Strategic Issues Facing Transportation, Volume 4: Sustainability as an Organizing Principle for Transportation Agencies (2014)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

125 A significant body of practical knowledge and opinion has developed in the last few years on sustainability performance measures as well as assessment/rating systems. These measures and rating systems address one or more of the three sustainability bottom lines described throughout this report. Promising progress has been made in this area, as measures and rating approaches are being accepted and more widely applied across industry. Sustainability performance measures and ratings can already inform priorities for agency resource investments and strategic focus on sustainability initiatives. But for long-term TBL sustainability planning and decisionmaking, significant TBL measurement and assessment challenges still need to be met. At the highest level, measuring and rating societal sustainability at regional and national levels remains an art, and mostly a matter of public opinion and a subject of academic study. Govern- ments have focused on policies to reflect perceptions of “greater goods,” as well as public opinion and demands regarding the most pressing needs of the era. Available resources are typically divided and directed at the policies, based more or less on the relative costs of implementing each policy. Generational equity is given consideration in relation to entitlement programs and some single- bottom-line objectives but is much more difficult to model and address along TBL dimensions. At the level of transportation support for TBL and generational equity, models for the contributions of transportation investments and returns on TBL are easier concepts to visualize but challenging to develop and implement with current data and available algorithms. Key challenges include the following: • Quantifying the full life-cycle cost of transportation systems (not necessarily projects) • Total cost accounting at program levels • Linking transportation performance and services to economic, environmental, and social bottom lines in simple and data-driven ways • Valuating future (generational) transportation performance and TBL impact Transportation agencies are adopting useful tools and methods today that will help agencies prepare for a sustainable future. These include tools and methods that are (1) sustainability rating systems and performance measures; (2) sustainability ROI estimators; and (3) LCCA, life-cycle assessment (LCA), and sustainability cost–benefit analyses of various kinds. As previously discussed, these approaches focus on transportation planning and programming, and project delivery—mainly from within transportation agencies’ mission and modal perspectives. 8.1 Sustainability Rating Systems and Performance Measurement Systems There has been rapid growth in the development of sustainability rating systems, performance measures, and data sources. When research for this report was initiated in 2010, only a few developed performance measurement or rating systems had been initially tested and placed in C H A P T E R 8 Sustainability Tools and Methods: Key Directions for Development

126 Sustainability as an Organizing Principle for Transportation Agencies regular use, and the data sources for these systems were difficult to identify. However by 2012, more than a dozen sustainability rating and performance measurement systems existed and were being used by various state, local, and regional transportation agencies. In 2011, TRB published NCHRP Report 708, a comprehensive analysis of current sustainability rating and performance systems. The report provided state DOTs with a practical and easy-to-use approach to identify and apply sustainability-related performance measures to transportation decisionmaking and provided a reference compendium of performance measures (Zietsman et al., 2011). In addition, numerous states, localities, and federal agencies have launched efforts to develop, catalogue, and assess sustainability rating systems. Analyzing the current state of the practice of these tools and methods, several common characteristics and issues are notable, specifically: • Growing consensus among transportation agencies on measures to be applied in sustainability rating systems • Third-party-scoring versus self-scoring approaches • Challenges in incorporation of multiple modes • Lack of effective treatment of intergenerational equity issues • Rating of agency maturity in sustainability practices and functions 8.1.1 Growing Consensus on Sustainability Ratings and Measures In general, most sustainability performance measurement and rating systems accept the concept of the TBL to various degrees. The rating systems include measures or qualitative indicators relating to environmental protection, such as changes in emissions, reductions in the use of hazardous materials in construction, and increased use of recyclables, and many others. Similarly, many systems use conventional transportation metrics, such as maintenance of functionality during improvements, improvements in safety, or other related metrics. In terms of social well-being or civic measures, performance rating and measurement systems focus on social equity issues or the preservation of resources of community or cultural value. All this suggests a growing convergence of systems and approaches to thinking about sustainability. Most rating assessment approaches found in the research reflect and adapt useful rating approaches from other agencies’ initiatives and usually begin with an initial analysis by the sponsoring agency of existing systems, tailoring and adjusting them to specific agency needs, terminology, and functions. As indicated in Chapter 7, most sustainability assessment tools focus project assessment and support on either the planning and programming function or the project delivery processes. As an example of more recent rating system development, the FHWA began developing a highway sustainability rating system (INVEST) to recommend for general application in the industry. The research and concept incorporated ideas from numerous sustainability rating systems and guidelines developed by state and local transportation agencies. For INVEST, best practices were identified and incorporated from more than 20 other systems. The methodology draws directly on insights from ISI’s rating system Envision, GreenLITES, Sustainable Sites, Greenroads, and I-LAST. In addition, further INVEST development is intended to be continuously updated and augmented to incorporate emerging best practices and stakeholder inputs—and to coordinate with several sponsors for other ratings systems, including ISI’s activities to define ratings criteria and standards (FHWA, n.d.). Similarly, when the Joint Sustainability Group of the Illinois DOT, ACEC-Illinois, and IRTBA developed the I-LAST tool, it made significant use of the NYSDOT’s GreenLITES model and experience (FHWA, 2012). This process continues as more states adopt sustainability measurement and rating systems. For example, the University Transportation Center for Alabama sponsored a project to develop sustainable transportation performance measures for the Alabama DOT and to develop a

Sustainability Tools and Methods: Key Directions for Development 127 methodology to implement a more sustainable transportation system. One of the tasks included reviewing sustainable transportation studies and initiatives in North America and Europe. This information will provide a framework for sustainable transportation performance measures and support development of a methodology for a sustainability enhancement tool, with identified data elements and data sources (Research in Progress database, 2012). Just as the LEED building certification system fostered a widely accepted and cited system around which the public and private sectors have responded with enhanced green design and construction practices, so a broader national consensus on transportation sustainability measures and ratings might provide similar benefits.9 Similarly, the various programs, such as U.S. EPA EnergyStar and WaterWise, have created a voluntary national certification program that provides market incentives for the private sector to standardize operations improvements around environmen- tally benign practices. Widely accepted measurement and rating systems would also provide for improved, and understanding of, public communication and outreach efforts as well as better focus on sustainability improvement needs and priorities for investment. The FHWA’s INVEST has the potential to enhance broad agency consensus around sustain- ability practices, measures, and standards, since it draws together lessons learned and measure- ment aspects of some of the better-known sustainability rating approaches already followed by a number of state and local agencies. INVEST is a web-based tool for self-evaluation of plans and projects that contains a collection of sustainability best practices. Table 38 shows these best practices, which are referred to as “criteria.” Specific projects can be scored against these criteria to assess their sustainability. Scoring criteria may involve some subjective judgment, but where practical, empirically based ranking is used. Specifically, the intent of this tool is to do the following: • Encourage more sustainable practices in roadway planning, design, and construction • Provide a standard, quantitative means of roadway sustainability assessment • Provide a standard means of assessing the sustainability of an agency’s systems planning and operations programs • Allow informed decisions and tradeoffs regarding roadway sustainability • Enable owner organizations to recognize the benefits of sustainable road projects • Communicate roadway sustainability to stakeholders In concept, INVEST would operate in combination with some form of cost-effectiveness analysis to enable the comparison of options in planning, project development, and operations that could meet transportation goals. Based on estimated costs and risks of each option, each choice would be scored using appropriate INVEST criteria—providing explicit cost-effectiveness perspectives on each option from the sustainability point of view. At this stage of development, INVEST offers rough ratings of sustainability-related “achievement levels” (including bronze, silver, gold, and platinum). Presently there is no provision for third- party INVEST-based certifications; rather scores are considered an unofficial recognition that a planning process, a project, or an operation has met a given threshold level of sustainability. (To achieve recognition as a sustainable highway project in the INVEST context, an evaluated project should earn at least 30 percent of the total points using the online self-evaluation tool.) The research team notes that if an approach based on INVEST is adapted specifically for decisionmaking at an agency level, the criteria scoring could be further refined and weighted according to the particular conditions and priorities inherent in the regional, state, or local jurisdictions in which the tool is applied. 9 In fact, NYDOT’s GreenLITES program is explicitly modeled after the U.S. Green Building Council’s LEED program and the University of Washington’s Greenroads program. In addition, NYSDOT’s certification program builds on other environmental initiatives that the department has already begun and is the next step in a long-term commitment to evaluating and refining practices to encourage sustainable choices in project planning, design, maintenance and operations (NYSDOT, n.d.).

