Monday, January 2, 2017

Better Cities, Better Growth: Continuation of Sprawling Urbanization Will Cost India $330 Billion to $1.8 Trillion, up to 6.3% of GDP Per Year by 2050

Better, smarter urban growth could be an economic opportunity for India worth up to 6% of GDP by 2050, according to the latest research from the New Climate Economy.
Continuing the current poorly planned, sprawling, unconnected pattern of urbanisation could impose an estimated cost of between US$330 billion and US$1.8 trillion by mid-century. At the household level, this equates to more than 20% of average household incomes.
The new paper also undertakes a first-of-its-kind analysis drawing on satellite data of night-time lights to compare cities’ urban form with their economic growth.
It finds that Indian cities that were more compact in 2002 experienced faster economic growth from 2002-2012. On average across a sample of 479 Indian cities, a 10% increase in a city’s dispersion index in 2002 was associated with a 0.4-0.9% point decrease in economic growth over the subsequent period.
There are a number of negative impacts or costs associated with India’s current urbanization model, ranging from increased costs of providing public infrastructure and services, transportation costs, traffic casualties, traffic congestion, air pollution, and health risks, among other considerations.
  • The costs of providing public infrastructure and services are likely to be as much as 30% higher in more sprawled, automobile-dependent neighbourhoods compared with more compact, connected locations.
  • 14 of the world’s 30 most polluted cities are in India, and outdoor air pollution in Indian cities is estimated to cause around 1.1 million premature deaths per year. India also has the largest number of total traffic deaths of any country: 137,572 were officially reported in 2013.

In India, urban sprawl is different than in other countries; it is best understood as a low density of built-up floor space per unit of land area, combined with severe overcrowding per unit of built-up area. For example, Mumbai homes have only about 30 square feet per person, less than a quarter of the comparable availability in urban China. Countering urban sprawl in India will require a greater emphasis on “appropriate” or “good” density combined with adequate provision of accessible and well-connected infrastructure and services.
The report recommends reforms and progress in three key areas to help deliver social and economic benefits for urban India.
  1. Reform of land regulations to manage urban expansion to improve the efficiency and effectiveness of land use.
  1. Expansion of sustainable urban infrastructure to encourage appropriately compact, connected, and coordinated cities.
  1. Reform to strengthen urban local government, accountability, and financing....

... India is experiencing an urban transformation. The country’s urban population reached 420 million or 33% if its total population in 2015. This is expected to almost double to 800 million by 2050, with close to 400 million more people living in towns and cities by 2050, one in every two Indians. By 2031, 75% of India’s national income is expected to come from cities and the majority of new jobs will be created in urban areas.

... There is a widespread consensus that India’s urbanization is significantly underperforming in terms of the development benefits that it could deliver. While the central areas of many Indian cities are among the most densely populated in the world, current land regulations contribute to a low density of built-up floor space, combined with extreme overcrowding for many city dwellers. Real estate prices are high. Slums grow, as the poor cannot find low-cost housing. Urban sprawl proliferates as businesses and households are forced to seek cheaper land further and further out in city peripheries. Most cities also suffer from a dearth of urban infrastructure and severe deficits in urban services, such as water supply, sewerage and sanitation, solid waste management, and urban transport. Weak public transport links encourage increasing dependence on private motorization, contributing to severe traffic congestion and extremely high outdoor air pollution, as well as growing carbon emissions.

Case studies for four Indian cities – Bangalore, Indore, Pune, and Surat – show how the current model of urbanization is actually worsening key defcits in basic urban services, pushing households to undertake costly forms of self-provisioning in which basic services are  provided by urban residents rather than the state.

