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A first principles assessment
Why introduce urban road charging?
Demand impacts
Short and long run demand responses
Level of response
Supply impacts
Financing requirements
Expected impact on key policy objectives
Contribution to objectives
Expected impact on problems
Expected winners and losers
Barriers to implementation
Why introduce urban road charging?
The underlying argument for urban road charging is that road users should be directly charged for the additional costs which their use of road space imposes on the rest of society. Economists argue that charges for goods and services should reflect the costs imposed on society by the users of those goods or services. Whilst the users of urban road space themselves bear some of the costs which they impose (delay to their journey, increased risk of themselves being involved in an accident, exposure of themselves to local air pollution), the additional costs to the rest of society which their use of road space imposes (delay to other road users, the increased risk of other road users being involved in an accident, exposure of others to local air pollution etc) are not fully charged for.
The current failure, in many towns and cities, to fully charge for these additional costs means that charges are currently too low. It is generally recognised that the charge levied for a good or service will influence the quantity of that good or service that people demand. Hence, if charges are too low then demand will be too high, resulting in congestion, environmental degradation and increased risk of accidents. Urban road charging, therefore, seeks to correct for this and, hence, to re-allocate road space according to road users' willingness to pay. In doing so, this will lead to a reduction in traffic and will generate revenue which can then be invested in useful projects.
The European Union funded CURACAO project (CURACAO, 2009a, 2009b), through a survey of a number of cities across Europe, found that the primary objectives of road user charging were as follows:
a) congestion relief
b) environmental protection
c) generating revenues for transport investments.
In addition, other objectives for road user charging included the following:
- Protecting economic growth
- Health
- Liveability
- Safety
- Promoting equity and Social Inclusion
- Protecting future Generations
Demand impacts
The impacts of urban road charging are, almost exclusively, on the demand for road travel, and particularly travel by car. This determines the way in which it contributes to transport policy objectives.
Urban road charging could impact on people's demand in a number of different ways and the precise way in which it will do so will differ according to the situation.
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Weakest possible response, |
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strongest possible positive response |
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= Weakest
possible negative response, |
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= strongest
possible negative response |
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= No response
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Short and long run demand responses
Demand responses to urban road charging in the short run are likely to be different from those which might take place in the longer run. This is because certain decisions which have major impacts on people's travel behaviour, such as where to live and whether or not to own a car are not generally subject to review in the short run.
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Weakest possible response, |
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=
strongest possible positive response |
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= Weakest
possible negative response, |
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= strongest
possible negative response |
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= No response
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Level of response
Price elasticity of demand will also vary according to context. Important factors influencing the calculation and interpretation of price elasticities include: the size of the price change; the type of pricing mechanism; the type of trip; the type of traveller; the price of related goods and services; and whether the elasticity accounts for short term or more long term demand responses. Hence, care should be taken, if applying price elasticities, that they are based on a similar context to that in which they are being applied. Whilst there are few estimates of the generalised cost elasticity of demand for car travel, Lee (2000) reports estimates of short run generalised cost elasticity in the range -0.5 to -1.0 and estimates of long run generalised cost elasticity in the range -1.0 to -2.0. Before applying these generalised cost elasticities to urban road charging one would need to calculate by what percentage the introduction of urban road charging would alter the generalised costs of car travel. A relatively moderate charge might increase generalised costs by approximately 10% which, it is suggested, would decrease car travel by at least 5% in the short run and by at most 20% in the long run.
Supply impacts
Urban road charging would not usually involve any change in overall road supply, except where road closures or other traffic management measures have to be implemented in order to make a cordon system work. However, because demand is reduced, the amount of road space available to each individual vehicle is increased. Furthermore, in order to cope with expected increases in demand for public transport it may be necessary to increase public transport supply in advance of the charge being implemented.
Financing requirements
Certain forms of urban road charging are cheaper to implement than others. This depends principally on the complexity of the system, the technology chosen and the system of enforcement.
The following cost and revenue estimates were calculated for two studies of the feasibility of urban road charging in London, based on a simple central London scheme:
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Licence |
Tag |
Smart Card |
Implementation costs |
£30-50M |
£85M |
£140M |
Annual operating costs |
£30M - £50M |
£55M |
£55M |
Revenues |
£150M -£570Mpa |
£150M - £570Mpa |
£150M - £570Mpa |
Annual operating costs for the London scheme have turned out to be significantly higher than shown in the table above and currently stand at about £91 million per annum (TfL, 2008).
Expected impact on key policy objectives
Urban road charging encourages people to change their car travel behaviour. It firstly encourages them to change the timing and location of their car journeys from congested and environmentally sensitive times and places, e.g. peak hours in city centres, to less congested, less sensitive times and places. Secondly, it encourages them to reduce their overall level of car-use, either by switching from the car to other transport modes or by reducing the amount they travel. Therefore, its main contributions will be to objectives concerned with efficiency and environment. It will also generate substantial revenue, which can potentially be used to finance other elements of a transport strategy (May et al, 2005).
Contribution to objectives
Objective |
Scale of contribution
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Comment |
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By reducing delays, improving
reliability and prioritising high value trips |
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By improving streetscape
and urban design and by reducing community severence |
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By reducing air and noise
pollution and pressures on green space and environmentally sensitive
sites |
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By improving public transport conditions and releasing revenue which can be used for the ‘common good’, though the equity effects will depend on how the revenue is spent |
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By reducing traffic levels
and evening out traffic speeds |
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By freeing up potentially
productive time currently lost in congestion and by enabling freight
operators to rationalize their fleet operations |
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By raising substantial amounts
of revenue on an on-going basis |
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= Weakest
possible positive contribution, |
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= strongest
possible positive contribution |
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= Weakest
possible negative contribution |
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= strongest
possible negative contribution |
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No contribution |
Expected impact on problems
Urban road charging could significantly reduce car use in the charged area, and hence reduce delays, unreliability, environmental impact and accidents. Traffic would divert to boundary routes, other times of day and other modes; much of the transfer would be to bus, which would benefit from the reduced congestion. Careful design is needed to ensure that these alternatives do not themselves become congested, and for cordon schemes, the location of the controls is critical. Subject to this, congestion charging can achieve significant road user travel time, environmental and safety benefits. It will also generate substantial revenue, which can potentially be used to finance other elements of a transport strategy (May et al, 2005).
