Impact of Proposed New Charge for Freight Only Lines on Demand for ESI Coal

28 February 2007
By Sean Gammons et al.

In its consultation on the caps for freight track access charges, the UK Office of Rail Regulation (ORR) recently proposed a new charge for freight-only lines for certain categories of commodities, including electricity supply industry (ESI) coals. The new charge includes a mark-up over variable costs, which the EU Rail Directive (2001/14/EC) permits if the "market can bear" it. To research this issue, the ORR commissioned a NERA team, led by NERA Director Sean Gammons, to examine the impact of the proposed charge on the demand for coal for power generation. In the resulting report, the authors assess the impact on coal demand using NERA's European electricity market model, EESyM, and conclude that the ORR's proposed charge would reduce coal consumption and coal freight transport by the coal ESI by approximately 1-2 percent. The issue faced by the ORR and the study approach illustrate how European regulators need to ensure their decision-making fits within EU regulatory systems.