128 Sustainability as an Organizing Principle for Transportation Agencies Criteria Description System Planning Integrated Planning: Economic Development and Land Use Integrate statewide and metropolitan long-range transportation plans (LRTPs) with statewide, regional, and/or local land use plans and economic development forecasts and goals. Integrated Planning: Natural Environment Integrate ecological considerations into the transportation planning process, including the development of the LRTP and Transportation Improvement Program /State Transportation Improvement Program. Integrated Planning: Social The agency’s LRTP is consistent with and supportive of the community’s vision and goals. Integrated Planning: Bonus The agency has a continuing, cooperative, and comprehensive transportation planning process. Access and Affordability Enhance accessibility and affordability of the transportation system to all users and by multiple modes. Safety Planning The agency integrates quantitative measures of safety into the transportation planning process, across all modes and jurisdictions. Multimodal Transportation and Public Health Expand travel choices and modal options by enhancing the extent and connectivity of multimodal infrastructure. Support and enhance public health by investing in active transportation modes. Freight and Goods Movement Implement a transportation system plan that meets freight access and mobility needs while also supporting TBL sustainability principles. Travel Demand Management Reduce vehicle travel demand throughout the system. Air Quality Plan, implement, and monitor multimodal strategies to reduce emissions and establish a process to document emissions reductions. Energy and Fuels Reduce the energy and fossil fuel consumption from the transportation sector and document it in the transportation planning process. Financial Sustainability Evaluate and document that financial commitments made in transportation planning documents are reasonable and affordable. Analysis Methods Agencies adopt and incentivize best practices in land use, socioeconomic, and transportation systems analysis methods. Transportation Systems Management and Operations Optimize the efficiency of the existing transportation system. Linking Asset Management and Planning Leverage transportation asset management data and methods within the transportation planning process to make informed, cost-effective program decisions and better use existing transportation assets. Infrastructure Resiliency Anticipate, assess, and plan to respond to vulnerabilities and risks associated with current and future hazards (including those associated with climate change) to ensure multimodal transportation. Linking Planning and NEPA Integrate transportation system planning process information, analysis, and decisions with the project-level environmental review process, and reference it in NEPA documentation. Project Development Economic Analyses Using the principles of benefit–cost analysis or economic impact analysis, provide evidence that the user benefits, including environmental, economic, and social benefits, and justify the investment. Life-Cycle Cost Analyses Reduce life-cycle costs and resource consumption through the informed use of life-cycle cost analyses of key project features during the decisionmaking process for the project. Context-Sensitive Project Development Deliver projects that harmonize transportation requirements and community values through effective decisionmaking and thoughtful design. Highway and Traffic Safety Safeguard human health by incorporating science-based quantitative safety analysis processes within project development that will reduce serious injuries and fatalities within the project footprint. Educational Outreach Increase public, agency, and stakeholder awareness of the integration of the principles of sustainability into roadway planning, design, and construction. Table 38. INVEST sustainability criteria—based on industry practices.

Sustainability Tools and Methods: Key Directions for Development 129 Criteria Description Tracking Environmental Commitments Ensure that environmental commitments made by the project are completed and documented in accordance with all applicable laws, regulations, and issued permits. Habitat Restoration Avoid, minimize, and compensate the loss and alteration of natural (stream and terrestrial) habitat caused by project construction and/or restore, preserve, and protect natural habitat beyond the project. Stormwater Improve stormwater quality from the impacts of the project and control flow to minimize their erosive effects on receiving water bodies and related water resources. Ecological Connectivity Avoid, minimize, or enhance wildlife, amphibian, and aquatic species passage access and mobility, and reduce vehicle–wildlife collisions and related accidents. Pedestrian Access Improve the safety and convenience of pedestrian networks for people of all ages and abilities by providing or enhancing facilities within the project footprint. Bicycle Access Promote bicycling in communities by providing or enhancing safe and convenient bicycling facilities within the project footprint. Transit and HOV Access Promote use of public transit and carpools in communities by providing new transit and HOV facilities, or by upgrading existing facilities within the project footprint. Freight Mobility Enhance mobility of freight movements, decrease fuel consumption and emissions impacts, and reduce freight-related noise. ITS for System Operations Improve the efficiency of transportation systems without adding infrastructure capacity in order to reduce emissions and energy use, and improve economic and social needs. Historical, Archaeological, and Cultural Preservation Preserve, protect, or enhance cultural and historic assets and/or feature National Scenic Byways Program historic, archaeological, or cultural intrinsic qualities in a roadway. Scenic, Natural, or Recreational Qualities Preserve, protect, and/or enhance routes designated with significant scenic, natural, and/or recreational qualities in order to enhance the public enjoyment of facilities. Energy Efficiency Reduce energy consumption of lighting systems through the installation of efficient fixtures and the creation and use of renewable energy. Site Vegetation Promote sustainable site vegetation within the project footprint that does not require long-term irrigation, consistent mowing, or invasive/noxious weed species removal. Reduce and Reuse Materials Reduce life-cycle impacts from extraction and production of virgin materials by recycling materials. Recycle Materials Reduce life-cycle impacts from extraction, production, and transportation of virgin materials by recycling materials. Earthwork Balance Reduce the need for transport of earthen materials by balancing cut and fill quantities. Long-Life Pavement Design Minimize life-cycle costs by designing long-lasting pavement structures. Reduced Energy and Emissions in Pavement Materials Reduce energy use in the production of pavement materials. Contractor Warranty Improve quality and minimize life-cycle costs by promoting the use of extended contractor warranties for pavement. Construction Environmental Training Provide construction personnel with the knowledge to identify environmental issues and best practice methods to minimize impacts to the human and natural environment. Construction Equipment Emission Reduction Reduce air emissions from nonroad construction equipment. Construction Noise Mitigation Reduce or eliminate annoyance or disturbance to surrounding neighborhoods and environments from road construction noise, and improve human health. Construction Quality Control Plan Improve quality by requiring the contractor to have a formal quality control plan. (continued on next page) Table 38. (Continued).

130 Sustainability as an Organizing Principle for Transportation Agencies Criteria Description Construction Waste Management Utilize a management plan for road construction waste materials to minimize the amount of construction-related waste destined for landfill. Operation and Maintenance Internal Sustainability Plan Focus on sustainability improvements within the agency’s internal operations that affect all three principles of the TBL. Electrical Energy Efficiency and Use Reduce the consumption of fossil fuels during operation and maintenance of agency-owned and/or -operated facilities through improvements in efficiency and the use and/or generation of renewable energy. Vehicle Fuel Efficiency and Use Reduce fossil fuel use and emissions in vehicles used for operations and maintenance. Recycle and Reuse Create and pursue a formal recycling and reuse plan for agency-operated facilities and maintenance activities. Safety Management Maximize the safety of the existing roadway network through a systematic and comprehensive review of safety data and the allocation of resources in planning and programming to support safety. Environmental Commitments Tracking System Ensure that environmental commitments made during project development related to operations and maintenance are documented, tracked, and fulfilled. Pavement Management System Leverage a pavement management system to balance activities that extend the life and function of pavements with impacts to the human and natural environment. Bridge Management System Leverage a bridge management system to balance activities that extend the life and function of bridges with impacts to the human and natural environment. Maintenance Management System Leverage a maintenance management system to inventory, assess, analyze, plan, program, implement, and monitor maintenance activities to effectively and efficiently extend the life of the investment. Highway Infrastructure Preservation and Maintenance Make paved roadway surfaces, bridges, tunnels, roadsides, and their appurtenance facilities last longer and perform better by undertaking preservation and routine maintenance on them. Traffic Control Infrastructure Maintenance Increase safety and operational efficiency by maintaining roadway traffic controls. Road Weather Management Program Plan, implement, and monitor a road weather management (including snow and ice control) program to reduce environmental impacts with continued or better level of service. Transportation Management and Operations Maximize the utility of the existing roadway network through use of technology and management of operations. Work Zone Traffic Control Plan, implement, and monitor work zone traffic control methods that maximize safety of workers and system users with continued or better level of service. Table 38. (Continued). 8.1.2 Third-Party-Scoring versus Self-Scoring Approaches When widely understood, third-party rating and scoring systems have important advantages, particularly when the ratings are used to communicate with entities and interests outside trans- portation agencies, and when they are accompanied by well-defined standards for assessment. Third-party rating—consistently applied—can help acceptable sustainability practices to gain wide acceptance with the private sector, and with partner agencies. If the third party is a credible and objective entity (such as an industry standard–setting body or association with wide industry representation), the resulting ratings can be authoritative and useful in policymaking, project selection and design, and communicating benefits to public- and private-sector “investors.” A disadvantage is that third-party rating systems necessarily gravitate toward one-size-fits-all standards of measurement that can be difficult to adjust or apply to specific agencies’ project