Contribution to alleviation of key problems |
Problem |
Scale of contribution
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Comment |
Congestion-related delay
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By reducing traffic volumes
though re-routing and re-scheduling may transfer problems elsewhere
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Congestion-related unreliability
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By reducing traffic volumes
though re-routing and re-scheduling may transfer problems elsewhere
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Community severence |
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By reducing traffic volumes
and enabling some roads to be closed |
Visual intrusion |
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By reducing traffic volumes
and land-take |
Lack of amenity |
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By discouraging longer journeys
and enhancing the viability of local facilities |
Global warming |
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By reducing traffic-related
CO2 emissions |
Local air pollution |
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By reducing emissions of
NOx, particulates and other local pollutants though re-routing
and re-scheduling may transfer problems elsewhere |
Noise |
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By reducing traffic volumes
though re-routing and re-scheduling may transfer problems elsewhere
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Reduction of green space
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By reducing pressure for
new road building and city expansion |
Damage to environmentally
sensitive sites |
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By reducing traffic volumes
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Poor accessibility for those
without a car and those with mobility impairments |
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By enhancing the viability
of public transport and by discouraging car-oriented development
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Disproportionate disadvantaging
of particular social or geographic groups |
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By enhancing the viability
of public transport and reducing traffic levels in residential areas,
though people living on the boundary of the charged area may also
experience disbenefits |
Number, severity and risk
of accidents |
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By reducing traffic volumes
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Suppression of the potential
for economic activity in the area |
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By freeing-up time previously
spent in congestion and by improving the efficiency of the local
road network |
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= Weakest
possible positive contribution, |
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= strongest
possible positive contribution |
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= Weakest
possible negative contribution |
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= strongest
possible negative contribution |
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No contribution |
Expected winners and losers
We would not necessarily expect everyone to directly benefit from the introduction of urban road charging. The table below highlights the main groups of people who we would expect to be direct beneficiaries, as well as those who we would expect, in the first instance at least, to lose out. It should be remembered, however, that this only relates to the direct, immediate impacts and that the revenue generated from urban road charging would, depending on how it is used, enable everyone to benefit. For example, it would be possible to use some of the charging revenue to reduce general business taxes on small businesses or to reduce income tax for people on low incomes.
Group |
Winners/Loses |
Comment |
Large scale freight and commercial
traffic |
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High value journeys –
less time spent in congestion the greater the vehicle utilization
– relatively small proportion of journey distance in urban
conditions. |
Small businesses |
? |
Some small, local businesses
will find themselves spending a high proportion of their time in
the charged area, potentially resulting in a large proportionate
increase in their transport costs, though they are likely to benefit
from reduced congestion. |
High income car-users |
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High income associated with
high value of time and, hence, highly valued time savings from reductions
in congestion, and charge is likely to be a relatively small proportion
of disposable income. |
Low income car-users with
poor access to public transport |
? |
Low income car-users may
be inconvenienced by being deterred from making particular car journeys,
although they may find that improved public transport makes it an
attractive alternative. Overall impact will depend significantly
on how revenues are used. |
All existing public transport
users |
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These people will face an
increase in their transport costs but will find it difficult, in
the short run at least, to change their travel arrangements and
behaviour. However, increased demand for alternatives may result
in their increased availability. |
People living adjacent to
the area targeted |
? |
Reduced congestion will result
in enhanced reliability and reduced journey times for public transport,
whilst increased demand for alternatives should result in increased
supply; a possibility of increased over-crowding but overall impact
dependent on how road pricing revenues are used. Traffic levels
in the area where they live may increase or decrease depending on
the location. |
People making high value,
important journeys |
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If using car then they are
likely to benefit from improved speed and reliability (although
at some extra financial cost). If using public transport, then in
the longer term at least, the quality of service should have improved. |
The average car user |
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Average car-users with middle incomes will
tend to either be encouraged to change mode (or making some other
alternative arrangements) or will pay the charge which, because of
their value of time, may not represent good value to them i.e. the
decongestion benefits will not compensate them for the charge. Overall
impact dependent on how road pricing revenues are used. |
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=
weakest possible benefit, |
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=
strongest benefit |
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= weakest
possible disbenefet, |
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= strongest
possible disbenefit |
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= neither
wins nor loses |
Barriers to implementation
Certain forms of urban road charging are more easily implementable than
others. The complexity of the system and the technology chosen are important
factors determining ease of implementation. However, further, perhaps
even more important, factors will be the way in which the policy is presented
to the public, the public acceptability of the policy and whether the
necessary legal powers are in place.
Barrier |
Scale |
Comment |
Legal |
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In some countries legislation
may need to be passed in order to enable road pricing |
Finance |
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Planning and preparing for implementation
may involve considerable human resources and some investment in technology,
but a large element of these may be offset against the substantial
expected revenues once the system is implemented |
Political |
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Public and, hence, political
opposition is generally quite widespread and vocal |
Feasibility |
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Very much dependent on the complexity
of the system adopted, though all types of system will require considerable
planning and on-going management |
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minimal barrier, |
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most significant barrier |
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