Planning & Programming

Cost-Effectiveness & Benefit-Cost Analysis for Transportation Projects

Appendix A

Office of Transportation System Management
Standard Value Tables – September 2024

*** NEW: ENHANCED GUIDANCE FOR CARBON EMISSIONS ***
Estimated factors to account for carbon pollution from motor vehicle operation have been incorporated into MnDOT’s (and USDOT’s) benefit-cost guidance for many years. As commitment to minimization/elimination of transportation sector carbon emissions intensifies at the state and federal level, new analysis methods are now available to support these efforts.

Specifically, benefit-cost practitioners will discover many carbon-related aspects for complex investment scenarios have been addressed in the Excel-based Carbon Emissions Tool (CET). Originally developed to quantify benefits requested by grant solicitations, CET evaluation more broadly accelerates progress on the objectives described in MnDOT’s Carbon Reduction Strategy. The CET offers calculation templates and default assumption parameters for a total of 26 project components.

Following the structured approach presented in the CET will be particularly helpful for two classes of benefits. First, several CET components return an estimate of the cumulative carbon emissions reduction associated with changes in vehicle miles traveled (VMT) following investments in multimodal infrastructure and service quality. These include investments that:

• Construct or improve bicycle network (CET Project Type T1)
• Construct or improve pedestrian network (T2)
• Improve street connectivity (T4)

These cumulative emissions reductions—expressed in metric tons of carbon dioxide equivalent (CO2 e MT)—can be brought into a benefit-cost analysis after applying a monetization factor (see below). However, the standard benefit-cost framework includes VMT effects, creating a risk of double counting. Results obtained through the CET spreadsheet can be accurately integrated if no other VMT-based calculation has been undertaken to estimate this effect, or instead of any previous VMT modeling.

Second, a subset of CET project types quantifies emissions benefits gained from reductions in vehicle idling time:

• Construct roundabout to improve traffic flow (T12)
• Construct left turn lane to improve traffic flow (T13)
• Synchronize traffic signals to reduce delay time (T14)

Since idling frequency and duration are, by definition, not represented in VMT statistics, changes in estimated idling time are less likely to be captured in traditional benefit-cost analysis. As a result, emissions reductions made possible by less idling can be directly combined with existing benefit modeling.

The CET-estimated cumulative metric ton volume of emissions benefits for either of these two classes of benefits can be converted into a discounted monetary equivalent with the new dollars-per-metric-ton factor listed below in Table A.1, and the result incorporated in the project’s first year of operation (reflecting the total value of avoided emissions throughout the analysis period).

SENSITIVITY ANALYSIS
All inputs to cost-effectiveness / benefit-cost analysis are forward-looking estimates and subject to uncertainty. The degree of uncertainty—and its influence on the final result of each analysis—varies across input variables and project specifications. By recognizing and accounting for this uncertainty among select high-leverage inputs, MnDOT will better understand the likely economic return from its planned projects across a reasonable range of background conditions.

To achieve this goal efficiently, standard values for low, most likely, and high outlooks have been developed from published guidance on key input sensitivities. Economic assessments should be performed and reported for each of these three outlooks. For the purpose of bracketing the economic outcome expected from a project while also managing calculation burden, the assumptions made in either the low, most likely, or high outlook can be treated in isolation as an independent bundle (i.e. it is not necessary to model complex input/outlook combinations, such as “low traffic growth + most likely travel time savings + high crash costs”—only low [all inputs], most likely [all inputs], and high [all inputs]).

Data collected from a sample of current projects under these different outlooks will be used in the future to update MnDOT’s cost-effectiveness policy with the aim of providing clearer and more complete guidance for the selection of a preferred project alternative from the set of options studied. Until this update can be made, the most likely outlook will continue as the reference for best value assessment (which tests a project alternative’s benefit-cost ratio against the breakeven level of 1.0).

If you have questions or suggestions concerning the carbon emissions or sensitivity enhancements to our economic analysis, please call John Wilson at 651-366-3732 or send a note to john.wilson@state.mn.us. Both initiatives will be further refined in future years based on feedback from implementation experience.

Table A.1
Recommended standard values for use in cost‐effectiveness & benefit‐cost analysis in SFY2025

Example: $10 million spent on structures (60 years expected life) for an analysis period of 25 years has a remaining capital value of 0.78 x $10 million ($7.8 million) in the last year of the analysis period. (Factors reflect a real discount rate of 3.1%).