Sustainability Tools and Methods: Key Directions for Development 131 settings and performance requirements, so that third-party rating may lack utility or credibility with project delivery practitioners. Self-scoring systems are useful for more detailed and tailored assessments under location-specific conditions, agency operating structures, and performance requirements. These may be better suited to data-driven results, since agency data systems are more likely to be adapted to the rating system. Rating systems such as those incorporated with INVEST and GreenLITES are based on self- scoring. Other systems such as STARS and Envision are based on a third-party scoring frame- work. In the case of Envision, the system is intended to provide a uniform means of assessing sustainability benefits for infrastructure practitioners, owners, and regulators. Unlike INVEST or state-developed systems, Envision is administered by the Institute for Sustainable Infrastructure, formed by ASCE, ACEC, and APWA. There are useful, but distinct roles for both approaches. As rating systems of both types continue to proliferate and to be tested and refined, approach distinctions may narrow, as best practices are better understood and exchanged. Eventually, a smaller number of complementary planning and project delivery sustainability scoring systems will emerge as “best of breed,” and more states will chose and adapt to those. 8.1.3 Challenges in Incorporation of Multiple Modes The research has pointed out that existing sustainability rating systems focus on mode-specific planning and programming, as well as project delivery and operations functions of transportation agencies. The rating systems studied do not address strategic investment decisions involving choice of modal alternatives and investments in nonhighway projects. There is no reason why similar rating approaches could not be developed and adapted to most infrastructure programs including transit, for example. Although some systems (e.g., INVEST) include rating criteria on linkage of investments to a broader transportation plan and associated goals, that broader planning process is not of itself assessed in the rating framework. Thus the rating focus remains clearly on the highway mode. Most systems have been developed to rate specific projects or programs rather than an integrated multimodal transportation plan. Sustainability rating systems today assess programs and projects on a rating scale against established standards for sustainability best practices—not against other projects. Today’s rating systems ask, “Given this rating system, how sustainable is this highway project?” rather than, “Could the transportation network performance needed be provided more sustainably by services and projects involving modal alternatives other than highway only?” Under today’s policy system and governance structures, federal transportation agencies, and most state agencies that play roles in delivery of transportation services and infrastructure development, have mode-specific missions, so sustainability rating systems incorporating multimodal sustainability tradeoffs will be difficult to apply broadly at those levels, until the policy system and governance structures evolve further toward TBL. Some local governments and regional transportation planning orga- nizations may be in better positions today to assess multimodal investment alternatives and contributions of multiple modes to the local or regional TBL, because their missions are less mode specific, but they typically have less influence on directing the flow of major transportation infrastructure investments to specific modes. 8.1.4 Effective Treatment of Intergenerational Equity As observed in the research, many sustainability rating systems today focus on the impact of specific projects on selected TBL considerations. But TBL sustainability intends the long-term

132 Sustainability as an Organizing Principle for Transportation Agencies preservation of society’s assets, wherein present actions should not significantly diminish the quality of life or welfare of future generations. In general, this is a difficult concept for rating systems to capture, because the concept may involve comparing proposed actions or investments with no-action alternatives and possibly other alternatives. Some rating systems do attempt to address elements of this concept. For example, INVEST includes a criterion—financial sustainability— that requires practitioners to determine if financial commitments made in transportation system plans are realistic and affordable. To an extent, the financial sustainability criterion, and some of the other criteria, incorporates generational equity considerations, but the assessment approach for it is not explicit. The generational equity concept may be best dealt with by cost–benefit analysis (CBA), using the discount rate principle. This places implicit values on benefits as they accrue to future time periods. Because most rating systems require that a CBA be conducted, CBA could be extended to account for future benefits (and costs). Regardless, the explicit concept of intergenerational equity—and coherent approaches to assessing it—is missing in most currently used sustainability rating systems. 8.1.5 Rating Agency Maturity in Sustainability Practices and Functions It is potentially useful for agencies to assess and rate their respective “functional TBL-support maturity” levels, given plausible standards for transportation agency functional requirements to meet, under a future TBL sustainability policy system. As discussed earlier in the context of defining the policy system for TBL, such future functional requirements standards are (at best) subjective and can only be based on logic available today. Nevertheless, high-level agency ratings can help agencies and the industry at large to address functional gaps periodically, as and if a TBL sustainability policy system gains momentum. The maturity assessment could be self-administered by transportation agencies, and/or it could be administered as a periodic structured agency survey and rating computation. The latter approach could be performed without attribution to assess the overall functional norms for transportation agencies and to assess whether functional gaps are closing over time. The research team has prototyped a functional maturity survey tool that could easily be constructed as a spreadsheet-based tool. It contains simple rating choices keyed to each of the high-level transportation functions that have been framed in this report. Screenshots of this rating and survey model are shown in Appendix F, along with a brief description of the process for executing the assessment and determining maturity ratings. The actual choice descriptions are realistic, but preliminary and intended only to illustrate the concept. 8.1.6 Needs for Further Development—Sustainability Rating Sustainability rating for the full range of transportation functions—fully addressing the concept of TBL and generational equity—is very important to assess and prepare for a TBL policy system. Such an evolution may involve a major cultural change and paradigm shift in the way transportation is conceived, funded, managed, and delivered in the future. Agencies’ scores on numerous sustainability rating systems have signaled significant progress beyond context-sensitive planning and project delivery toward a more proactive approach to sustainable transportation, but the focus remains primarily on planning and project delivery. The aperture for sustainability rating initiatives needs to be widened to better encompass the full range of transportation functions; a more holistic view of a sustainable transportation network; more concise performance factors

Sustainability Tools and Methods: Key Directions for Development 133 outside of traditional mobility, safety, cost/benefit, and environment; and more comprehensive consideration of long-term generational equity effects. Needs for further development of rating systems include the four major areas listed in Table 39. 8.2 Return on Investment and Communicating Benefits of Sustainability ROI is a well-established method for evaluating investment decisions by comparing the pres- ent amount to the present value of the flow of value resulting from the investment. ROI pro- vides a simple exposition of the net benefits from the present perspective. Monetized ROI is the easiest to communicate and evaluate. ROI can deliver a clear, unambiguous measure of the overall net benefits of a program or strategy in terms of current values and perspectives. For this reason, ROI it is a widely used technique and a critical tool for decisionmakers to select alternatives and communicate the prospective benefits of investment decisions to public and private constituencies. Near-term infrastructure or service investment needs can be estimated and—assuming that future flows of value to the “capital stores” of each of the three bottom lines can be monetized or estimated in qualitative terms—there are opportunities to tailor investment approaches (or designs) for best-expected return overall. This form of analysis is tried and true, and very well-worn when applied in a purely monetized case, as in evaluating a prospective commercial business investment. The “art” of ROI analysis lies in estimating and incorporating values for nonmonetary benefits (e.g., environmental or social benefits and impacts). This can be addressed in part by use of quantified performance measures, so that the performance benefits that accrue for given investment strategies can be considered. A major hurdle is left for SROI models that would rely on a combination of monetized and performance-related TBL benefits: the need to credibly link and forecast the relationship of specific Development Needs Description Rating approaches expanded beyond planning and project delivery functions Broader rating and measures to better address performance of all major high-level functions including developing sector consensus on transportation needs, long-range planning, outreach and communications, decisionmaking collaboration with partner agencies and private sector, etc. Ratings for how effectively programs addresses the full range of the economic impact of transportation investments Improved definitions to rate how agencies consider impact of investments on regional economic development and growth, rather than focusing primarily on traditional cost–benefit assessment, where project costs are typically compared and evaluated against monetized mobility and safety impact. More explicit rating treatment for agency consideration of long- range social welfare impact Most TBL rating systems include some elements related to social impact. However, there is little consensus as to what should be included, how it should be defined, and how it can and should be measured. Ratings to reflect the quality of agencies’ consideration of long- term generational equity in the LRTP processes The TBL benefits and effects of transportation investments normally have significant lag time after the investments, as development, land use, and travel patterns change and stabilize. Generational equity is an even longer-term concept. Agencies could examine and rate this investment aspect based on an extended time horizon for LRTPs, projections of transportation scenarios, and explicit equity measures and indicators. Table 39. Needs for further development—sustainability rating.