This report focuses on how India can foster a better urbanization – one that promotes more rapid economic transformation, improves the quality of life of city dwellers, and curbs the potential harmful spillovers of urbanization, such as congestion, wasteful energy use, and unwanted pollution. In particular, the report recommends reforms and progress in three key action areas that, together, can help deliver social and economic benefis for urban India:

  • Reforms of land regulations to manage urban expansion and promote a more appropriately
  • compact model of urban development, unleashing the forces of agglomeration, reducing urban poverty by bringing people closer to job prospects, and alleviating environmental impacts;
  • A major expansion of sustainable urban infrastructure investment to support the
  • development of more compact and connected cities, with a particular focus on improved urban
  • transport;
  • Reforms to urban local government and financing, to support stronger coordination and governance
  • of urban development strategies and major infrastructure investment plans.

The global evidence suggests that sprawled urban growth often has the following effects:

Higher costs for providing public infrastructure and services;

  • Increased road and parking facility costs, by increasing road and parking requirements;
  • Higher transportation costs, particularly for lower-income households;
  • More per capita traffic casualties and associated damages;
  • Less physical activity leading to increased health problems and lost productivity costs;
  • More traffic congestion and longer commute times, as well as more accidents, local air pollution, and greenhouse gas emissions. Worldwide, of the 30 cities with the worst particulate matter (PM)
  • Outdoor air pollution, 14 are in India. The health costs of these dysfunctions are large;
  • Reduced ability of poor households on urban peripheries to access basic services and economic
  • opportunities;
  • Smaller urban agglomeration effects, leading to reduced economic productivity, employment, business activity, investments, and tax revenues;
  • Reductions in open space, leading to reduced agricultural productivity and environmental benefits.

The government’s High Powered Expert Committee (HPEC) Report on Indian Urban Infrastructure and Services estimated that urban infrastructure spending of about 39 trillion rupees (in 2009/10 prices, or about US$830 billion) was needed over the 20-year period to 2031/32, to meet a defined set of service delivery standards for water supply, sewerage, solid waste, urban roads, and urban mass transit.89 A study by McKinsey Global Institute estimated that there was an overall urban investment need of US$1.2 trillion(in 2008 prices) over the period to 2030. This would encompass such elements as 2.5 billion square metres of paved road and 7,400 kilometers of metros and subways (both being 20 times the capacity built over the last decade).

The government’s Smart Cities and 500 Cities programs build on the earlier Jawaharlal Nehru National Urban Renewal Mission (JnNURM), launched in 2005. These programs represent a major effort to move forward urban infrastructure development, by greatly increasing central government financing for urban development, in coordination with the states and municipal bodies which have primary constitutional responsibility for cities. While there has not yet been a comprehensive impact evaluation of the JnNURM or its successor schemes, initial reviews of results have highlighted challenges in project selection and implementation capacity at the level of urban local governments.

A study for NCE estimated that urban sprawl costs the US economy over US$1 trillion per annum greater than 5% of GDP in 2014.47 This includes over US$100 billion in public costs relating to increased infrastructure and service delivery, and over US$600 billion in costs relating to private vehicle use, with the remaining US$300 billion related to the costs of air pollution, congestion, and traffic accidents.
Sprawl Costs and Benefits

An increase in the cost of providing urban infrastructure and services 

The costs of providing public infrastructure and services are likely to be 10-30% higher in more sprawled, automobile-dependent neighborhoods compared with more compact, connected locations.53 A World Economic Forum study recently recommended that Indian cities invest US$500 billion on public infrastructure over the next two decades to 2030, about US$40 annually per capita. The HPEC
estimate suggests a figure of US$800 billion and McKinsey US$1.2 trillion. Assuming the lower WEF estimates and that annual investments continue to grow to mid-century, this suggests potential increases in capital costs in the region of US$125-400 billion for sprawled vs compact urban development in 2050 (0.4% - 1% in 2050). Using the McKinsey estimates, this could be as high as US$450 billion to US$1.35 trillion in 2050 (1.6- 4.8% of GDP in 2050.  
At the household level this 
might equate to an additional US$215 to US$965 per capita, conservatively assuming 10%-15% of average household income is used for local public infrastructure and basic services directly impacted by urban form (water, sewerage and electricity). In aggregate terms additional costs could amount to US$200 billion to US$900 billion per annum by 2050 if applied to all urban residents (or around 0.7-3.1% of projected GDP). If only applied to new urban residents, the range is US$95 billion US$425 billion per annum in 2050 (or 0.3%-1.5% of projected GDP in 2050).

