worthwhile?

The answer is probably yes, although high-level modelling of a cordon pricing option by LGWM suggested that travel times southbound on SH1 would worsen, it would appear because the Terrace Tunnel has insufficient capacity in that direction (one-lane) to accommodate the traffic redirected around the CBD off of the Quays. That could be addressed by putting a higher price on that traffic which could justify building more capacity at that bottleneck.

However, it’s one thing to think of how the roads might be run as a rational business, but reality has some complications:
  1. The Long Tunnel is about more than traffic. Arguably it can unlock property value uplift by removing a lot of traffic from existing streets, including taking a lane each way off of the waterfront route to enable a second public transport corridor along it, and more development along the waterfront, as well as removing much of the blight of traffic from Te Aro. The value of all of this is unknown, but as the Long Tunnel is as much about amenity as transport, it is important although caution needs to be taken around exaggerating these benefits (as much as applies to those pushing light rail’s benefits).
  2. Congestion pricing for Wellington should probably exclude SH1 for public acceptability, at least at first. A downtown cordon is relatively easy to implement, as trains and buses pretty much all converge on it, and most drivers have reasonable alternatives. Having a good bypass helps to encourage traffic to flow more efficiently around the priced area (this has been seen in Stockholm and Oslo), although it would be wrong to wait until the Long Tunnel is built before introducing congestion pricing.
  3. Politics around use of the money. Greens want congestion pricing to raise money to pay for public transport boondoggles, it seems likely National wants it to pay for road boondoggles. Arguably, a road boondoggle that at least benefits those paying the congestion charge is a better waste of money than one that doesn't. It would be better to use pricing revenue to offset rates funding of roads, or enable lower off-peak pricing of roads (if RUC was set by location), or just used for the best projects to upgrade roads in the region, but no jurisdictions do this.
  4. The politics around building a Wellington bypass. For over thirty years the issue of fixing the route between the motorway and the roads approaching the airport has been highly politicised.  The current road layout generates congestion all-day during weekdays and much during weekends, and is clearly inefficient as it encourages diversions along routes not well suited to through traffic. The Basin Reserve is the biggest part of that problem, and indeed past BCR assessment of proposals to upgrade it indicate that fixing the Basin Reserve is worthwhile. If the Basin Bridge had been approved by the Key Government, then we probably wouldn’t be talking about the Long Tunnel, but the politics around putting a bridge between Mt Victoria Tunnel (including a new one) and the Arras Tunnel (and maybe a new one to take eastbound traffic off of Vivian St) are complex.
The Greens and Mt Victoria Residents who want nothing built. In Wellington, stopping the “motorway extension” was a cause celebre in the 1990s for the Greens (in their formative years) that succeeded largely due to fiscal constraints, and we are where we are as a result. However, there are also allies in friends of the Basin Reserve who love that cricket ground. The Minister for Infrastructure is one of those people.  The below ground conditions at the Basin are not conducive to tunnelling underneath because of the geology including an underground stream, so it’s a bridge there or a deep tunnel somewhere else. The Minister of Infrastructure is likely to not look friendly upon a bridge (although I wonder if putting a artificial hill to the north of the Basin to conceal a bridge might fix that). 

Unfortunately, the politics around "build no new road projects because cars are bad" from most of the Greens, encourages the Nats to go the opposite "quick build a big project so they can't stop it, and when it opens everyone loves it”.  This transport culture war (which Labour tended to not be a part of, as seen by the road building under the Clark Government) generates a reflex response to build more and bigger.

If there were a more rational, bi-partisan approach, then Wellington could get congestion pricing, a bridge at the Basin Reserve, and perhaps more incremental improvements to SH1 built as merits stack up.  Of course, that wouldn’t deliver the “big bang” amenity transformation of a single big tunnel, but it would likely deliver most of the travel time benefits, many of the amenity benefits, with the only question being whether the costs of disruption and construction in building a cut-and-cover tunnel between Vivian Street and the Arras Tunnel start to rival the Long Tunnel.

This is where the focus of NZTA’s investigation should be in the coming months:

1. Model Wellington traffic with congestion pricing to the downtown (and then again on SH1)

2. Estimate the costs and benefits of the Long Tunnel vs. incremental upgrades to the existing alignment, and whether the transport user benefits and amenity/property uplift benefits are worth it.
I still like the structure that was set out in the 1998 Better Transport, Better Roads proposal. 