134 Sustainability as an Organizing Principle for Transportation Agencies transportation investments to performance outcomes. Models exist in transportation to reason- ably predict project effects on operational performance outcomes like improved travel times, throughput capacities, accident rate improvements, etc. Models like TranSight (a product of Regional Economic Models, Inc.) provide insights on the relationships of transportation proj- ects and the economy. But these measures and models are not holistic, nor have the computa- tional relationships been sufficiently correlated or borne out by real data to serve reliably as part of an SROI analysis. The challenges are greater when modeling the cause–effect relationship of transportation investments and environmental or social welfare measures. This key issue was raised in the interviews conducted for this project. Estimating transporta- tion ROI in sustainability terms and communicating the benefits of sustainability to key stake- holders are major challenges. In general, stakeholders agreed that simple monetized indicators of the benefits of sustainability would be the easiest way to communicate the value of sustain- ability and a desirable approach to judge the relative sustainability-based value of different investments. Experience with application of ROI indicators for sustainability investments in the private sector suggests that high-level ratings could be most effective. For example, Bloom- berg’s Sustainability Report for 2010 indicated that there was a 100 percent ROI in sustain- ability value for the firms it analyzed (Bloomberg L.P., 2011; the most recent report available at time of writing). The several challenges that are apparent when applying SROI to assess or consider the sustain- ability of a public-sector investment are discussed in the following sections. 8.2.1 Concentrated Costs, Widely Distributed Benefits Earthshift and the American Institute of Chemical Engineers (AIChE) Institute for Sustainability have developed an SROI methodology that explicitly addresses this issue, although not from a transportation point of view (Laurin et al., 2005). As can be seen in Table 40, it divides costs into those borne by the company and those borne by society as a whole. Furthermore, it identifies potential intangible costs or difficult-to-measure costs (e.g., customer loyalty, employee morale) that might affect the firm’s bottom line. This methodology includes a highly sophisticated treatment of uncertainty when it comes to the costs and the probability that the firm will incur them. Under this methodology, the firm identifies a series of potential investments and develops a series of scenarios that express Cost Type Description Examples Direct Costs Operating costs Capital investment, operating, labor, materials, and waste disposal costs Indirect Costs Overhead and regulatory costs Reporting costs, regulatory costs, and overhead monitoring costs Future and Contingent Liability Costs Potential fines, penalties, and future liabilities Clean-up, personal injury, and property damage lawsuits; industrial accident costs Intangible Costs (company paid) Difficult-to-measure but real costs borne by the company Cost to maintain customer loyalty, worker morale, union relations, and company community relations External costs (not currently paid by the company) Costs borne by society Effect of operations on housing costs, degradation of habitat, effect of pollution on human health Note: Classifications developed for private-sector firms for nontransportation purposes. Table 40. Earthshift and AIChE Institute for Sustainability SROI costs classification.

Sustainability Tools and Methods: Key Directions for Development 135 the potential futures for the investment. The firm then estimates the different costs that will be associated with each scenario. A Bayesian probabilistic analysis can be conducted to assess the probability that each scenario will occur, and a Monte Carlo probabilistic analysis is conducted to estimate the probability that a cost will occur. The two probabilities are multiplied (as a joint probability) to estimate the likelihood of the cost occurring. This value is then multiplied by the estimated cost to develop an expected value and compared for each proposed optional investment (including the baseline) to estimate the cost risk (and ultimately the ROI) for each option.10 This has some promise as part of an SROI analysis, but the mathematics may be too complex to pass the “simply communicated to stakeholders” test in the transportation community. 8.2.2 Valuation of Nonmarket Benefits Many of the benefits that arise from a public-sector investment are often nonmarket benefits. “Nonmarket benefits” are benefits that cannot be traded on a market—that is, benefits that do not have a market price and cannot be converted convincingly into monetary terms. They include such things as natural resource impacts, air emissions, and aesthetic values. There is a highly developed body of literature on the valuation of nonmarket benefits, and numerous techniques exist to value them [For example, see Champ et al. (2003), Freeman et al. (2003), Habb and McConnell (2003), and Hanley and Barbier (2009)]. However, for many stakeholders, these techniques are highly controversial. Furthermore, although it is possible to place a monetary value on many resources, it does not necessarily mean that this value will be realized or accrue to the investing parties, or will do so in the near term. In the first issue discussed above, although the public-sector transportation agency may be able to identify and quantify benefits in monetary terms, it does not mean the public will necessarily sense the benefits to confirm support of the investment. Because natural resource valuations are a “moving target” and are difficult to communicate to nontechnical audiences and key stakeholders, credibility tends to be downplayed. As a result, investment assessments tend to focus on the cost of the investment rather than a full consideration of the long-term benefits. 8.2.3 Financial Capacity or Willingness to Pay ROI typically does not consider financial ability to pay or willingness to pay, or future funding streams. A project may appear to have a positive ROI, but when all demands on the funding agency are considered, the agency will not be able to support the future operations and maintenance of the system. This is often the problem that local governments face when each project or public investment has been viewed in isolation from other projects without considering the full project life-cycle costs, or the synergistic effects on TBL of multiple government programs. Thus, a single investment may be sustainable from a complete economic, social, and environmental point of view but not be fiscally or financially sustainable when considered in isolation. As a result, the investment cannot truly be said to be sustainable, because ultimately, the investment will not receive the proper ongoing support to achieve its goals, so generational equity is not well served. A long view over the financial life cycle may show projects to be less desirable than other project alternatives. Clearly this misjudgment could be at the expense of other projects that need funding and could provide better long-term value. 10 This approach could be applied following along the scenario analysis conducted for this research. Under this approach, the analyst would attach a probability to the broad scenario identified in the report. Each impact related to transportation (positive and negative) could then be identified and a general magnitude of estimates of the cost developed. The probability multiplied by the magnitude would reveal an expected value. The cost of an investment that could avoid or mitigate the event could then be estimated, and the probability that it would achieve its goals could then be estimated. By combining the two probabilities, it would be possible to estimate the net benefit in terms of avoided costs.

136 Sustainability as an Organizing Principle for Transportation Agencies 8.2.4 Estimating Intergenerational Cost, Benefits, and TBL Value “TBL sustainability” addresses concern for long-term or intergenerational costs and benefits. In formal welfare economics, benefits are measured as consumption or, in more sophisticated analyses, as Hicksian income. “Hicksian income” refers to the benefit derived from an asset when no portion of the asset is consumed. Hicks was originally only concerned with an individual’s income (Hicks, 1946). This definition of individual income can be reformulated for a company as equal to “the maximum amount that could be distributed to the equity shareholders in a period and leave intact the capital value of the company’s prospective receipts as at the beginning of the period” (Solomons, 1961). This is a key definition. In environmental economics, Daly applied Hicks’s concept to society as a whole. Specifically, Daly argued for the extension of Hicks’s category of capital to include natural resources (because they can be thought of as part of society’s assets; see Daly (1974). The implication is that any estimate of national or social income should consider the erosion of natural asset stocks (this corresponds to asset sales in Hicks’s model). Furthermore, Daly’s perspective suggests that we should include a wide concept of income— that is, if natural resources are regarded as “assets,” then all the benefits arising from those assets (e.g., ecological services) should be considered “income,” and the category of income should not be confused with the “output” only (as is normally done in national income accounting). For Daly, “output income” is simply the value that can be consumed and is not synonymous with income or welfare. From the point of view of intergenerational accounting, the implication of Daly’s concept of income is that losses to the natural capital stock at any “bottom line” should be accounted for and discounted over time. Thus, any income derived from the use of a natural resource must be considered in the context of future losses. In this analysis, the assumed social discount rate becomes critical. The social discount rate represents the value placed on future marginal social costs and benefits over current marginal social costs and benefits. For example, what is the value placed on mining metal today and using the iron for industry versus the loss of the ore to future generations? Essentially, the discount rate puts a price on future generations’ welfare versus the current generation’s consumption (Portney and Weyant, 1999). The problem with this ROI or cost–benefit approach is that the value of the social discount rate is arbitrary and highly controversial. For example, the Stern Review on global climate change (Stern, 2007) uses a social discount rate of effectively 0 percent, arguing that to select any other rate is unethical and immoral in that it takes choices away from individuals who cannot be party to the choice (i.e., individuals who are not yet born). This has the effect of making future impacts the same as current impacts. Many economists argue that this is unrealistic. They point out that future costs will be less than current costs, because of the following reasons: • Future consumption takes place in the future and, based on behavioral economics experiments, human beings generally prefer consumption in the present to the future (known as inherent discounting). • Consumption levels, human welfare, economic growth, and global wealth will be higher in the future, so the marginal utility of additional consumption will be lower (i.e., in the future, the relative cost of environmental protection will be lower than today, because we will all be richer). • Improved technology of the future will make it easier to address future environmental concerns or may eliminate them altogether. Even when a more “realistic” value is placed on the social discount rate, the value is still arbitrary. Table 41 shows the range of methods used to estimate discount rates by some federal agencies. The Office of Management and Budget (OMB) is perhaps the most influential. However, the discount rate that OMB uses is not a social discount rate: It is based on budget, inflation, and economic projections concerning interest rates rather than a consensus view of the value of future

