5.2.1.1 Agency and User Discount Rate at Low Estimate (1%)
By lowering the agency and user discount rate from 4% to 1%, final results for both systems are impacted significantly (see Table 5.8 below), demonstrating the powerful impact discount rates can have on final results.
Table 5.8 Base Case Sensitivity Analysis – 1% Agency and User Discount Rate
The effect on the CC system, however, was twice as great as that on the ECC system, with total costs increasing by 57%, compared to 27% for the ECC system. This relatively
Scenario 1 base case
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Agency $161,855 $371,216 $0 $269,947 $803,018 0.00
Social $7,289 $1,640 $1,235,594 $1,197 $1,245,721 0.00 CC Total $169,145 $372,855 $1,235,594 $271,145 $2,048,740 0.00 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Agency $127,974 $309,841 $0 $204,347 $642,161 0.00
Social $6,144 $1,240 $1,091,470 $1,036 $1,099,891 0.00 ECC Total $134,118 $311,081 $1,091,470 $205,383 $1,742,052 0.00 Scenario 1 with 1% agency and user discount rate
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Public $239,550 $548,640 $0 $419,807 $1,207,997 50.43
Social $7,289 $1,640 $2,000,579 $1,197 $2,010,706 61.41 CC Total $246,839 $550,280 $2,000,579 $421,004 $3,218,702 57.11 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Public $145,802 $360,246 $0 $248,513 $754,561 17.50
Social $6,144 $1,240 $1,458,044 $1,036 $1,466,464 33.33 ECC Total $151,946 $361,486 $1,458,044 $249,549 $2,221,025 27.49
large impact to the CC results reflects the fact that it incurs more costs in the long term compared to the ECC system. When the discount rate drops, these costs are more burdensome than they were previously. Social costs increased by a greater percentage than agency costs for both systems.
5.2.1.2 Agency and User Discount Rate at High Estimate (7%)
Increasing the agency discount rate to 7% lowers the costs compared to the baseline analysis (see Table 5.9 below). This three percent increase led to a substantial fall in costs, proving the importance of carefully selecting a discount rate. Again, the effect on the CC system is twice as great as the effect on the ECC system, with timing of events causing the difference.
Table 5.9 Base Case Sensitivity Analysis – 7% Agency and User Discount Rate
Note the narrow margin that separates the two systems. In fact, this is the only sensitivity analysis in this paper that shows the CC system having any kind of cost advantage at all – in this case, the CC system has lower social costs than the ECC system. From the Solver function in Microsoft Excel, a discount rate of 7.70% would make the two systems equal in total life-cycle costs. Above this rate, the CC system has lower costs, but only by a small percentage. The higher discount rate makes the higher up-front costs of ECC play a larger role in the total costs and account for the decrease in the advantage of ECC. While this scenario shows promise for the CC system, it is also founded on fairly extreme assumptions. The current agency discount rate used by many state transportation
agencies is 4%. This rate would need to nearly double for the CC system to begin showing a cost advantage over the ECC system. In addition, this scenario does not have any detours or AADT growth, two variables that are a part of daily traffic flow. When detours of 5% are added to this scenario, the Solver function returns a value of 10.39% discount rate needed for the two systems to equal each other. This rate is even higher than the 7.70% mentioned earlier, showing that once more realistic variables are added, the CC system requires extreme circumstances to show its cost competitiveness. These sensitivity examples show the conditions necessary for the CC system to have lower life- cycle costs than the ECC system, and it becomes possible to assess their likelihood.
Scenario 1 base case
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Agency $161,855 $371,216 $0 $269,947 $803,018 0.00
Social $7,289 $1,640 $1,235,594 $1,197 $1,245,721 0.00 CC Total $169,145 $372,855 $1,235,594 $271,145 $2,048,740 0.00 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Agency $127,974 $309,841 $0 $204,347 $642,161 0.00
Social $6,144 $1,240 $1,091,470 $1,036 $1,099,891 0.00 ECC Total $134,118 $311,081 $1,091,470 $205,383 $1,742,052 0.00 Scenario 1 with 7% agency and user discount rate
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Public $129,245 $296,678 $0 $207,691 $633,614 -21.10
Social $7,289 $1,640 $922,451 $1,197 $932,578 -25.14
CC Total $136,535 $298,318 $922,451 $208,888 $1,566,192 -23.55 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Public $118,967 $285,187 $0 $183,847 $588,001 -8.43
Social $6,144 $1,240 $933,308 $1,036 $941,729 -14.38
5.2.1.3 Damage Cost Discount Rate at Zero Percent (0%)
As discussed in Section 3, a small number of critics have argued that social costs should be discounted at zero percent to reflect the viewpoint that present-day people value an asset in the present in the same way they value the same asset in the future. Table 5.10 below compares the two systems using a 0% damage cost discount rate.