Increased capital costs related to transport
Within the overall infrastructure picture, it is important to pay special attention to the costs of providing road and parking infrastructure, which is typically in the region of two to four times per capita higher in more sprawled, automobile dependent neighborhoods than in more compact, connected locations (although the unit costs may be partly offset by lower land prices in suburban areas).  In 2014-15 the Indian government awarded 100 billion Rupees (about US$1.5 billion) to construct 8,000 kilometers of mainly rural highways, which averages about 125 million Rupees (approximately US$2 million) per kilometer.58 During the next 5-6 years the government proposes spending 17.5 trillion Rupees (US$250 billion) to build or improve 50,000 kilometers of highways, approximately $5 million per kilometer. A significant portion of this public capital expenditure might be avoided with better planned, more compact, connected urban growth, even accounting for costs paid directly by motorists through special fuel taxes, road tolls and parking fees. Existing studies suggest that a typical urban car imposes 65,000 Rupees to 260,000 Rupees (6.5-26 Rupees per kilometer) and a typical two-wheeler 19,000 Rupees to 65,000 Rupees (1.9-6.5 Rupees per kilometer)
in combined road and parking facility costs. We conservatively assume road and parking facility costs of 11.5-15 Rupees per kilometer for cars and 2.7-4 Rupees per kilometer for two wheelers.

We draw on current vehicle projections
 and assume that by midcentury a more compact, connected model of urban expansion (associated with a doubling of urban densities) leads to a 25% reduction in vehicle kilometers traveled versus sprawled urban growth (partly due to the more intensive use of vehicles and partly due to significantly reduced vehicle ownership rates, which build over time). Using this framework, additional aggregate capital costs for transport specifically could amount to in the region of US$270 billion-US$345 billion per annum by 2050 (around 1% of GDP). This cost savings could be considerably greater if more optimistic projections of private vehicle ownership were considered. For example, Delhi already has over 7 million cars, well over 300 cars per 1000 people and some commentators expect the total number of cars nationwide to reach 400-450 million in the next 20 years alone, the majority being in cities. An upper bound set of private vehicle ownership projections – including accounting more explicitly for vehicles per capita being significantly higher in urban areas – suggests these cost savings could be upwards of US$600 billion per annum by 2050.

Increased personal transport costs

Household transport costs are likely to be significantly higher in a model that encourages private vehicle ownership. For example, ownership and operating costs average 125,000 rupees per year for a car, and 20,000 rupees per year for a two-wheeler. In contrast, a typical commuter by public transport in India may pay 2,000–10,000 rupees annually for fares, and a bicycle user typically 2,000–4,000 rupees annually. 

Increased traffic casualties (injuries and fatalities)

Per capita traffic incidents and damages are likely to increase significantly with sprawled urban growth. Although increased density tends to increase vehicle crash frequency, these are primarily lower-speed collisions with low casualty (human injury and death) rates. Crash casualty rates tend to be much lower (often by 40–60%) in more compact, multi-modal urban agglomerations because of less per capita vehicle travel, lower traffc speeds, and better travel options, which help to reduce higher-risk driving. India already has the largest number of total traffic deaths of any country: 137,572 were officially reported in 2013, and, taking into account unreported casualties, the World Health Organization (WHO) estimates 231,000 total traffic deaths.  India’s traffic fatality rate is likely to decline in the future, but how quickly and how much it declines will depend on transport and land use development policies.