Sustainability Tools and Methods: Key Directions for Development 137 investments. As a result, this rate changes to reflect current economic circumstances and beliefs about the future. Over the last two decades, the 30-year OMB discount rate has varied from 8.1 percent to 2 percent. Simply changing this rate can make certain investments seem suddenly economically viable or nonviable and does not reveal a real, consistent estimate of the true value of future costs and benefits compared to the present. Because of these issues, a number of analysts have proposed the use of alternative, nonmonetary methods of estimating the sustainability impacts of transportation investments. At one extreme are some scientists and ecologists who would eliminate economic valuation altogether and replace environmental calculus with alternative measures, such as the impact of investment decisions on the physical accounting of the stocks of natural resources [see, for example, Bojö et al. (1990), Theys (1989), and Alfsen et al. (1987)] or the maximum sustained utilization rate for elements of the environment or critical loads [see, for example, Hall (1993)]. Advocates of these approaches argue that they remove the need for monetary valuations, because they directly address the issue of viability of the natural environment and human interactions with the environment (i.e., the “society” and “economic” elements of the TBL). In response, most economists would argue that these elements can be considered within the conventional framework of economics if properly valued and that mechanisms based on purely noneconomic measures are ultimately arbitrary (in that they impose one group’s valuation of an asset on another group when neither party can be said to own the asset) and inefficient [for example, see Dubourg and Pearce (1996)]. A less extreme position argues for the use of sustainability scoring methods or indices to assess the impact of proposed transportation investments. In this model, an investment would be scored using a sustainability evaluation system and either (1) this would be used as general input to the decision along with conventional ROI or CBA or (2) only alternative investments that scored above a certain sustainability score would be considered in the CBA, ROI, or financial analysis. This issue raises the basic problem that ROI analyses face when dealing with sustainability. Ecologists and economists generally have two different paradigms when it comes to the definition of “value.” Ecologists define “value” as the contribution a process makes to the ecosystem as a whole, or the intrinsic worth of a process or element of the ecosystem (Cordell et al., 2005). In contrast, economists see “value” as instrumental—that is, an object or process only has value in terms of the degree to which it contributes to some end. Thus, a wetlands that is affected by Parameters Employed in Estimating the Discount Rate Reference Approach Data R ea l I n te re st R at e G en er al In fl at io n R at e N om in al In te re st R at e OMB Circular A-94 Deterministic Long-term treasury real interest rate FHWASA-98-079 Probabilistic, Latin hypercube Recorded historic rates FHWASA-98-079 Deterministic Average historic rates FHWASA-98-079 Probabilistic, Latin hypercube Recorded historic rates FHWASA-98-079 Probabilistic, Monte Carlo Recorded historic rates FHWASA-98-079 Assumption Assumption Table 41. Sample methods for estimating discount rates.

138 Sustainability as an Organizing Principle for Transportation Agencies highway development will have an intrinsic or process value to an ecologist, while it might have an instrumental value to an economist equivalent to the degree that it helps some contribution to human welfare (e.g., water quality improvement, fish and wildlife availability, flood control). This fundamental difference is often encountered when there is an attempt to value environmental (and by extension, social) goods and services. Furthermore, ecologists and economists have a fundamentally different view of the nature of investment, capital, and income (the basis of ROI calculations). Ecological economics (from which the concept of sustainability emerges) attempts to ground economics within the broader context of the laws of thermodynamics and ecological systems analysis. Ecological economics views the human economy as being part of a large environmental system that can be understood as a series of energy and matter transfers between different participants. This system is a complex web of interconnections in which each element contributes something to other nodes within the system. Removing too much energy or material from one element will affect the system as a whole and affect its overall functioning. Thus, each element is not tradable or substitutable. Furthermore, there are basic minimums required for key system sustaining operations. For example, plants and trees allow for carbon dioxide to be translated into oxygen via photosynthesis. If all the trees and plants were to die, there would no mechanism to convert carbon dioxide into oxygen. Thus, ecological economics challenges the basis assumption of neoclassical economics that natural resources are simply an input into production. Critically, the potential for the substitution between manmade capital (e.g., physical infrastructure, financial instruments) and natural capital is critically different under the two paradigms. Under the neoclassical economic perspective, natural capital can be traded for human capital to reach an optimum benefit for human beings. Thus, manmade capital can, in principle, replace all types of natural capital. As noted previously, this is known as “weak sustainability” (Solow, 1974, 1986, 1993; Hartwick, 1977, 1978). Under ecological perspectives (strong sustainability), all forms of capital must be maintained intact independent of one another. The implicit assumption is that different forms of capital are mainly complementary—that is, all forms are generally necessary for any form to be of value. Produced capital used in harvesting and processing timber, for example, is of no value in the absence of stocks of timber to harvest. Only by maintaining both natural and produced capital stocks intact can nondeclining income or value be assured (United Nations, 2005). This is a fundamental difference in how people conceptualize the allocation of scarce resources and value different goods. Critically, it is difficult to fit this ecological economics perspective into an ROI paradigm, because it would require valuing the elements of the overall ecosystem in relation to the other elements of the TBL equation. As a result, most SROI approaches are based on the general theoretical framework of welfare economics (i.e., weak sustainability), with the discount rate being used to estimate the value of future capital. Three fundamental assumptions underlie this paradigm (see Freeman III, 2003a, 2003b): • Improving human welfare and well-being is the fundamental goal of all economic activity. • Individuals are best able to determine their own good and how well off they are given any set of circumstances. • The welfare of society as a whole is measured by aggregating all individuals’ welfare across society. “Welfare” then is fundamentally defined as the aggregation of individuals’ preferences and their willingness to pay for overall gains (essentially, a benefits transfer) or to accept compensation for losses [see Samuelson (1983); Chipman and Moore (1978)]. Sustainability fits into this perspective via an inclusion of the analysis of the environmental and social impacts of individual consumption decisions and a valuation of those decisions [see Daly and Cobb (1989)]. This

Sustainability Tools and Methods: Key Directions for Development 139 requires a careful valuation of these impacts, which, as noted previously, can be controversial. However, systems such as HDR’s SROI methodology does attempt to do this. And, it would be theoretically possible to convert many of the items in sustainability rating tools into monetized elements and estimate the total ROI. 8.2.5 Difficulty in Creating “One-Size-Fits-All” ROI Models SROI models are not easily standardized or used as a simple spreadsheet model or tool. Rather, the approaches or methodologies require considerable customization and are expensive to use. For example, as discussed earlier, HDR’s SROI service offering is not (strictly speaking) a tool. Although at the core of the approach is an Excel model, it is actually a consulting package. A transportation agency must hire HDR, which then comes in and identifies the issues affecting sustainability for a specific investment, converts and monetizes these variables where possible, collects data, and analyzes it to create customized estimates of the sustainability costs and benefits. Similarly, PricewaterhouseCooper’s sustainability offerings are “processes” rather than “tools” that are proprietary to the firm, designed largely for the private sector, focus mainly on economics and environment, and require substantial customization and commitment of time and resources from clients to implement. European tools [such as the ESCOT and the Assessment of Transportation Strategies (ASTRA)] are similar. ESCOT, developed to help support a path toward a sustainable transport system for Germany, is a tool for assessing the economic and environmental impacts of different transpor- tation options. ESCOT is a highly complex model that uses a system dynamics methodology to create an integrated model of different transportation scenarios. At its core is a Keynesian input/output macroeconomic model [similar to U.S. systems like Impact Model for Planning (IMPLAN) or the Regional Economic Models, Inc. (REMI) model] that forms the backbone of the economic assessment and enables users to explore complex policy choices. ESCOT contains the following modules: • A macroeconomic model supplies information on the aggregate economic level (e.g., national income, GDP, employment) • A regional economic model is disaggregated into 12 different economic sectors, and nine functional types of regions are defined (e.g., rural regions, highly agglomerated areas) • A transport model estimates impacts for different transport modes (road, rail, water, air) and different types of infrastructure links (e.g., high-speed links between agglomerations) • An environmental model calculates data on emissions of transport activities and estimates their first-round effects • A policy model drives the scenarios that influence the other model system Most policy implementations intervene in the transport model such that this model usu- ally is the steering area for simulating the impact mechanisms. Needless to say, the model is highly complex and requires massive amounts of data to run. Furthermore, each variable set (e.g., policy variables) has to be structured for the scenario to be run, and the relationships of those policies to specific outputs has to be specified by the user [for details, see Schade and Schade (2002)]. The ASTRA project was initiated in 1997 by a European consortium—consisting of Institut für Wirtschaftspolitik und Wirtschaftsforschung, Universität Karlsruhe, Germany; Trasporti e Territorio, Italy; Marcial Echenique & Partners, United Kingdom; and Centre for Economics and Business Research, United Kingdom—and co-funded by the European Union and Federtrasporto, Italy. The aim of ASTRA is to develop a tool for analyzing the impacts of the European Common Transport Policy, including secondary and long-term effects. ASTRA uses a system dynamics

