Traffic volumes by time of day – Melbourne metropolitan area (source: VAGO report on traffic congestion)

The economic cost of traffic congestion in cities is estimated to cost the Australian economy $20.4 billion per annum by 2020.

A new report by the Victorian Auditor General, Managing traffic congestion, argues governments need to think harder about ways to deal with the problem.

He says there’s too much attention given to increasing the supply of road space as a way of tackling congestion and not enough to managing demand.

The age-old approach of building new freeways to expand capacity has long been discredited. The additional road capacity gets eaten up in peak periods by induced demand.

The same goes for new public transport infrastructure. Spare road capacity released when drivers shift to public transport is likewise soon filled by induced demand.

Some argue that public transport should be made so good that hardly anyone needs to drive. It seems they haven’t looked at the roads leading into the City of New York.

Despite a high standard of public transport and dense land uses, large parts of the City’s major road system suffer from extreme traffic congestion in peak periods.

The problem for Australia’s cities is that public transport is expensive to construct and is likely to take decades to make a serious dent in the level of car use.

Even with a massive and unprecedented program of infrastructure investment and supportive policies, the Independent Inquiry into a long term public transport plan for Sydney estimated public transport’s share of all trips in the city would only increase from 16% to 25% by 2040.

The rail plan released earlier this month by Public Transport Victoria (PTV) envisages only a handful of new rail lines would be built in Melbourne over the next 20-30 years. And that was before Tony Abbott said he wouldn’t fund urban public transport if he wins the 14 September election.

One of the new lines proposed by PTV is the 12 km Rowville rail line. As I’ve noted before, the recent feasibility study done by PTV estimated it would only increase rail’s mode share from 12.6% to 12.7% by 2046. The line is likely to cost at least $2 billion.

Although it doesn’t suppress traffic congestion, increasing the capacity of freeways and public transport nevertheless permits more people to travel in peak periods. That’s a real benefit. Freeways also provide significantly faster travel in off-peak periods.

But whether it’s freeways or public transport infrastructure, cities can’t build their way out of traffic congestion. Our cities desperately need more investment in public transport infrastructure for other reasons, but it won’t eliminate gridlock.

The way to address congestion is to increase significantly the cost of motoring in peak periods. We need to do what we do to manage any other very scarce resource – charge motorists for using road space.

There are various ways congestion charging schemes can be set up, some more efficient than others. Some approaches – like cordons and HOT lanes – seem more politically palatable, but are also more constrained.

The central idea is to discourage the last 5%-10% of drivers from taking to the road as they’re the ones who turn relatively slow but free-flowing traffic into congested traffic.

These are likely to be trips that travellers value less – they’re not worth paying the price. Congestion charging won’t enable motorists to drive at the speed limit, but it will keep traffic moving and avoid gridlock.

Some argue that charging can’t happen unless and until a high standard of public transport is available as an alternative. If it were accepted at face value, that argument would effectively rule out congestion charging for decades anywhere other than the centre of the city.

However the argument ignores the scope drivers have to respond to price signals. Some can shift lower value trips to off-peak times when the roads aren’t congested and some can walk their children to school instead of driving them.

For example, according to research cited in the State of Australian Cities 2012 report, only one third of AM peak motorised trips in Melbourne are for work. Moreover, 17% are for recreation and shopping purposes. The pattern for Sydney is similar.

Better public transport will be needed as cities grow and densities increase, but there’s room to implement road pricing now.

Some argue congestion itself is just as effective in sorting out trips by value as charging would be. The high proportion of recreation and shopping trips in peak periods belies that claim. Further, recent experience with toll roads like Brisbane’s Airport Link suggests drivers are much more sensitive to tolls than to delays.

The most common objection, though, is that congestion charging is vertically inequitable. But that ignores the fact we already charge other essential services like water, sewage and electricity according to the level of usage.

Indeed, patrons pay distance-based fares when they use public transport. Charging according to use is an important way of managing scarce resources.

Vertical equity objectives should be addressed by providing concessions for those most in need. That’s what we do with other utilities (at least in principle – some concessions have questionable equity justifications).

Congestion charging won’t eliminate entirely the demand for new roads in a city that’s growing, but it will delay demands to build them. It will also generate revenue that can be applied to public transport improvements.

There’s no getting away from the fact though that congestion charging is political dynamite and no government in Australia is prepared to touch it. Drivers already think they’re paying too much and, given growing congestion, many think they’re not getting enough for their money.

Yet while ever peak hour driving remains underpriced, traffic congestion will continue to be a drag on the economy.

There was once a time when a whole host of microeconomic reforms implemented in Australia in the 1980s and 90s were unthinkable e.g. CGT, GST, FBT. It’s important to keep congestion charging visible in the public debate – the warrant for it can only increase.