Saturday, April 30, 2016



The London congestion charge addressed a clear objective, to reduce congestion within the relatively small well defined area of Central London, with an approach that reflected the principles that transport economists had been recommending for decades, congestion pricing. Despite imperfections, it was broadly successful and an important bye-product will have been reduced emissions, both of local pollutants and of CO2. However the attempt to extend the scheme to a significantly larger area failed to impress, and was abandoned, at least partly because it undermined the gains of the initial scheme. This was the result of an important flaw in its design. We can argue that the exemption of “green” vehicles from the charge may also have been a mistake, in relation both to congestion and environmental objectives.

Traffic congestion is a major factor in increasing both journey times and fuel consumption. Attention has usually focused on the first, the economic cost in terms of the time wasted by travellers and their personal inconvenience. But congestion is also, along with higher vehicle speeds, an important source of preventable fuel consumption and hence vehicle fuel emissions.

The standard economic argument for congestion pricing.

The economic case for road or congestion pricing in general is that as the level of traffic builds up the risk of congestion and delay increases with each additional vehicle coming in to a busy road network. The marginal vehicle, in consequence, as well as facing delays itself, also imposes delays and their consequential costs (in time and fuel) on all the other road users in the network at that time.  The amount of additional delay tends to rise disproportionately faster as the total number of vehicles on the road increases - an important factor. The total cost, possibly amounting to several vehicle/ hours of delay, that an additional incremental user imposes on the population of other users on the road, when this is aggregated over all users, may well exceed the value that the incremental user attaches to their own journey. The argument therefore is that a charge for road use can actually benefit everyone.

Some 40 years after economists had first proposed the idea of road pricing to reduce traffic congestion, London’s first scheme was introduced in 2003. It is widely seen as having been effective in reducing congestion, even though journey times have gradually increased again for other reasons[1], and there has been no serious attempt to get rid of the original scheme. As predicted many road users initially welcomed the introduction of the congestion charge because of the benefit to their own journey times. But the Western Extension was much less successful and was abandoned. This comment considers some of the lessons that can be learned.

Flaws and Limitations

There were a number of ways in which the London scheme deviated from a theoretical ideal. Limitations of technology meant that it was not a full blown road pricing scheme, but a simple per day fixed charge on any vehicle moving within the zone for however short a time or distance. The charge applied during working hours but was otherwise not differentiated by time of day. It was therefore not necessarily closely related to the additional congestion any particular vehicle caused. Also, and most importantly, residents in the congestion zone were themselves exempt from the charge. This was very understandable in selling the scheme politically, but a pure economic logic might have argued that the road was public space and there was no reason for charges to discriminate in favour of residents (free) over non-residents, who often had to travel in to the centre to work. The former were often wealthier than the latter.  But the key point is that the factor of charge-free movement for residents was to prove crucial in the extension of the scheme.

In spite of these practical and political limitations the Central London scheme worked well.  So the Western Extension of the scheme should prima facie have been a relatively simple matter and enjoyed the same degree of success. But a significant mistake was made. The same principle of charge-free movement for residents was applied. But instead of creating two zones, with residents enjoying this privilege only in their own zone, the extension merely created a single zone, thereby doubling the numbers not subject to any charge. Inevitably this weakened the impact on congestion. The extension survived for a few years from 2007 to 2011 and was then abandoned.

The Green Exemption. A confusion of objectives.

I believe that a further weakness of the scheme has been the exemption of qualifying low emissions vehicles. To encourage non-polluting vehicles is a praise-worthy objective. But we need to remember that the scheme was designed to deal with congestion. Returning to the original principles behind congestion charging, any additional vehicle, regardless of its fuel source and emissions characteristics, has the potential to add significantly to the journey time of all the other vehicles on the road, the great majority of which will be higher fuel consumption and higher emissions vehicles. It will then undermine both the original economic objective of relieving congestion and reducing travel time, and also the further objective of reducing pollution.

Eventually, if electric or other zero pollution vehicles become the norm, the traffic congestion objective will be lost altogether.

And what lessons should be drawn.

An earlier comment in this blog noted the effectiveness of relatively simple measures of regulation in the transport sector.  This comment notes the success of an economist’s more market and price based approach to rationing the scarce commodity of road space. But the real lessons perhaps are the importance that other policies, eg other lifestyle choices or for land use, can have as an incidental impact for a low carbon objective. In this case we are talking about congestion, but speed is another clear example in the transport sector. The lesson is clear. Rigorous analysis, and focus on objectives, are especially important for market based approaches to transport, and to escape (as far as possible) the law of unforeseen consequences.

[1] These include factors such as traffic calming measures, pedestrianisation, and increasing population and demand for travel. It is hard to evaluate the counterfactual, what would have happened but for ….

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