Brian Easton says congestion pricing is easier said than done

This is a re-post of an article originally published on pundit.co.nz. It is here with permission.

The first seminar I attended in Britain – around 60 years ago – explained a scheme for road usage pricing which would eliminate traffic congestion and direct roading investment. It was impressive and elegant (as many such seminar propositions are) but proved impractical and costly to implement (ditto).

Twenty-five years ago, a geekish Minster of Transport, Maurice Williamson, made a similar proposal which would use GPS sensors in vehicles to monitor where they went and charge them. It, too, proved impractical, costly and would have invaded privacy. The current Minister of Transport, Simeon Brown, has announced the introduction of congestion pricing for roads, but with insufficient detail to assess whether it will be workable.

We already toll a few roads. The minister has promised a wider use of tolling, with the revenue to fund further roading investment. Fuel taxes and road-user charges levy vehicles for their road use, but they are crude, hardly reflecting the quality of the road or the degree of congestion.

Broadly, congestion charging involves vehicles paying a levy when the road is overcrowded, so the use-charge varies by time of day. The economic case belongs to a class of market failures called the ‘tragedy of the commons’, where individuals use a free resource at the expense of others. This can result in overconsumption, underinvestment, and depletion of resources. Each extra vehicle reduces the ability of other vehicles to use the roads. At worst it produces gridlock with drivers fuming that if only other drivers were not occupying the road, they could move.

Standard economic responses to the tragedy of the commons are regulation (only buses may use this lane) and private ownership of the resource (which is not practical in the case of roads). Congestion pricing is a commercialisation, where the vehicle pays the road ‘owner’ (typically a public authority) a fee for its use. The price might be set to maximise the revenue or to maximise the efficiency of use, which is not the same thing (the road owner is likely to be a monopolist).

There are exaggerated claims about the cost to the economy of congestion, with promises that its elimination will markedly boost GDP. That is not true as far as private cars are concerned. The time savings – like  the fifteen extra minutes that one might be able to spend in bed in morning – won’t appear in GDP, but they are gains nonetheless. (Another timely reminder of the difference between output and welbeing.) It is even conceivable that GDP will be depressed as commuters waste less on petrol – carbon emissions will be too. (There is a caveat; what if the charges encourage the spread of cities as when the commuter choses to use the fifteen minutes to live further out of town? Economic analysis is riddled with such caveats.)

There are likely to be gains to business which are ignored if we focus upon commuters. Businesses trucking goods around do not have the option of using public transport. (A concrete mixer hardly fits on a bus.) An example of the costs to Auckland businesses is that in order to catch the evening flight, shipments have to leave the factories an hour earlier because of end-of- the-day congestion. The quicker trips would be productivity gains. So business has an interest in getting people onto buses and trains in order to free up the roads for their use (as do commuters in cars), providing a justification for cross-subsidising from private to public transport.

The economics is less helpful on practicalities. The exact form of the charging will matter. will be easier to introduce congestion charging in some cities than others because of their geographical configuration. Keeping the capital and administration costs low is the ideal. (Not incidentally, it is this implementation phase where many politicians parties fail; it is easy to dream up policies whose implementation is a nightmare when you are in office.)

Getting the politics through may not be easy either. Providing implementation is not too clumsy there will be support from, say, Auckland business for congestion charging. But there may be resistance from commuters even though it may be in their ultimate interests. A particular group of grumblers will be those whose jobs require them to turn up or leave during the congestion period even if they cannot afford the extra payments; the scheme will amount to a wage cut.

Given the likely political resistance, I was surprised that the minister announced that the revenue would be shared between the local authority and the centralised Waka Kotahi/ New Zealand Transport Agency. It will be so easy for the resisters to present this is as yet another Wellington tax grab.

I would have thought that once the facilitating legislation had been passed, it would be politically astute to handover the implementation and operation entirely to each local authority. The minister would benignly say to grumblers that is a local responsibility: ‘don’t come at the minister if you think there is a cockup, go to them’.

That means leaving all the revenue to the local authority too. They may want to spend it on improving their transport network, reducing rates, spending it on ‘nice-to-haves’ or whatever. That is their local decision – nothing to do with the central government. (Cough, cough. Don’t be surprised if Waka Kotahi surreptitiously rebalances some of its spending away from those centres which have the good fortune to be able to charge for congestion.)

There is a broader issue here. Centralisation often means that ministers get into dog fights that political commonsense says they should stay out of. For instance, the centralisation of the public healthcare system resulted in the Minister of Health getting involved in fracas over failing small hospitals rather than leaving the matter to the local health board.  Well, really! Is that the best way to spend ministerial time? (Sometimes that may be all a minister is capable of; every Cabinet has lightweights.)

The Minster of Transport has made a major strategic decision that congestion prices for roads can be introduced by local authorities. There are strong economic reasons in theory for them, although the theory warns there may be distributional consequences. A big challenge may be implementation. (I repeat that the minister should stay out, leaving the challenge to each local authority.) A bigger challenge may be the politics (where again the minister should keep her or his head down). I am not expecting a fully effective congestion pricing regime to be up and running anywhere soon.

*Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.