Recalibrating the External-Cost Benefits of Road-to-Rail Freight Modal Shift: Evidence from South Korea

Abstract

Effective modal shift policies require accurate valuation of the external costs associated with freight transport. However, South Korea’s logistics policy currently relies on valuation parameters that have not been systematically updated since 2013. This study recalibrates the unit benefits of shifting freight from roads to rails using a hybrid estimation framework that combines bottom-up emission estimation with a top-down allocation of aggregate external costs, grounded in national statistics harmonized to a 2022 base year (with some inputs drawn from the most recent earlier survey years and price-adjusted to 2022) and link-level national traffic data (KOTI View-T 3.0). We quantify the reductions in average external costs per ton/kilometer across five impact domains: air pollution, climate change, noise, traffic accidents, and congestion. The analysis yields a total unit benefit of KRW 151.81 per ton/kilometer, a figure approximately 3.7 times the inflation-adjusted benchmark currently in use. A decomposition of this difference shows that updated emission inventories, accident statistics, and valuation parameters alone raise the unit benefit to KRW 69.6 KRW per ton/kilometer (approximately 1.7 times the benchmark), while the revision of the road freight traffic share, from the 3.5% assumed in earlier travel demand models to the 21.2% observed at the link level, accounts for the remainder. Scenario analyses covering the principal allocation and valuation assumptions place the total unit benefit between KRW 38.6 and 217.7 per ton/kilometer: the benefit exceeds the benchmark in every scenario except the single most conservative variant, which combines all unfavorable assumptions simultaneously—including the legacy freight share—and falls approximately 5% below it. These findings indicate that the parameters currently used in policy appraisal may materially underestimate the social benefits of rail freight under the assumptions adopted here. We recommend that policymakers utilize these updated unit values to recalibrate freight subsidies and investment appraisals to align with the 2050 Carbon-Neutral Strategy.