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Koowattanatianchai, N 2011, 'Promoting technological investment in the Australian rail freight sector: evaluating the feasibility of accelerated depreciation', DBA thesis, Southern Cross University, Lismore, NSW.

Copyright N Koowattanatianchai 2011


Although regulation for emissions, pollution, etc., is becoming stricter, the Australian rail freight industry is still locked in to using large numbers of existing rolling stock, e.g., locomotives and wagons. Much of this rolling stock is no longer efficient. Largely as a result of infrastructure constraints, it is not feasible for operators to dispense with their old technology at regular intervals, even though they will need to pay more to use older technology if a carbon price eventuates.

This thesis seeks to ascertain the viability of promoting investment incentives for newly acquired locomotives, wagons and other equipment. It analyses the impact of an accelerated depreciation scheme on the investment behaviour of above-rail operators and offers a comparison with alternative incentives or mechanisms. These schemes, if their efficacy is demonstrated, could potentially provide tools to encourage re-equipment of the aging rail fleet and facilitate the provision of sustainable rail freight growth in Australia.

A three-stage sequential mixed methods approach was designed to investigate the investment implications of accelerated depreciation in the rail freight sector. In the first stage, an in-depth interview technique was employed to contextualise the rolling stock replacement decisions among rail freight firms. In the second stage, an extended asset replacement model exclusively was developed to examine whether accelerated depreciation and other tax concessions could significantly reduce the optimal time to replace rolling stock in the Australian rail freight industry. In the final stage, a focus group technique was applied to examine the findings from the first two stages and provide in-depth expert assessments of their implications.

This thesis concludes that accelerated depreciation alone is unlikely to be sufficient to assure a desired level of investment in cleaner technologies. The scheme should be part of a whole suite of initiatives to stimulate investment, and should not be the primary mechanism. The main obstacle is the incompatibility between the existing below-rail infrastructure in Australia and the modernised above-rail equipments. This implies that even though accelerated depreciation successfully offers them the incentive to replace their old fleets with newly acquired rolling stock, it is impossible, for example, to run the new train on the existing track.

Improving the below-rail infrastructure therefore has been identified as the only way to ensure the ongoing sustainability of the rail freight sector in terms of overall energy efficiency. Nevertheless, upgrading the infrastructure is a difficult task. To encourage greater energy efficiency within the rail freight sector in the short term, some other instantaneous initiatives should be provided. A two-pronged approach to energy efficiency in the rail freight sector has been proposed. In particular, some incentives to buy new equipment combined with a ‘cash for clunkers’ scheme with a refurbishment option to make existing assets more energy efficient are needed to deliver appropriate outcomes in the short term. Incentives aimed at buying new equipment are particularly crucial for regions where the rail networks have already been upgraded to suit modern energy-efficient equipment, whereas programs targeting the refurbishing of older assets are necessary for track that is not suitable for modern equipment, which is generally heavier than the older equipment.

Apart from its implications for managerial practices within the rail freight sector and implications for policies pertaining to rail freight operation, another major highlight of this thesis is the derivation of the extended asset replacement model under taxation, inflation, and technological progress environment. The novelty of this model is its comprehensiveness. The effects of technological advancement, taxes, and inflation have been analysed by previous replacement studies. The literature, however, indicates that these three factors have not been incorporated into the replacement model simultaneously. This thesis also makes a significant contribution to the research methodology in finance. Combining a qualitative method and a quantitative approach, or in other words, using mixed methods in finance has not proved to be very popular. This thesis shows that it is justifiable in instances where the likelihood of a policy being useful to stakeholders is being assessed, and where the context of the policy and the context of the area in which it is applied are important.