Clarifying the absurdity

A couple days ago I pointed to NZIER's figures on the case for strengthening the Christchurch cathedral.

I think it's better to view this whole exercise as making clear what we'd need to believe if we wanted to believe that the regulatory apparatus surrounding the cathedral since 2011 is other than massively value destroying.

Recall that the Bishop wanted to demolish the cathedral and build a facility more in tune with current needs. Reinstating would be too expensive, and the final building not suitable for modern purpose.

A bunch of people who figured they knew better than the then-Bishop what to do with the Anglican Church's property decided that they would interfere. The Wizard. The Heritage People. All the stickybeaks who love to block anyone ever doing anything, but who won't stump the cash to give effect to their preferred views on things.

If you are happy to believe this set of things, then The Wizard and his cohort were right all along. If you don't believe these things, then the case for blocking the Bishop from running a bulldozer through the thing over a decade ago destroyed enormous value. 

  • Revenue from climbing the tower will be 5-15 times higher than before the earthquake
  • Revenue from the gift shop and cafe will be 1-3 times higher than before the earthquake
  • A half a million people per year each get $5 to $10 in enjoyment benefits from having a look inside
  • Visiting the museum gives each of 114k to 159k people per year $10 to $20 in enjoyment benefits
    • There is no practicable way of charging for entry to either of those
  • Regular churchgoers get $5-$10 in benefits from attending mass; special services provide $10-$20 in value
    • There is also no practicable way of charging for these as the number of visitors would then fall
  • Each of the 398k - 467k people in Christchurch get $2 to $20 in benefits from knowing the cathedral has been rebuilt and that they have the option to go and see it sometime. And $1 to $5 for each of the 4.8-5.3 million non-Christchurch New Zealanders
    • And that it is also okay to count the value of the option when exercised (visiting) and the value of the option in the same tally of annual benefits. You might instead count only the value of attending in the year of attendance - exercising the option
  • There is meaningful and policy-relevant benefit to people working on cathedral restoration over and above the wages they are paid, and they wouldn't otherwise be working on similar stonemasonry at, for example, the Arts Centre
  • Each international tourist will spend between 0.1 and 0.5 extra nights in Christchurch because the Cathedral has been restored; at least half of this will be a shift from other NZ destinations, 0-50% of the extra nights will be net increases in total time spent in New Zealand. Oh - and spending by tourists should be judged on gross spend, not on profit from that spend. 
NZIER makes some of the problem really rather clear in Table 6. 

The largest portion of the benefits, dwarfing everything else, is non-use value that they deem to be of low reliability. The point estimate of $19.7m is more than half of their total quantified benefits of $32.4m. 
If don't believe that tourists are going to spend a lot of extra time in NZ because of the restored Cathedral, or that each and every Kiwi outside of Christchurch gets $1 to $5 in annual feel-good benefits about the Cathedral's restoration, then the government erred in blocking the Bishop from running the bulldozer through it. 

If the government is going to require the Anglicans to provide a reinstated cathedral, then the government should be the ones to front the cost. If the government believes the numbers in the NZIER report, then it should be happy to do so. 

If none of us believe those numbers, perhaps the Anglicans should be compensated for the stupidity they've been forced to bear here. I do not believe the numbers, but you have to believe numbers like these if you want to believe that this whole thing has been other than a horrible mistake. 

From where we are:
  1. Void the heritage encumbrances on the site.
  2. Tell the Anglicans how much money central government (and council, and crowdfunding) is willing to put toward different reinstatement options.
  3. Let them bulldoze and build as they like if that's what they prefer instead. 
Update: hoisted from the comments on the "Afternoon roundup" post where I'd first linked the NZIER report, from Glenn Boyle:
Re the cathedral, these sorts of exercises are always difficult and hit-or-miss, but there are certainly some features of NZIER's report that caught my eye:
  1. I'd love to see the parameter values used in the option valuation.
  2. A discount rate of just 5% (essentially the riskfree rate) is interesting, especially given the costs are all incurred in 6 years but the benefits carry on for 40.
  3. There is, apparently, no uncertainty about costs!

Monday 15 April 2024

Net tax

Stuff's Federico Magrin does a whip-round on the updated Treasury estimates of net fiscal impact by income decile

An early version of that paper had been presented at a workshop last year January or February, but for whatever reason wasn't able to be released until after the election. Bit of a shame where there were a lot of claims floating around about who was paying how much. 