Growing traffic congestion and pollution costs

Compact development tends to increase congestion intensity (the degree that traffic speeds decline during peak periods), but by reducing travel distances and improving travel options so that residents drive less, it tends to reduce per capita congestion costs. India has four of the world’s 10 most congested cities. Journey speeds in many cities average less than 20 kilometers per hour, and peak-period traffic speeds are just 5 kilometers per hour on some roadways. One study estimated that, in Delhi, traffic congestion costs averaged 4.91 rupees per kilometer for cars and 9.83 rupees per kilometer for buses during peak periods, and 0.32 rupees for cars and 0.63 rupees for buses during off-peak periods. Air pollution is also a major issue. India contains 14 of the world’s 30 most polluted cities. While density tends to increase pollution emission rates per vehicle-kilometer, it reduces emissions per capita. Likewise, while compact development can increase residents’ exposure to local pollutants such as particulates, carbon monoxide, and noise, it tends to reduce total emissions and therefore pollution costs. Based on detailed analysis of how development patterns affect energy consumption, one study concluded that urban sprawl is responsible for more than a third of global COemissions, primarily related to private vehicle use. Another concluded that Bangalore has a higher emission rate than most Indian cities due to its sprawled and automobile-oriented development patterns, and the 20% of residents who commute by automobile are responsible for about half of all transportation emissions.  Using conservative assumptions related to traffic congestion, air, and noise pollution costs, order of magnitude estimates suggest that this could amount to additional costs for India of approximately US$120 billion-US$140 billion in congestion and pollution costs per annum by 2050 (around half a percentage point of GDP year on year), compared with compact, multi-modal urban development. Again, this cost savings could be considerably greater if more optimistic projections of private vehicle ownership were considered, upwards of $300 billion per annum by 2050 (around 1% of GDP).

Increased health risks 

Sprawl and private vehicle dependency tend to increase a variety of health problems caused by physical inactivity, traffic accidents, and vehicle pollution, including obesity, cardiovascular and respiratory diseases, and diabetes. These problems are already severe in India, and are likely to increase if cities sprawl. Attributing a monetary cost to reduced walking and cycling is challenging. Few studies have been conducted for India. However, WHO has monetized the value of active transport health benefits, using the same values of human life used when estimating crash damage costs and traffic safety program benefits. These studies suggest that an additional kilometer walked or bicycled provides health benefits worth US$0.30–3.00, which converts to approximately 10–100 rupees per kilometer, depending on assumptions. This implies very significant aggregate economic costs of a sprawled model of urban growth versus compact, connected development in India given the scale of urban change. For example, assuming a highly conservative value of US$0.30 (10 rupees) per additional kilometer walked or bicycled, aggregate savings in India associated with halving average urban densities (i.e. between smart growth and sprawled growth) between now and 2050 could be in the region of US$120 billion per annum.

Reductions in open space, potentially leading to reduced agricultural productivity and environmental benefits

Dispersed urban development displaces land. In addition to land that is directly displaced, urban expansion often disturbs nearby open space, called an urban shadow effect: for example, when urban development disturbs nearby farming and wildlife activity. As a result, each hectare of open space displaced by urban development may represent several hectares of open space that is disturbed and therefore less productive. If, for example, Indian cities on average expanded and converged over the next 35 years towards an average density proxied by typical North American cities (just 20 residents per hectare), this could lead to the use of 40.7 million hectares of land by 2050. This would represent 12% of India’s total land or quadruple current levels. This use of land would be halved with an average density of double this amount, and so on. At average urban expansion, with an average density of around 80 people per hectare, Indian cities will only require approximately 10.2 million hectares, little more than the amount of land that is currently urbanized. Monetizing the cost of this displacement is challenging given limited research on the value placed on open space in India (including its aesthetic, food production, wildlife habitat, and flood control benefits). However, any – even conservative estimation – would value the preserved open spaces at many billions of dollars’ worth of economic, social, and environmental benefits.

Growing external fuel costs

About 40% of India’s total import value consists of petroleum and motor vehicles, making it a major contributor to the country’s trade deficit and India’s economy vulnerable to petroleum price fluctuations.

New Climate Economy http:/
Working Paper, November 2016

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