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Heathrow Runway 3 will leave UK £5 billion worse off – says new NEF report

19.4.2010 (New Economics Foundation press release)

Runway 3 will produce a negative return for society and is economically and socially
inefficient, according to a new independent evaluation.

A new and comprehensive analysis, using Social Return on Investment, published
today, Monday 19 April 2010, by independent think-tank nef (the new economics
foundation), concludes that a third runway at Heathrow would leave society worse
off by £5 billion.

report at Grounded report by NEF April 2010

Researchers at nef used the same economic modelling program as the Department
for Transport (DfT), but updated the input data on economic growth rates, exchange
rates, carbon prices, fuel prices and other variables. They also estimated the
costs of a new runway to the local community near Heathrow. This included re-visiting
the DfT’s estimates for noise disturbance and air pollution, and for the first
time, calculating the cost of additional surface congestion and community blight.

The resulting report Grounded: A new approach to evaluating Runway 3 reveals that:

– A third runway at Heathrow would leave the UK £5 billion worse off. nef’s
estimate reverses the DfT’s prediction of a £5.5 billion net benefit.

– The £5 billion cost estimate includes negative impacts on the local community
valued at £2.5 billion. The DfT’s analysis suggested an equivalent cost of only
£0.4 billion.

nef’s report describes problems around establishing the economic benefits of
a third runway. This has been recognised by business leaders, as reflected in
a letter to the Times on 4 May 2009.

In addition, the report presents the formidable environmental hurdle faced by
proponents of a third runway because of the climate change impacts of air travel.
Aviation policy clashes with objectives for sustainable development, particularly
for tackling climate change. The government’s 2050 target for maintaining aviation’s
emissions of greenhouse gases at 2005 levels, rather than demanding cuts as for
other sectors, means that all other uses of fossil fuels – for heating and road
transport for example – will have to be reduced much further. As it is the well-off
who fly, even on budget airlines, this means the burden of emissions reduction
is shifted from the rich to the poor.

&lquot;With such high social and environmental costs associated with Runway 3, the
burden of proof should lie squarely with those who are in favour of the expansion.
It’s up to them to demonstrate that Runway 3 is in the public interest. With a
rapidly diminishing timeframe in which to tackle climate change it is imperative
that we allocate our carbon budget in the most efficient and equitable way, and
to schemes that will create the most social value. This must surely be the test
for any proposed infrastructure project in the future.&rquot; said Helen Kersley, co-author
of the report.

nef recommends a new course of action for Heathrow:

– Official support for a third runway should be withdrawn. This analysis further
discredits the decision to proceed with the third runway proposal.

– A thorough examination of alternatives to aviation is required to ‘future
proof’ the UK economy. Instead of assuming an expansion of aviation is required,
we need more robust analysis of the costs and benefits of alternatives taking
into account the UK’s transport needs and priorities for sustainable development.
Alternatives such as investment in video-conferencing and improved rail networks
would also contribute to relieving the congestion at Heathrow.

– Future aviation expansion plans should be appraised in relation to the social
value they are likely to generate. This should involve meaningful engagement with
stakeholders to determine where value is being generated and more thorough research
on costs such as noise and air pollution.

In addition, the report suggests that new thinking is required on how we appraise
infrastructure projects more generally. It recommends that greater account is
taken of their impact on inequality, as the costs and benefits are often unevenly
distributed. Finally it highlights the importance of independence and transparency
in how decisions are reached. In this instance, official claims were made for
Runway 3’s impact on jobs and growth that could not be substantiated by the evidence.
It calls for greater effort in communicating complex economic findings to the

&lquot;This report is about more than the third runway, or indeed aviation. Historically
governments have often overplayed the economic arguments in favour of big infrastructure
developments such as airport and road expansion. Many countries are strewn with
‘white elephants’ – costly development schemes of highly questionable value that
began life with the force of apparently robust economic argument behind them.&rquot;
said Eilís Lawlor, co-author of the report and head of the Valuing what Matters
programme at nef.

– ENDS –

For more information or to arrange an interview please contact:

Andy Wimbush, Communications Officer, nef (the new economics foundation)

t: 0207 820 6383 m: 0773 914 3503 e:

1. About nef

nef (the new economics foundation) is an independent think-and-do tank that inspires
and demonstrates real economic well-being. We aim to improve quality of life by
promoting innovative solutions that challenge mainstream thinking on economic,
environment and social issues. We work in partnership and put people and the planet

2. Valuing what Matters at nef

nef is redefining approaches to value and measurement so that those things that
matter most to people, communities and to achieving a sustainable planet are made
visible and measurable. Practices of measurement and valuation are still often
focused narrowly and on the short term. Sometimes things that are easy to count,
outputs, are the things that get measured and thereby valued. Instead nef believes
measures should be focused on outcomes and how lives, communities or the environment
changes as a result of policy. Our approach focuses on an evaluation of returns
on investment by their longer-term social, environmental and economic returns.
These can be used across the public, private and third sector. nef works with
a number of tools to measure and account for value.

3. Social Return on Investment (SROI)

Social Return on Investment is an innovative approach to measurement and value
that can be used across the public, private and third sectors. Developed from
cost-benefit analysis and social accounting, SROI uses economic valuation to make
visible a far greater range of social, environmental and economic costs and benefits
than conventional analyses. In so doing, it provides a fuller picture of the value
that is being created or destroyed and enables more informed decision-making about
how resources are allocated.

4. How we worked it out:

What we did Running total cost of Runway 3
STEP1 Updating the input data

Because the Department for Transport’s original analysis was done in 2008, we
updated key variables, using official sources:

  • Carbon prices (Source: Department for Energy and Climate Change 2009)
  • Oil prices (Source: Energy Information Administration 2009)
  • Economic growth rate (Sources: HM Treasury , NIESR and

Oxford Economic Forecasting)

  • Fuel efficiency gains (Source: Committee on Climate Change 2009)
  • Non CO2 impacts (Source: ABC Impacts: Aviation and the Belgian Climate Policy, 2008)
  • Exchange rates (Source: DfT methodology, using updated rates to 31st December 2009)
STEP2 Running the DfT model on the new figures

We used exactly the same computer modelling as the DfT,run by Scott-Wilson consultants.

£ -4.0 billion
STEP3 Adjusting for a concern DfT had with their original model

The DfT are now of the opinion that they double counted the carbon cost in the
original model. According to their revisions this occurs where customers pay an
additional environmental tax and carbon is priced as a separate cost. This issue
is disputed. Environmental groups argue that it relies on the environmental tax
being sufficiently high to capture the impacts of this highly polluting industry.
Nonetheless, we took account of it in the model to see what impact it had on the

£-4.0bn + £2.2bn =

£ -1.8 billion

STEP4 Adjusting the discount rate for carbon costs

Economic predictions normally discount the costs and benefits to future generations
because they are assumed to be richer than people at present. But in the case
of climate change, discounting in the same way is not appropriate as future generations
will feel the effects more than the present generation. We followed the Stern
review and HM Treasury supplementary guidelines.

£-1.8bn- £1.1bn =

£ -2.9 billion

STEP5 Revising the DfT’s estimate on community costs

The DfT estimated £-0.4bn community costs from noise and air pollution. Using
stakeholder engagement and Social Return on Investment analysis, we revised this
figure to £-2.5bn.

£-2.9bn + £0.4bn- £2.5bn = £ -5 billion

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