Subways connect people with opportunity, and they slash carbon emissions in half

Cities around the world struggle with the high road congestion and commuting costs — in time and money — that result from poor transport infrastructure and limited public transit. Such congestion makes it difficult for people to get to work and for families to send kids to school and access healthcare. But public transit — especially subway systems — are expensive to build and usually extremely expensive to operate. A study of 207 subway projects in 47 countries finds that it costs US$200 million to expand subways by one kilometer. KPMG International, a globally recognized financial consulting firm, has estimated that annual outlays for operations and maintenance at 2 percent of initial investments.

Congestion costs are far more pressing in developing country cities — they erode business productivity, exacerbate morbidity, and keep workers from jobs (Agglomeration economies in developing countries: A meta-analysis). Millions of people suffer from health problems due to vehicular emissions of pollutants such as fine particulates, nitrogen oxides, carbon monoxide, ozone, and sulfur dioxide. Clearly, subway systems can be beneficial in reducing congestion and improving health — but the upfront costs may be beyond the reach of most fiscally stressed city governments. But subways don’t simply reduce congestion locally, they cut carbon emissions globally. 

Just by how much subways cut emissions wasn’t known — at least not till recently! Our recent research using World Bank’s new satellite-based carbon emissions database quantifies the impact of subway systems. We carefully examined close to 1,500 cities that had more than 500,000 people. Of these only 192 have subway systems. For those 192 cities, we computed their ‘counterfactual' CO₂ emissions — that is with and without subways. CO₂ emissions are 50 percent lower with a subway than without. This translates to an 11 percent reduction in all global CO2 emissions. 

What does this mean for city leaders, who on seeing such carbon reduction benefits, consider investing in subways? There are two considerations here. First, what is the economic benefit? And second, how will it be financed? On economic benefit, CO₂ savings can be considered as a co-benefit alongside reduced commuting times and vehicular pollution, the traditional motivation for subways. How does one value CO₂ savings — it depends on how one discounts the future. The Social Cost of Carbon (SCC) is cost of the damages created by one extra ton of carbon dioxide emissions, but these damages hit us in the future — and the social cost reflects what we are willing to spend today to prevent these costs. As there is no consensus on discounting or damages, we calculated economic benefits using a range of SCC — modest to ambitious.

By computing the annual difference in carbon emissions with and without subways for 2020-2050, valued at the SCC, and accounting for investment and O&M costs, we calculated a net present value ratio (NPVR) to assess returns on investment. If NVPRs are greater than 0, subway installation provides a positive co-benefit along with reductions in commuting time and vehicular pollution. NPVRs above 1.8 represent cases where subway systems can be justified on climate grounds alone.

• Under modest assumptions, where the social cost of carbon is estimated to be $50 per ton and the cost of building a subway is estimated to be $280 million per kilometer, subway projects provide co benefits in 294 cities.
• Under midrange assumptions, where social cost of carbon is estimated to be $100 per ton and the cost of building a subway is estimated to be $200 million per kilometer, subway projects provided co benefits in 465 cities.
• Under aspirational assumptions, where the social cost of carbon is estimated to be $150 per ton and the cost of building a subway is estimated to be $140 million per kilometer, subway projects provide co-benefits in 794 cities.

Subways are expensive, construction periods are long, and many fiscally stretched developing countries may need additional capital to finance these ‘lumpy’ investments. By demonstrating a global benefit from local investments, many more subways systems pass the hurdle rate — the minimum rate of return that an investor needs to proceed with a project.  For pension funds and investors in developed countries looking for impact investments, supporting subways in developing countries can provide viable options — not only are these global public goods, but they also help create jobs, connect girls with schools, and help people live healthier and longer lives.

The list of urban areas which qualify for subways can be accessed here.