The work uses 2018/19 tax and income data. Key charts:

Households below the sixth equivalised disposable income decile receive more in transfers than they pay in tax. The sixth decile is a wash. The top four deciles pay net tax, with the bulk of the burden on decile 10 households who each contribute about $75,000 per household more in tax than they receive in transfers and government-provided services. 

The tax and transfer system sharply reduces the Gini inequality measure. If you're hearing someone citing market Ginis in arguments for higher transfers, know that they either do not know what they are talking about, or are hoping that you won't understand what they're doing. Inequality in final income is much lower than inequality in market income.

There wasn't space in Federico's column for everything that I'd sent through in response to his questions, so I'll include the full answers here (nothing wrong or misleading in how he presented anything; just like keeping track of what I've said about things). 

Treasury’s work really helps us understand that tax and transfer have to be viewed together. It would be easy to damn GST or income tax for not being progressive enough, in isolation, for those who support a lot of redistribution. But where other countries rely heavily on a lot of tax exemptions or preferred tax status for particular groups to achieve redistributive outcomes, New Zealand largely does it through transfers and government-funded programmes. Tax and transfer, put together, sharply reduce income inequality as compared to inequality before taxes and transfers. And the work clearly shows that households in the top ten percent of earners bear a very heavy proportion of the cost of our tax and transfer system.

Treasury’s work relies on data from 2018/19. Since then, a new top marginal tax rate of 39% was introduced for earnings above $180,000, which will have increased the amount of net tax paid by top-earning households. However, inflation will have pushed a lot of lower-earning households into higher tax brackets, reducing progressivity at that end of the distribution. Finally, overall government spending on transfers increased substantially. In 2018/19, government was not in massive structural deficit. In 2024, we are. Far fewer households will now be net taxpayers, because far more government spending is being covered by debt that will fall on future taxpayers.

The tax and transfer system is redistributive by design. Households that are outside of the workforce or that are on lower earnings receive direct transfers to increase their income, and government provides a lot of services in-kind that those households would not be able to afford on their own if they had to pay for them. We all have different views on fairness, and mine is no better than anyone else’s. But what I don’t think is fair is commentary around tax that points to differences in before-tax income as reason to increase taxes and redistribution, while forgetting just how much work the tax and transfer system already does to reduce inequality and poverty.

[And, in response to request for clarification:] You will often hear commentators point to the amount of income earned by the top 10%, and use that as justification for higher tax rates. But that ignores the effects of taxes and transfers that are already in place. Treasury’s work provides that better context. People can come to different views on how much redistribution is enough, but they should at least start by understanding the extent of existing redistribution from the current tax and transfer system.

Afternoon roundup

The afternoon's worthies:

Friday 12 April 2024

Afternoon roundup

More bits as I clear through the tabs. 

Net zero means net negative?

Will look forward to reading the Climate Commission's latest report. This bit, from Jim Rose over at Carbon News, is a bit concerning:

The world is not on track to meet the Paris Agreement’s 1.5 degrees target, the commission says, and New Zealand is likely to continue contributing to global warming after 2050.

That’s because the country’s current target doesn’t require biogenic methane to reach net zero by 2050 and has no requirement for long-lived greenhouse gases to be reduced beyond net zero.

“This means that it is possible to achieve the 2050 target and still have net positive emissions of 700–1,000 KtCH4 – and the associated contribution to global warming – in 2051 and every year after,” the commission says.

The commission says that when New Zealand’s net zero target was set in 2019 it was seen as ambitious but that’s no longer the case.

I had always understood Net Zero 2050 to mean that the unbacked NZU issued before 2050 would represent the sum total of net emissions from the covered sector from now until forever. An NZU might be redeemed after 2050; it's the quantum of unbacked units issued through 2050 that determines the amount of net emissions overall. 

If the Commission is shifting to a view that Net Zero implies undoing the emissions that have obtained from an indeterminate start point through to 2050, that's of course a much bigger job, and one that Parliament certainly didn't authorise.  

A clean ETS is certainly capable of driving beyond net zero. The government or others just need to buy credits through the system and retire the credits, unused. And if tech follows some potential paths, doing so may well be cost-effective in undoing some accumulated emissions. But probably a good idea to wait and see what the cost paths wind up looking like before committing on that one. 

Wednesday 10 April 2024

Afternoon roundup

The afternoon's worthies, as I close the tabs from one of the many open browsers....