140 Sustainability as an Organizing Principle for Transportation Agencies platform (ASP) to link macroeconomic changes, regional economics and land use, transport, and the environment. It is composed of four submodules: • The macroeconomics submodule (MAC) • The regional economics and land use submodule (REM) • The transport submodule (TRA) • The environment submodule (ENV). [For more information, see Schade et al. (1999).] For purposes of this report, several points can be made about ESCOT and ASTRA: • The models are not true sustainability models: ESCOT and ASTRA focus on the interaction among economic, transportation, and environmental impacts. They do not address social impacts or broad environmental impact. They are more analogous to input/output models such as REMI TranSight [which links transportation, environment (in the form of air emissions), and economic development]. • The models require substantial user involvement, analysis, and data collection: Input/output models require substantial user involvement, data collection, and customization to run. The sophistication of models such as ASTRA, ESCOT, and REMI are achieved by the inclusion of a large number of variables that can be adjusted and modified (e.g., the REMI model has more than 5,000 variables that can be manipulated). Users and analysts need to take an active part in setting and adjusting these variables. This frequently requires extensive data collection and expertise to understand which variables should be modified and the magnitude of the change. This process can take months and require substantial stakeholder input and consensus building. • The models require underlying system data: All macroeconomic models require the develop- ment of an underlying data set and set of algorithms that specify the linkage between different industry sectors and locations. This requires analysis of economic data and the development of complex input/output tables. These tables are extremely difficult to develop and are frequently purchased from vendors that develop them. For example, REMI data tables can be bought under a limited license for a specific region in the United States for approximately $15,000. ESCOT’s underlying data is limited to certain European countries. If a version were to be developed for the United States, all the data would have be developed. • The models are not ROI models: ESCOT and similar models are, strictly speaking, not ROI models. ROI models estimate a rate of return on an initial investment. Cost–benefit models dis- count the future benefits stream to present value and divide by the present value of costs, while economic and environmental impact models examine the economic and environmental impacts of different investments and policies. These seem to be unimportant distinctions, but models like ESCOT are designed to show the impacts of different system-wide scenarios rather than the return on an investment to a specific community, state, or region. As such, although they are use- ful for broad policy analysis, they are not useful for detailed analysis of specific projects. It should be emphasized that analyses such as those that can be conducted with ESCOT and ASTRA are regularly conducted in the United States for environmental impact statements and major economic and transportation projects. CBAs routinely conducted for most major public transportation projects consider the transportation, environmental, and economic impacts of investments. These analyses frequently use macroeconomic models [e.g., Global Trade Analysis Project (GTAP), Regional Input/Output Modeling System, IMPLAN, REMI] combined with transportation and environmental models (e.g., EPA’s Motor Vehicle Emission Simulator). Similarly, models such as RTI Applied Dynamic Analysis of the Global Economy integrate economic and environmental impacts of carbon-reduction policies using GTAP and REMI as a basis. In fact, there are literally hundreds of models that could be used to estimate different transportation, environment, and economic interactions. What is lacking is an easy way to combine these models to estimate the impact of different investments, policies, and system- wide changes. Furthermore, for these models to be truly sustainable, it would be necessary for (1) the consideration of broader economic impacts than air emissions (the only environmental

Sustainability Tools and Methods: Key Directions for Development 141 impacts normally considered) and (2) the development of social factors to be incorporated into the model. While it is true that many of the existing SROI models do not address all the dimensions of sustainability, it should be emphasized that this does not mean that they cannot play a significant role in the public debate over proposed investments. For example, Parsons Brinckerhoff’s PRISM attempts to estimate full TBL impacts. However, Parsons Brinckerhoff does not see a TBL impact produced by PRISM as necessarily being a definitive statement of the full TBL impacts. Rather it is a way to begin the public discussion on TBL impacts. Thus, according to Parsons Brinckerhoff, PRISM’s TBL module: “is intended to build upon . . . environmental analyses, bringing economic and social factors onto a level playing field and applying transparent and defensible ways to monetize the full range of relevant factors. By bringing analytical rigor to the principles of sustainability, and by not focusing on finding a single “correct” answer, the . . . tool can help focus the dialogue as a learning experience to provide an enriched understanding of what is really at stake in the consideration of projects, plans, policies, and programs” (McVoy and Gunasekera, 2011). These models could then support an approach that—if used along with active public involvement—could advance understanding and decisionmaking on TBL impacts and benefits. In addition, these models would need to be simplified to develop ROI estimates that could be used in decisionmaking. Techniques exist that can be used for this. For example, it is possible to take multiple runs of the REMI model to establish a range of outputs for different highway investments. These outputs are then converted into a distribution and used in a simple spreadsheet model. By combining these with transportation model runs and environmental impact models, it is possible to develop a simple spreadsheet model that provides substantial sophistication. 8.2.6 Need for Further Development—ROI Models Based on this analysis, it can be concluded that there are no adequate SROI tools at present. Table 42 identifies key requirements for further research and analysis in this area. 8.3 Life-Cycle Cost Analysis, Life-Cycle Assessment, and Cost–Benefit Analysis Several techniques exist that attempt to assess the full life-cycle impacts of investment. For example, LCCA attempts to develop a complete cost profile of any investment. LCA attempts to estimate environmental impacts associated with all the stages of an investment’s life from cradle to grave (i.e., from raw material extraction through materials processing, construction, operation, repair and maintenance, and disposal or recycling). CBA attempts to estimate the net benefits (i.e., benefits minus costs adjusted for time) of an investment. All face similar issues and challenges. Specifically, all face major challenges dealing with estimating the full range of costs and benefits and addressing issues related to intertemporal and interpersonal utility functions (i.e., what is the value of the future to different people). 8.3.1 Life-Cycle Cost Analysis In some ways, LCCA faces the biggest challenges. LCCA has a long history. The concept of LCCA in road construction was first discussed in AASHTO’s “Red Book” in the 1960s, but it did not appear as a requirement in federal legislation until 1991 with ISTEA. ISTEA required consideration of “the use of life-cycle costs in the design and engineering of bridges, tunnels, or pavement.” The National Highway System Designation Act of 1995 further imposed a new requirement making LCCA compulsory for National Highway System projects costing more

