Road Pricing and Traffic Congestion

AS Economics

Introduction to road pricing

• Road pricing is a market-based approach to reducing the scale of urban traffic congestion at peak times.

• To achieve a more efficient allocation of a scarce resource (road space) - by making motorists pays for some of the external costs they create.

• To achieve a modal shift towards mass passenger transport

• To bring about a reduction in demand for road space and consequent fall in traffic congestion at peak times

Introduction to road pricing (2)

• To promote a reduction of fuel consumption and pollution emissions

• Pricing raises revenue that can be earmarked for investment in mass transport infrastructure and services

• Curb the long term need for extra road space – bringing environmental benefits

The Economics of Road Pricing

Road pricing is a term invented by economists with the theory that the price of using a road should be equal to the cost of using the road. Not a new concept…

What Are the Advantages of Road Pricing?

• Obvious de-congestion effects. • BUT – other advantages…• Congested roads can lead to negative

externalities.• This means that the social cost of

consumption exceeds the private cost.• By reducing congestion, road pricing can

‘internalise’ these externalities.

What Are These Negative Externalities?

• These major negative externalities figure prominently in transportation economics. They include:– Air pollution; – Lack of traffic safety;– Waste (of petrol);– The potential for global warming is another

major externality which is more difficult to monetize.

What Are These Negative Externalities?

• Other negative externalities include:– Health effects – NHS costs etc;– Opportunity cost of sitting in traffic jams;– Costs to employers;– Costs of policing.

Examples of Modern Road Pricing Schemes in Operation

• Traditional methods include the use of toll booths and toll roads in countries such as France and Italy;

• London congestion charge;• Durham congestion charge;• Stockholm congestion tax – differing

methods;• Trondheim toll scheme.

Current congestion charge zone

Durham Congestion Charge

Case for a congestion charge

Exemptions &

Discounts

Reliability ofPublic

Transport

BusinessDeliveryTimes

PollutionEmissions

RevenueFor

PublicTransport

Reduced trafficdelays

CongestionCharging

What are the Aims of Road Pricing?

• Discouraging Driving: Making journeys less polluting and more efficient;

• Management: Congestion pricing/value pricing. Controlling when and where people drive, e.g. London charge, peak/off-peak charges;

• Encouraging use of public transport as a greener way of getting around.

• Financing: raising money to pay back the construction of the road, or to build new facilities for the public.

Disadvantages of Road Pricing

• Perceptions of fairness: is charging for a once “free” good unfair?

• Burden falls more heavily on the poor drivers than the rich – regressive taxation.

• New toll roads in a largely free system may be seen as unjust.

• Revenue use – can consumers be sure that their money is being well spent?

Focus on London Congestion Charge

• London was not the first city to adopt congestion charging.

• The stated aim of the scheme is to encourage travellers to use greener modes of transport

Information Failure

• Market failure due to information failure?• Information failure occurs when people

have inaccurate, incomplete, uncertain or misunderstood data, and so make potentially “wrong” choices…

• Misunderstanding the true benefits of public transport;

• Uncertainty about the true social costs of driving

Congestion Charge – A Success?

• Despite dire predictions for the scheme before its launch, the toll has improved the problem of congestion in London:– By 2004, a year after the launch of the scheme, traffic

had been cut by 18%, and delays were down 30%.– London’s bus service had improved dramatically:

29,000 more people were using the service.– Trains/tubes had seen a 10% increase in passengers.– Quality of life in the city had been improved.– 75% of Londoners now support the scheme.

• Some of the previously-stated aims of road pricing and the London CC have been achieved.

[stats from Transport for London]

Congestion Charge – A Failure?

• The congestion charge in London, while it may have reduced road congestion, has now made the public transport system ‘unbearable’ according to some Londoners.

• The consumer surplus has been reduced.• Many under-estimated the enormous cost of

implementing the Congestion Charge (i.e. cameras etc.).

• Businesses and shops in London have complained of a reduction in sales and a change in consumer tastes and preferences.

• The scheme has not raised as much funds (for investment into public transport) as was hoped. £68m as opposed to £200m.

Possible Alternatives?

• Electronic monitoring system (ERP): drivers are charged for how much they use their cars.

• Rationing road use:– Using registration numbers to allow/forbid

drivers to use roads at certain times (odd/even numbers?);

– Toll-roads.

• Raising the driving age.• Increasing price of fuel.

Electronic Road Pricing

• Cons:– Full communication

with satellite is not always maintained.

– Big Brother?

• Pros:– Easy to implement:

Galileo infrastructure already in place.

– No need for toll booths/collecting machines – reduces costs.

– Convenient pay-as-you-drive method for drivers.

Rationing Road Use

• Pros:– Rationing roads for

even/odd numbers would be simple and effective.

– Toll roads: drivers have to pay there and then: no external costs.

• Cons:– Very inconvenient for

people in a rush/emergencies.

– Costly to set up infrastructure of toll booths/machines

– Inconvenient paying method for drivers.

Raising the Driving Age

• Pros:– Simple to do.– No particular internal

costs.– Easy to

control/monitor.

• Cons:– Possible loss of

revenue?– Inequitable – punishing

people who are not responsible for congestion.

– Misses the point of road pricing.

Increasing the Price of Fuel

• Pros:– Making the polluter

pay directly.– Easy to implement.– Generates more

revenue for govt. to spend elsewhere.

– Disincentive to drive, so effective in reducing pollution.

• Cons:– The price of fuel is

already very high.– Regressive.

Summary of alternatives

• Parking restrictions and higher parking charges. In Perth (Australia), a free city centre bus service is funded by the revenue from a workplace parking levy

• Traffic management e.g. dedicated lanes for high occupancy vehicles

• Improvements of existing roads including variable speed limits and road widening

• Park & ride facilities located near motorway / main road nodes and express ways for bus transport

• Improving public transport e.g. greater inter-modality at railway stations (e.g. express buses)

Summary of alternatives

• Changes in the fares of public transport e.g. tax relief on rail and bus season tickets; changes to subsidies offered to private sector bus and rail operators.

• Tighter planning regulations on new home-building in urban areas which creates extra traffic

• Encouraging home working and promoting greater use of flexible hours working

• Ramp metering - using traffic signals, similar to traffic lights, to control the rate at which vehicles join a motorway from a slip road.

• Hard Shoulder Running involves temporarily opening the hard shoulder on motorways to traffic during peak periods.

• Dynamic Lanes use lights similar to cats’ eyes set in the surface of the road to alter the number and width of lanes on a motorway, usually in order to increase the capacity of the road.

Transport 2000

Suggested web links

• Congestion charging (Wikipedia)• BBC news reports on congestion charging• Transport for London