The progressivity of congestion pricing
Posted by Daniel Hall on November 29, 2007
Jonathan Leape of the London School of Economics writes about London’s experience with congestion pricing in this week’s RFF policy commentary:
The impact of the scheme exceeded expectations. In the first year of the charge, traffic delays in London dropped by 30 percent, journey time reliability increased by 30 percent, and average speeds rose 17 percent, reflecting a sharp fall in traffic jams at intersections…
The London experience has also shown that it’s possible — and important — to spread the benefits of congestion pricing widely. By committing to plough all the revenues raised by the congestion charge into public transportation improvements, London has ensured that congestion pricing didn’t just improve mobility for car drivers who can pay the charge (the “Lexus lanes” problem) but also increased access to the city centre for everyone.
As Leape acknowledges, congestion pricing schemes are often criticized for being regressive: the rich can afford to pay and keep on driving, while it’s the poor who must adjust their driving habits. But lowered congestion greatly increases the value of service provided by buses, which are used most by the poor. Leape continues:
…the shift from cars to buses outstripped predictions. Inbound bus passenger numbers increased 37 percent in the first year, about half of whom had previously traveled by car. … A key reason for the surge in bus passenger numbers appears to be the “virtuous circle” for bus transport that can result from congestion pricing. The higher cost of rush-hour car trips and increased bus travel speeds, due to reduced congestion, result in increasing passenger numbers and falling average costs — which, in turn, lead to improved service levels and lower fares that stimulate further shifts to public transport and additional reductions in congestion.
This is a hugely important point. As anyone who’s ever relied on a bus transit system can attest, the value of the system is strongly related to the density of the service — both the number of routes and the frequency of service along routes. And as Leape points out, as the service becomes more valuable, more people flock to it, lowering unit costs and making it easier to provide even more and better service.
Mass transit systems are a network good with positive externalities — beyond reducing congestion, buses are a far less polluting alternative than cars — and hence should be subsidized to achieve the socially optimal level of provision. Public roads, on the other hand, are a common pool resource whose value is rapidly degraded when given away for free.
The DC Metro system should not have to be arguing about how much to raise rates in order to close its funding gap. The District should put a proper price on the use of its roads and then cross-subsidize mass transit. Such a policy would not only be more efficient, but also prove a boon to the region’s poorest residents.