Animation of US expansion from 1700-1900 - post office openings

It surprises me who’s still lukewarm about congestion pricing of roads. I’d have thought the focus on the carbon tax over the last year would’ve heightened understanding of the role of the price mechanism in managing resources better. Obviously governments find it too hard politically but even organisations like The Greens and the Public Transport Users Association (PTUA) offer only heavily qualified support for congestion pricing.

The PTUA doesn’t support congestion pricing in the absence of alternatives, arguing that it would be unlikely to win community support and would be socially inequitable. It’s position is public transport must first be improved to a competitive level. The Greens take a similar view. Senator Scott Ludlum says the party believes a congestion tax “would be an unfair impost unless significant improvements to public transport and other non-driving modes of commuting, such as walking and cycling facilities, are made at the same time”.

What this means in practice is neither organisation has much to say in favour of congestion pricing – neither could be regarded as a staunch advocate of this potential reform. I think that’s a real pity because congestion pricing and improvements in public transport go hand-in-hand. They are the veritable horse and carriage – you won’t get one without the other.

Cars are a very attractive transport option, especially in our dispersed cities. But even the streets of a dense city like Manhattan are full of cars. We could wait generations in the hope that land use changes will make Melbourne so dense that cars will necessarily become a minority mode. Or we could ignore the probability that motorists will shift to more fuel-efficient vehicles or to ones powered by alternative fuels and instead bet that higher fuel prices will drive cars off  Melbourne’s roads.

But waiting and hoping aren’t a good basis for policy. Realistically, we can’t expect Australians will forego the private benefits of a car unless they’re forced to. The only reason most CBD workers don’t drive is because they can’t – traffic congestion and high parking charges rule driving out. Even so, around a quarter of CBD workers in Melbourne still drive and that proportion rises pretty rapidly to 50% and higher once you move even a few hundred metres away from the city rail loop. It would be a bit hard to argue they make this choice because public transport isn’t good enough.

Investing in public transport without simultaneously constraining the car will only achieve a modest increase in public transport’s existing 15% share of all motorised travel in Melbourne. Consider that Melbourne’s train, tram and bus system would cost an unthinkable amount if we had to build it from scratch today – hundreds of billions of dollars – yet 85% of motorised trips are still made by car. It should be obvious that simply providing the infrastructure isn’t enough.

Congestion pricing is the only way to reduce the considerable competitive advantage cars have over public transport (in most situations) within a reasonable time frame and at a reasonable cost. It’s therefore the only way to significantly increase public transport’s share of motorised trips. Of course good public transport has to be in place at the time congestion pricing is introduced. But what The Greens and the PTUA are missing is that you have to positively and enthusiastically embrace both.

The efficiency case for pricing is very strong and rejected by few. It’s the only practical way to manage traffic congestion. Its great virtue is that it prioritises travellers according to the value of their trip purpose. It also reduces accidents, as well as transport-related emissions and pollution.

The key concern of those with misgivings is the equity implications of congestion pricing. I don’t think it can be doubted that richer people will be better placed to buy road space. But I think there are a number of other issues that also need to be considered here.

First, it’s not clear that putting a price on road space would be significantly more inequitable than traffic congestion, although we know the latter is much less efficient. If they’re much the same on this criterion, then pricing should be preferred.

Second, travellers at all income levels make high value trips they are prepared to pay for. The factory worker running late to collect her children from child care is likely to value the option of paying a few dollars premium to avoid severe traffic congestion. There’s an analogy here with taxis – we know they’re cheaper in real terms for the rich but do we really imagine they are the only ones who use them? If we didn’t currently have them, would we bar their introduction on equity grounds?

Third, even if the rich benefit disproportionately, congestion pricing might still improve the position of lower income travellers in absolute terms. For example, they might be better off if it means funds otherwise devoted to road building are made available for public transport and schools; if the revenue from pricing is applied to public transport; or if there is less pollution from cars in their neighbourhood.

Finally, it is possible to make direct payments to those on lower incomes to compensate them for the higher out-of-pocket costs of congestion pricing. This is what we do with other scarce resources like water.

The biggest obstacle to congestion pricing is political. Governments charge us for virtually all other resources – even education includes supposedly voluntary “parent contributions” – but road space is a sacred cow. Hypothecating the revenue from pricing to fund public transport improvements is therefore vital, as is rolling fixed charges like rego and insurance into the variable price where possible. Another option is to implement pricing progressively, starting with discretionary HOT (High Occupancy and Tolled) freeway lanes.

But the key point I want to emphasise is that effective public transport promotion demands simultaneous advocacy of congestion pricing. They are opposite sides of the same coin, yin and yang, etc.

NOTE: My emphasis here is on congestion pricing, but I think more broadly we should be pricing road space to reflect its true social cost. That’s effectively provided by the $0.38 per litre excise tax on petrol, but it’s too low, isn’t indexed and of course doesn’t reflect prevailing road conditions e.g. presence of congestion.

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