Congestion pricing: What can we expect?

The idea of congestion pricing was introduced by researchers in 1960s in London. Singapore was the first city to put the idea into practice. The idea of congestion pricing has evolved based on the understanding that it is an externality caused by the traffic. Every new vehicle joining a road which is already being used by other vehicles slows down traffic, therefore increases the travel time of all other drivers. The new vehicle inflicts cost upon all the other users, while it does not pay for this cost. The increased travel time is an unpriced effect: this is the definition of an externality.

Externalities are a classical case of market failure. The market outcome is bound to be suboptimal in the presence of externalities. This is precisely what happens in the case of congestion. Market forces alone cannot take care of this and government policies are required in the form of taxation. In general the most cost effective measure to correct a negative externality is to impose a tax equal to the externality created. The producer of the externality is faced with the full social cost of his or her action.

Usage control
In the case of road usage, a congestion charge raises the price paid by the users; those who are not ready to pay or cannot pay will not use the road, road usage will be reduced to its optimal level. The tax is
expected to bring double benefit. It improves welfare in the area where it is imposed and that can also be used to improve welfare.

The objection to congestion pricing has been at several levels. However, the latest implementation of congestion pricing in London in 2003, is considered a 'watershed' in policy action. Initially a relatively small area representing about 1.5% of the Greater London area and 5.2% of its population was demarcated for introducing congestion pricing. Vehicles entering this zone in peak hours were required to pay 5 pounds. The project is generally seen as a success. The zone traffic reduction objectives have been reached. The number of vehicles a km in the zone declined by about 15% and their speed increased by 17%. Bus patronage in the zone increased. The zone area is being increased and the charge also increased to 8 pounds and is proposed to be 10 pounds in the near future.

The success of London congestion pricing experiment is inspiring many other cities in the world now to copy the experiment. Delhi, with the largest number of vehicles among Indian cities, is adding around 900 vehicles to its current fleet every day. Therefore, government is proposing to impose similar policy. Will this achieve the objective of reduced congestion? We need to understand this at two levels. First, the car users will have to pay more than what they are paying today. Therefore,  some of them will choose not to use the car. Will this lead to improved speeds?

This is different from London, where car ownership is much higher than Delhi, reaching saturation level. However, Delhi with about 15% households owning cars, is adding new car users rapidly who would come on the road despite the high cost. In fact, the improved speeds initially will become an incentive for car users, leading to worse congestion. An important aspect of London experiment has been other policies such as reduced parking places for cars,  dedicated lanes for buses and taxis,  investment in upgrading bus and metro system and most important, creating dedicated cycle lanes and pedestrian paths. The revenue collected through congestion pricing has been utilised for these measures.

Car users who do not want to or cannot pay additional amount have attractive options in improved bicycle infrastructure and public transport system. This is an important aspect of congestion pricing that has to be kept in focus for achieving the desirable objectives. The Union minister is right in urging cities and states to impose congestion tax. Congestion is  a local phenomenon and, therefore, there should be a local tax. This is an attractive revenue source for the local municipalities. However, if the revenue is not invested in improving the alternatives to car, then it will lead to a double failure: increasing the cost of mobility and discriminating against people who cannot afford the high cost of travel, instead of double dividend.

(The writer is an expert on urban transport and teaches at IIT, Delhi.)

Daytime nightmares
»Over 50 million cars are being manufactured in the world each year, and they have to go someplace. There are over 240 million vehicles in the US alone, while the world estimate is over 750 million vehicles and counting. The tilt is toward more vehicles for those places least able to cope with them. It is estimated that by 2030, the number of vehicles in the world will double.

Cars and mental health
»Car culture hurts mental health as well. Research by behavioural economist Daniel Kahneman shows that commuting has the most negative effect on people’s moods. And economists Bruno S Frey and Alois Stutzer have found that commuters who live an hour away from work would need to earn 40% more money than they currently do to be as satisfied with their lives as noncommuters.

Road congestion tax is a workable and practical solution. The Bruhat Bangalore Mahanagara Palike has embarked on a solution to widen roads. The answer lies not in widening roads to accommodate more vehicles, but to prevent them from coming on main thoroughfares in the Central Business District” 
- Prof S Nayantara,
IIM, Bangalore.