142 Sustainability as an Organizing Principle for Transportation Agencies Table 42. Development needs—ROI models. Development Need Description Consensus on the range of impacts to be included in the ROI estimate As with sustainability rating systems, there needs to be a consensus on the items that should be included in SROI estimates and the scope of these elements (e.g., society-wide? region-wide?). Additional research is needed to identify potential elements and develop a consensus around these elements. Accepted definitions of these impacts and methods for estimating these impacts Following on from the above issue, there needs to be additional research to define what is included in each benefit and establish a methodology for estimating and monetizing costs and benefits. Critically, there needs to be an accepted approach to estimating nonmarket costs and benefits. Consensus on meaningful discount rate or methodology dealing with intergenerational costs and benefits that specifically express the value of future costs and benefits over a long term A critical element of sustainability is the concern for long-term or intergenerational benefits. Currently, cost–benefit and ROI analyses address this issue via the discount rate. However, the discount rate as typically used in federal, state, and local governments in the United States is not used for long-time horizons (e.g., greater than 30 years) and does not really represent a time preference for money (as it is based on anticipated interest rates and returns). Either a new method of estimating long-term costs and benefits (perhaps using ecological models) or a more meaningful discount rate system needs to be developed. Additional research is needed to resolve this issue. Clear understanding of methods of distributing costs and how investment decisions will impact different groups Equity is a key issue for ROI benefits. In a representative democracy like the United States, no government program can be indifferent to who, where, or when costs and benefits are experienced. There needs to be a consensus as to how equity issues should be addressed from a geographic, social, and temporal basis. Additional research is needed to resolve these issues and help identify the data needed and methodology to be used. Integration of long-term sustainable funding perspectives into the methodology Sustainable systems will remain sustainable if the initial O&M funding assumptions that are made are supported into the long term. ROI estimates need to include some assessment of the probability of future support and the risk involved in not delivering on these commitments. As such, research needs to be undertaken to determine how to integrate these elements into SROI estimates. Consensus on valuation of social impacts The social elements of the TBL are notoriously difficult to define and measure. Most ROI estimates tend to translate the social elements into protection for cultural or historically important sites or equity issues. However, the initial definitions of “sustainability” implied that more is meant—that is, the sustainability must create a society that will support and enable people to live meaningful lives where the human costs of achieving the other elements of the TBL are not too high. It might be that future sustainability measures and ROI estimates will abandon this idea, but if we wish to capture the full depth of TBL, additional research will have to be developed to determine how to define, measure, and monetize this element of the TBL. Consensus on principles for trading and balancing between the three bottom lines Current ROI models are based around an idea of weak sustainability that allows substitution of human for natural capital and economic for social capital. The TBL implies that there should be some limit to this trading (i.e., that there are some limits in each element beyond which they cannot go). Research needs to be conducted to explore this issue and develop methodologies and tools that permit trading and limit exchange between different elements of the TBL. Development of an easy- to-use tool to estimate and communicate sustainability choices Current approaches to SROI are costly and require a substantial level of effort. There needs to be an effort to develop a simple tool (perhaps in spreadsheet form) that can be widely used to develop consistent and meaningful estimates of sustainability. This would permit comparison between projects and allow for more sustainability-based resource allocation.

Sustainability Tools and Methods: Key Directions for Development 143 than $25 million. The requirement was annulled under the Transportation Equity Act for the 21st Century (TEA-21) in 1998, but the FHWA and AASHTO remain active in assisting the states in developing their own LCCA procedures. The FHWA is required by TEA-21 to fund research that “expands the knowledge of implementing LCCA” (23 USC 502), and life-cycle costs must still be considered as part of the FHWA’s value engineering process for National Highway System projects costing more than $25 million [see Chan et al. (2008)]. This has resulted in widespread use of LCCA. For example, a survey of 33 state DOTs in 2006 found that 91 percent of respondents (30 states) used LCCA. Most used well-established tools and techniques. For example, eight states use the RealCost software, which is a spreadsheet model released in 2002 based on the FHWA LCCA Bulletin of 1998, and three states use the Darwin software products (developed by AASHTO). Darwin incorporates an LCCA module and provides a powerful pavement design program and a computerized version of the 1993 AASHTO Guide for Design of Pavement Structures [see South Carolina DOT (2008)]. Given the widespread adoption of LCCA and the widespread availability of models and tools, the appropriate model for LCCA has not been addressed. However, despite the popularity of LCCA, there are several issues when it comes to the TBL. For example, as discussed previously, future costs are calculated using a discount rate. As noted, the discount rate expresses the value of future costs versus current costs. This is a critical parameter for sustainability analyses as it is the main tool by which long-term intergenerational costs are estimated. As discussed earlier, in the United States the discount rate is not used in this way. Rather it reflects a set of assumptions concerning the interest rate and future expectations concerning economic growth and the inflation rate. Furthermore, LCCA does not deal with the risk involved in making irreversible decisions and the costs of denying these foregone opportunities to future generations. Therefore, in the realm of estimation of future costs and the impact of these decisions, LCCA is deficient. Similarly, as with other financial tools, LCCA has problems translating environmental and social costs into monetary terms. A full sustainability life-cycle cost should address all the costs associated with an investment. This means that environmental and social costs should be con- sidered and weighted in importance relative to other costs [for more discussion of this issue, see Gluch and Baumann (2004)]. As has been discussed previously, despite substantial analyses in this area, there is still considerable dispute as to how to value these impacts and weight them relative to easier-to-monetize effects associated with direct economic impacts. LCCA needs to develop a consensus method to identify which impacts to include and how to value and weight them relative to other costs. In addition, LCCA faces the challenges that ROI estimators have faced in including social impacts. As previously discussed, social impacts are the most difficult to define and monetize. Including them in an LCCA calculation and measuring and weighting them is a major challenge. Even the inclusion of equity measures (e.g., Who pays over the life cycle?) would mark a major departure from current practices. There have been some suggestions as to how LCCA can be improved to better capture sustain- ability issues. For example, sustainability advocates have proposed that LCCA should be modi- fied to consider a “whole system design” approach [see Bloomfield et al. (2006)]. The whole system design approach is a process for actively considering the interconnections between sub- systems and systems, and solutions are sought that address multiple problems via one and the same solution (Stansinoupolos et al., 2008). Essentially, the approach requires that engineers cease analyzing their design in isolation to the environment and begin to explore the hidden assump- tions, costs, and impacts that are evident when the interconnections between different elements and the overall environment are considered. Thus, in a traditional engineering approach, each element of a system is optimized for cost, energy use, and performance in isolation, rather than

144 Sustainability as an Organizing Principle for Transportation Agencies optimizing an entire system as a whole and considering all resulting costs and benefits that could make the entire system less efficient and optimal (and more expensive). For example, improving a road or bridge to take more trucks typically focuses on an analysis of expected traffic and truck weight and design and materials analyses. A whole system engineering approach would explore the assumptions that lead to the decision to move freight from rail to road and consider the full impact of road freight. This would include assessing all the costs (environment, safety, etc.) and estimating these costs. When all these costs are considered, a previously efficient, cost-effective approach may come to be seen as costly and ineffective. 8.3.2 Life-Cycle Assessment LCA is in many ways a response to LCCA issues and embodies many of the concepts of whole system design. By focusing on the life-cycle environmental impacts of an investment, LCA generates a complete inventory of relevant energy and material inputs and environmental releases and the potential impacts associated with identified inputs and releases. As defined by ISO 14040 and 14004, LCA consists of three stages: • Define goal and scope • Develop life-cycle inventory • Conduct life-cycle assessment The initial stage is vital to the overall analysis. The danger of LCA is that it can be extended backward into the supply chain to such a point where almost the whole economy can be con- sidered as contributing some cost elements to a specific investment. As such, it is vital that the analysis begin by bounding the analysis and stating clearly which impacts will be considered. Thus the initial stage: • Defines the functional unit to be studied and identifies the service to be delivered by the investment; • Establishes the system boundaries (i.e., which impacts will be considered); • Defines assumptions and limitations; • Describes the allocation methods that will be used to partition the environmental load of a process when a number of products, investments, or functions share the same process (e.g., if cement is used for construction, the analysis needs a method for partitioning the fixed capital that went into producing the cement as that asset has been used to produce cement for multiple purposes outside the functional unit under analysis); and • Describes the impact categories chosen (i.e., which environment media will be analyzed and how far into the ecosystem impacts will be considered). Once the scope has been defined a life-cycle inventory analysis is conducted. This involves creating an inventory of energy and material flows (e.g., flows of water, energy, and raw materials, and releases to air, land, and water) from and to the natural environment for the investment using a flow model. A flow model illustrates activities that are going to be assessed in the relevant supply chain and shows the system boundaries. A flow model can be extremely complex. It can show hundreds of different flows depending on how the system boundary is defined. Often extensive engineering and supply chain analyses are needed for each flow. In the life-cycle impact assessment phase, impact categories are identified, impact indicators are developed, and models are developed to characterize the magnitude of the impact. Impacts are then sorted and assigned to specific categories and a “common equivalence unit” (i.e., a scale or common measurement indicator) is developed to compare and combine different impacts. In some cases, these impact scores are then normalized, grouped, and weighted.

