TAG Unit A5.4 - Marginal External Costs - Guidance for the Appraisal Practitioner

Sep 18, 2026

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TAG Unit A5.4 provides Transport Analysis Guidance on how to apply marginal external costs (MECs) when estimating decongestion benefits and other external impacts for transport interventions. It distinguishes private costs from external costs borne by others, including congestion, air pollution, noise, infrastructure, and accident costs. The unit explains a five-step MEC process from estimating changes in vehicle kilometres, analysing removed journeys, calculating modelled-year MECs, and discounting over the appraisal period, to presenting results and considering alternative approaches.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages26

Reading Time1 h 6 min

AccessFree to download

Introduction

Primary method based on marginal external costs

When MEC applies

Limitations and sensitivity testing

Application of marginal external costs

Step 1 - Estimate the change in vehicle kilometres

Step 2 - Analyse the characteristics of the vehicle journeys removed

Step 3 - Marginal external costs results

Step 4 - Discount costs over the appraisal period

Step 5 - External costs under different scenarios

Alternative approaches

Presentation of results

TAG Unit A5.4 Marginal External Costs November 2025 Department for Transport Transport Analysis Guidance (TAG) [https://www.gov.uk/transport-analysis-guidance-tag](https://www.gov.uk/transport-analysis-guidance-tag) This TAG Unit is guidance for the Appraisal Practitioner This TAG Unit is part of the family A5-UNI-Modal Appraisal Technical queries and comments on this TAG Unit should be referred to: Transport Appraisal and Strategic Modelling (TASM) Division Department for Transport Zone 2/25 Great Minster House 33 Horseferry Road London SW1P 4DR [tasm@dft.gov.uk](tasm@dft.gov.uk) Contents 1. Introduction 3 2. Application of marginal external costs 4 2.2 Step 1-Estimate the change in vehicle kilometres 4 2.3 Step 2-Analyse the characteristics of the vehicle journeys 6 2.4 Step 3-Marginal external costs results 7 2.5 Step 4-Calculation of discounted external costs of vehicle use for whole appraisal period 8 2.6 Step 5-Calculation of external costs for vehicles under different scenarios 9 3. Alternative approaches 10 4. Presentation of results 10 4.1 Appraisal tables 10 4.2 Spreadsheet of results 11 5. References 11 6. Document Provenance 11 Appendix A: Appendix A MECS and the National Transport Model 13 A.1 Derivation of MECs from the National Transport Model 13 A.2 NTM road and area types 14 A.3 NTM congestion bands 16 Appendix B: Marginal External Cost worked example 19 B.2 Step 1-Estimate the change in vehicle kilometres 19 B.3 Step 2 – Analyse the characteristics of car journeys removed 19 B.4 Step 3 – Calculate marginal external costs for modelled years 20 B.5 Step 4 – Discount costs over the appraisal period 21 Appendix C: Deriving rail diversion factors 25 Appendix D: Bus diversion factors 26 1. Introduction 1.1.1 Road decongestion benefits will arise where significant traffic reductions occur in moderate to congested conditions. In uncongested areas the effects of reduced traffic are likely to be minimal, analogous to moving along the flat part of a traditional speed/flow curve. Fully specified multi-modal models can provide robust estimates of decongestion benefits and should be used where practical and proportionate to do so. 1.1.2 However, in some instances alternative models, such as elasticity-based models, are used in forecasting, for example for the majority of rail schemes. Models of this sort are not capable of providing estimates of road decongestion benefits and this TAG Unit provides guidance on how decongestion benefits should be estimated when a multi-modal model is not used. 1.1.3 The primary method for estimating decongestion benefits in the absence of a multi-modal model is based on marginal external costs (MECs) . The use of road vehicles incurs both private costs borne by the individual traveller (such as fuel costs and personal travel time) and external costs borne by others. These external costs include congestion, local & global air pollution, noise, infrastructure and accident costs. The MEC method is based on the change in these external costs arising from an additional (or removed) vehicle (or vehicle km) on the network. These costs have been estimated from the Department's National Transport Model and Surface Transport Costs and Charges: Great Britain 19981 . More detail on the derivation of the costs, and the definitions of road types, area types and congestion bands, are given in Appendix A:. 1.1.4 The MEC method is most likely to be used when appraising rail, walking or cycling interventions, where the use of multi-modal models is less common and analysts should refer to TAG Unit A5 .1 – Active Mode Appraisal and TAG Unit A5 .3 – Rail Appraisal, as appropriate. The MEC method may also be applicable in other situations, for example for low cost options or where decongestion benefits are small compared to other impacts, but this should be agreed with the Department at an early stage and verified in the Apprai

FAQs

What are marginal external costs in this TAG unit?

MECs quantify the change in external costs caused by an additional (or removed) vehicle or vehicle kilometres on the network. External costs cover congestion, local and global air pollution, noise, infrastructure, and accident costs.

Which situations does the TAG Unit recommend using the MEC method for?

The MEC method is mainly recommended for appraising rail, walking, or cycling interventions, where multi-modal models are less common. It may also be used in other situations when decongestion benefits are small or multi-modal modelling is not practical, subject to early agreement and verification.

How is the MEC method applied across the appraisal period?

The approach estimates changes in vehicle kilometres, analyses characteristics of removed journeys, calculates marginal external costs for modelled years, and then discounts external costs across the whole appraisal period. A worked example and calculation support are provided in the appendices.

Sep 18, 2026

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