Why do Portuguese Railways Languish? An Application of Internalisation of Transport Related Externalities

For the last ten years Portuguese railways has shown a gradual decrease in passengers’ annual figures; nearly 20 million. The major contributors are regional services and Lisbon’s commuting lines. Despite the number of passengers in the metropolitan area of Porto remains steady while the long-distance ridership market between the two major Portuguese cities, Lisbon and Porto presents a slightly growth starting in 2014, long-term perspectives for Portuguese railways are not optimistic. Lisbon and Porto, separated by a distance slightly greater than 300 km, are connected by the Northern Line, which was already competing with two parallel highways, is now facing a new threat in the form of an air-bridge launched one year ago with hourly airplane departures at very competitive ticket fares. There are clear indicators that this air-bridge will lure a large number of potential passengers away from long-distance rail therefore pressing up operator revenues over this important rail connection impacting its earning power: this line is responsible for more than 42% of the State-owned railways total earnings. Therefore, the aim of this article is to find why Portuguese rail languishes while air transport grows, increasing perverse results: climate change, health and non-health damages. Fuel exemption and the lack of excise duties produce enough market distortions to explain at some extent how aviation has seen such strong growth in demand at the expense of rail, but this market distortion do not tells the entire story. What is at stake is how to obtain a level playing field between the two modes. In that sense, it is necessary to internalise the social cost of carbon in a way to weight the real costs the society has actually to bear from each option because those costs are not borne by transport operators or users, but by society as a whole. After attach a money value to negative externalities, we identify as the root of the problem for the sustainability of Portuguese long-distance railways the lack of political will towards the internalisation of negative externalities.