Sustainability Tools and Methods: Key Directions for Development 145 While LCA is an appealing technique, it has a number of problems in application to TBL assessment: • First, it is extremely expensive to conduct. Identifying and describing the impacts of different supply changes can be extremely costly. In many cases, the environmental impacts of many processes or elements of the supply chain will not have been identified and will require new research. This can somewhat be mitigated by the development of standard impact measures. For example, it would be possible to estimate the total environmental impacts of moving one ton of cement from a typical site. An analyst could then use this factor and adjust for the distance the cement traveled to reach the construction site and obtain a total environmental impact. • Second, LCA only looks at costs. LCA is intended to be used as a tool to compare the costs of investments or analyze a specific supply chain. There is no analysis of the benefits that an investment might bring in environmental, economic, or social terms. Thus, while an investment may have a high environmental impact (e.g., the cost to build and operate a light rail system), it may have considerable benefits in economic terms (e.g., reduction in congestion affecting the average time spent in commuting or the time taken to deliver freight in an area, reduction in social cost associated with reductions of automobile accidents), environmental terms (e.g., reductions in emissions from mode shift, reducing congestion and long-term land use changes), or social terms (e.g., new communities emerging around light rail stations). These benefits can be included in the analysis, but if this is done then the technique comes to be more like a CBA rather than an LCA and encounters other problems (discussed below). • Third, as with other sustainability assessments, LCA suffers from the difficulty of measuring impacts in a “common equivalence unit.” For LCA to work, all costs must be converted into the same unit of measure. This unit can be monetary or some other unit (e.g., tons of GHG, kilo- watts of energy). As with other techniques, it is difficult to develop a consensus of which units should be used and how elements should be valued and normalized in that unit of measure. If monetary values are used, there are the issues related to the valuation of nonmarket goods. Similarly, the development of new “environmental impact measures” has other problems, such as explaining what the category means, developing equivalent units for different impacts, estab- lishing trading and transitivity rules between different impacts, and measuring and converting impacts to those units. • Fourth, as with other techniques discussed, LCA has difficulty in dealing with long-term or intergenerational costs. In LCA’s case, this problem is made even worse if LCA is used in retrospective analysis when past costs are included (i.e., exploring the antecedent costs in the supply chain). Most economic costs treat used resource as a sunk cost and therefore do not include them in the analysis. The rationale is that, as nothing can be done to affect these costs, they are irrelevant. However, any LCA analysis has elements of a retrospective analysis if it includes any consideration of fixed assets bought before the analysis began. If they are to be included in the analysis, LCA not only requires a discount rate for the future but also a discount rate for the past (i.e., How much should resources used in the past be valued?). This is an extremely difficult problem. Furthermore, if nonmonetary values are used, it becomes extremely difficult to develop a system to value future cost and benefits vis-à-vis current benefits. For example, is a ton of GHG released today of more inherent value than one released tomorrow? These are difficult questions that have not yet been resolved. • Fifth, LCA is explicitly an environmental analysis. It does not address the other elements of the TBL (society and economic costs and benefits) and therefore may miss important impacts of any investment. • Sixth, LCA does not address equity issues and interpersonal valuation. While LCA may create a long list of impacts, it does not consider who will experience those costs and how those individuals value those costs. For example, at the most superficial, two investments may have the same total environmental cost but whereas one spreads the cost through the community,

146 Sustainability as an Organizing Principle for Transportation Agencies the other requires that a small, disadvantaged group experiences all the cost. This would not be considered in an LCA analysis. A more subtle but equally important issue is related to the conjunction of equity and inter- personal valuation. LCA attempts to impose a single valuation of all assets and operations. This valuation is developed from a particular approach and methodology. This methodology is selected by individuals what have normative values and bias. While it may be claimed that this view is based in a scientific understanding (e.g., an energy-balance analytical paradigm), this is still a subjective choice. Alternative and equally valid ways of assigning and computing value exist. Often individuals that are affected by an investment somewhere in the supply chain have different valuations of a process or asset. The impacts on those individuals (and how they value them) can be very difficult to compare when complex scientific or newly created units are developed. For example, an LCA conducted on a proposed street car system might consider the impact of generating the electricity to run a street car. If electricity is assumed to be generated by a coal- fired power plant, LCA could (if it were in the system definition) trace back the supply chain and identify the impact in GHG terms of coal, for example, increased runoff of poor-quality water and erosion from spoil piles, recharge of poor-quality water to shallow groundwater aquifers, poor-quality water flow to nearby streams, impacts on fish and wildlife, mercury emission and impacts on land (e.g., from mountain top removal). However, many individuals involved in the coal industry would find these costs acceptable given the benefits provided to workers in the industry and surrounding communities. For large social investments, the failure to con- sider these alternative valuations frequently leads to opposition and discord. It is important to stress that such a debate can occur when neither party is wrong; both can accept the description of the impacts of a decision but differ on the values they assign to resources involved. Furthermore, the use of a new, often difficult to understand impact measure (e.g., kilowatts of energy, tons of GHG) makes it difficult for groups involved in disputes to understand what is truly at stake and what they would be willing to trade to achieve a compromise. In welfare economics, this issue can be addressed via the use of the “compensation principle.” This is a decision rule used to select between pairs of alternatively feasible outcomes. According to the compensation principle (under Kaldor-Hicks efficiency), if the prospective gainers from one choice could (not necessarily would) compensate prospective losers, and leave no one worse off, then that option would be selected. Alternative formulations exist. For example, under the Pareto principle, any change that produces gain must produce at least one entity that loses. This underlies the Pareto 80/20 rule for decisionmaking. LCA does not address these issues. More sophisticated forms of analyses such as CBA can address these concerns. 8.3.3 Cost–Benefit Analysis CBA is perhaps the most sophisticated approach to assessing the impacts of sustainability. Of course, as can be seen from the previous discussion and the discussion of ROI and sustainability, sustainability CBA creates numerous challenges related to intertemporal and interpersonal valuation and valuation of complex ecosystems and raises major ethical questions concerning the value of the natural world. Furthermore, CBA has difficulty in addressing social values. While there are numerous equity and compensatory tools in CBA, it is more difficult to place a value on nonmarket social values. Various approaches (e.g., stated and revealed preference) can be used to estimate these values, but they are very controversial (especially when equity impacts are involved). For example, CBA has considerable problems in addressing the issue of “sense of place.” Sense of place is defined as the set of place-related meanings and place attachments held by an individual, group, or community. It represents the bond that human beings feel to a place that is formed by a collection of experiences, meanings, myths, histories, or attributes [see Semken

Sustainability Tools and Methods: Key Directions for Development 147 (2012)]. Critically, the conditions that create a sense of place are indivisible. For example, if a town square creates a sense of place for a community, a half a town square with a parking lot on the other half may not. Transportation projects often have major impacts on sense of place. New roads may bring new residents to an area (changing the place) or create new economic conditions (e.g., roads allowing trucks to travel through previously isolated places). Often people are pre- pared to trade this sense of place for increased income or opportunities. However, sustainability offers the prospect of being able to balance these social dimensions with other elements of TBL. While estimating the value of these other elements may be controversial, there at least exist methodologies to estimate economic and environmental impacts; almost no tools or method- ologies exist to value social impacts or even enumerate their full impacts. This is particularly important because the threat of the loss of these social or community values is often what has led to community revolts against transportation projects. For example, the highway revolts of the 1960s and 1970s occurred directly as a result of the perception that new highways were destroy- ing existing communities. Similarly, as has been described in this report, the catalyst to develop sustainability plans at the city level has often come from the feeling that increased traffic or road construction is eroding the quality of life. As such, the social dimension of sustainability is a key motivator of change and an important element for sustaining and maintaining support for any future investment. Therefore, additional attention should be paid to developing the analytical tools to consider it more fully and include in CBA. 8.3.4 Needs for Future Development—Cost Analysis Table 43 shows the needs identified for future development to enable LCCA, LCA, and CBA to better support TBL sustainability. Development Needs Description Consensus on the range of impacts to be included As with sustainability rating systems and ROI, there needs to be a consensus on the items that should be included in sustainability. In particular, the use of whole system design should be considered. Additional research is needed to identify potential elements and develop a consensus around these elements. Accepted definitions of impacts and methodologies for estimating those impacts Following on from the above issue, there needs to be additional research to define what is included in cost categories and to establish a methodology for estimating and monetizing costs associated with nonmarket elements (e.g., environment and society) or to develop alternative well-accepted measures. Consensus as to a meaningful discount rate or methodology dealing with intergenerational costs and benefits that specifically express the value of future costs and benefits As with ROI, a critical element of sustainability is the concern for long-term or intergenerational benefits. A new method of estimating long-term costs and benefits (perhaps using ecological models) or a more meaningful discount rate system needs to be developed. Additional research is needed to resolve this issue. Clear understanding of methods of distributing costs and how investment decisions will impact different groups Equity is a key issue for sustainability. In a representative democracy like the United States, no government program can be indifferent to where or when, or by whom, costs and benefits are experienced. There needs to be a consensus as to how equity issues should be addressed from a geographic, social, and temporal basis. Additional research is needed to resolve these issues and help identify the data needed and methodology to be used. Consensus on valuation of social impacts The social elements of the TBL are difficult to define and measure. Additional research will have to be developed to determine how to define, measure, and monetize this element of the TBL. Table 43. Needs for future development—cost analysis.