Calculation of External Costs of Road and Railway Freight Transportation and Internalization

The benefits from transport are enormous. It contributes significantly to economic growth and enables a global market. Without transport, current day society would have a totally different structure. But most forms of transport do not only affect society in a positive way but also give rise to side effects. The negative impacts of transport are in general associated with costs. These costs are usually denoted as ‘external costs’. The external costs can cause many social problems, but the external costs of China are not paid enough attention to. This paper presents some methods to estimate external costs of Chinese freight transport. The categories considered include: air pollution, noise, accidents and greenhouse gases, the main methods are baseline increments method, human capital method, etc. Results show the external costs of road transport is much higher than railway, almost 8 times, this is also consistent with social reality. Since the freight proportion of railway in China is so small, the authors can use some internalization methods to improve the situation of railway, such as tax or subsidy policy. In the end, the authors choose Yiwu City-Ningbo City international container transportation as a cast study, estimate the external costs and analyze the effect of different internalization methods, the results of this paper can be used for predicting future transport costs and evaluating policies.