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 recognized 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.

Demand impacts

The impacts of urban road charging are, almost exclusively, on the demand for road travel, usually 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. Responses and situations summarises how people's responses may be affected in different situations.

Response	Reduction in road traffic	Expected in situations
		Where the system only operates during limited hours or where charges are different at different times of day
		Where the origin or destination is not in the charged area and where alternative routes, which avoid the charged area, are available and attractive
		Where an attractive alternative destination exists and is not subject to charging and where individuals have the flexibility to change. Some such alternative destinations may involve shorter journeys, eg to local facilities, where as others may involve longer journeys, eg to neighbouring towns
		Where there is potential to link journeys together, to work or shop from home or to otherwise re-arrange activities
		Where public transport is available and attractive, there is potential to car share or potential to walk or cycle. The response to change mode may go hand in hand with other responses, eg changing destination to use local facilities and walking to those local facilities
		Where individuals’ reduction in car-use over a sustained period is so significant as to make owning a car uneconomic and where individuals believe that charging is part of a longer term transport strategy. In the first instance, this is more likely to apply to a household’s second or third car
		Where this assists individuals to make any of the above responses and where it is recongised that charging is part of a long term transport strategy responses

	= Weakest possible response,		= strongest possible positive response
	= Weakest possible negative response,		= strongest possible negative response

= No response

Short and long run demand responses

Demand responses to urban road charging in the short run are likely to be different to 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. Demand responses illustrates the different types of response to urban road charging which might be expected to occur in the short, medium and longer term.

Response	-	1st year	2-4 years	5 years	10+ years
	-
	-
	Change job location
-	Shop elsewhere
	Compress working week
-	Trip chain
-	Work from home
-	Shop from home
	Ride share
-	Public transport
-	Walk/cycle
	-
	-

	= Weakest possible response,		= strongest possible positive response
	= Weakest possible negative response,		= strongest possible negative response

= No response

Whilst there are few estimates of the generalized cost elasticity of demand for car travel, a recent study (Lee, 2000) reports estimates of short run generalized cost elasticity in the range -0.5 to -1.0 and estimates of long run generalized cost elasticity in the range -1.0 to -2.0. Before applying these generalized cost elasticities to urban road charging one would need to calculate by what percentage the introduction of urban road charging would alter the generalized costs of car travel. A relatively moderate charge might increase generalized 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:

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 £90 million per annum. Extra buses required cost a further £5 million per annum.

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 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, 1992). Contribution to objectives assesses its scale of contribution to the 6 key objectives.

Contribution to objectives

	= Weakest possible positive contribution,		= strongest possible positive contribution
	= Weakest possible negative contribution		= strongest possible negative contribution

= No contribution

*Is somewhat dependent on how the revenue raised is spent.

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, 1992). Contribution to alleviation of key problems assesses the scale of contribution to the alleviation of the 14 key problems.

	= Weakest possible positive contribution,		= strongest possible positive contribution
	= Weakest possible negative contribution		= strongest possible negative contribution

= No contribution

Expected winners and losers

We would not necessarily expect everyone to directly benefit from the introduction of urban road charging. Winners and losers 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		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		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		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		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		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.

	= weakest possible benefit,		= strongest benefit
	= weakest possible disbenefet,		= strongest possible disbenefit

= 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		In some countries legislation may need to be passed in order to enable road pricing
Finance		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		Public and, hence, political opposition is generally quite widespread and vocal
Feasibility		Very much dependent on the complexity of the system adopted, though all types of system will require considerable planning and on-going management

= minimal barrier,

= most significant barrier