Table 5.10 Base Case Sensitivity Analysis – 0% Damage Cost Discount Rate
Because of the relatively small magnitude of damage costs due to emissions, the final results do not change by more than a few thousand dollars for each system. Thus, damage cost discount rates do not appear to be a sensitive variable in the model.
5.2.1.4 Damage Cost Discount Rate at Flat Rate (4%)
Rather than using the sliding scale of discount rates, this sensitivity assumes a flat discount rate equal to the agency and user discount rate of four percent (see results in Table 5.11)
Table 5.11 Base Case Sensitivity Analysis – 4% Damage Cost Discount Rate
Scenario 1 base case
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Agency $161,855 $371,216 $0 $269,947 $803,018 0.00
Social $7,289 $1,640 $1,235,594 $1,197 $1,245,721 0.00 CC Total $169,145 $372,855 $1,235,594 $271,145 $2,048,740 0.00 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Agency $127,974 $309,841 $0 $204,347 $642,161 0.00
Social $6,144 $1,240 $1,091,470 $1,036 $1,099,891 0.00 ECC Total $134,118 $311,081 $1,091,470 $205,383 $1,742,052 0.00 Scenario 1 with 0% damage cost discount rate
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Public $161,855 $371,216 $0 $269,947 $803,018 0.00
Social $12,372 $2,783 $1,259,258 $2,096 $1,276,509 2.47 CC Total $174,227 $373,998 $1,259,258 $272,043 $2,079,527 1.50 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Public $127,974 $309,841 $0 $204,347 $642,161 0.00
Social $7,289 $1,502 $1,103,951 $1,248 $1,113,990 1.28 ECC Total $135,263 $311,343 $1,103,951 $205,594 $1,756,151 0.81
Scenario 1 base case
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Agency $161,855 $371,216 $0 $269,947 $803,018 0.00
Social $7,289 $1,640 $1,235,594 $1,197 $1,245,721 0.00 CC Total $169,145 $372,855 $1,235,594 $271,145 $2,048,740 0.00 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Agency $127,974 $309,841 $0 $204,347 $642,161 0.00
Social $6,144 $1,240 $1,091,470 $1,036 $1,099,891 0.00 ECC Total $134,118 $311,081 $1,091,470 $205,383 $1,742,052 0.00 Scenario 1 with 4% damage cost discount rate (flat rate)
(units in 2003 dollars)
CC Mat. Prod. & Dist. Construction Use End of Life Total %
Public $161,855 $371,216 $0 $269,947 $803,018 0.00
Social $7,289 $1,640 $1,226,270 $1,197 $1,236,396 -0.75 CC Total $169,145 $372,855 $1,226,270 $271,145 $2,039,415 -0.46 ECC Mat. Prod. & Dist. Construction Use End of Life Total
Public $127,974 $309,841 $0 $204,347 $642,161 0.00
Social $6,144 $1,240 $1,087,377 $1,036 $1,095,798 -0.37 ECC Total $134,118 $311,081 $1,087,377 $205,383 $1,737,960 -0.23
As with the sensitivity analysis for a zero discount rate, the damage cost discount rate at a flat four percent has a negligible effect on the final results.
5.2.1.5 ECC Cost Advantage Across Scenarios and Discount Rates
The following four figures (Figure 5.10, 5.11, 5.12, and 5.13) depict the percent change in ECC cost advantage across the five scenarios for each of the four sensitivity discount rates:
Figure 5.10 ECC Cost Advantage Across the Five Scenarios - 1% Agency Discount Rate 0% 10% 20% 30% 40% 50% 60% 70% Scenario 1 - Base Scenario 2 - 5% Detours Scenario 3 - 10% Detours Scenario 4 - 1% AADT Scenario 5 - 2% AADT ECC Cost Savings (in %)
Figure 5.11 ECC Cost Advantage Across the Five Scenarios - 7% Agency Discount Rate
Figure 5.12 ECC Cost Advantage Across the Five Scenarios - 0% Damage Cost Discount Rate 0% 10% 20% 30% 40% 50% 60% Scenario 1 - Base Scenario 2 - 5% Detours Scenario 3 - 10% Detours Scenario 4 - 1% AADT Scenario 5 - 2% AADT ECC Cost Savings (in %) 0% 10% 20% 30% 40% 50% 60% Scenario 1 - Base Scenario 2 - 5% Detours Scenario 3 - 10% Detours Scenario 4 - 1% AADT Scenario 5 - 2% AADT ECC Cost Savings (in %)
Figure 5.13 ECC Cost Advantage Across the Five Scenarios - 4% Damage Cost Discount Rate (Flat Rate)
All four figures show that regardless of discount rate, by including detours and AADT growth rates, ECC gains a cost advantage. AADT in particular has a large impact on the analysis, with user delay costs making the ECC system more attractive from a life-cycle cost standpoint.