Pay-as-you-go is a much fairer way to charge motorists
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Pay-as-you-go is a much fairer way to charge motorists

Road congestion in large Australian cities is estimated to cost more than $16 billion a year. Economists have long argued the best way to improve traffic flow is to charge drivers for their contribution to road congestion. We have now analysed data collected from 1,400 drivers across Melbourne to see whether road user charging can change their behaviour in ways that ease congestion. And the answer is yes.

Because the obstacle to adopting this approach has been concern about its fairness, we also looked at driver incomes. Would congestion-based charges price the poor off the road for the benefit of those who can pay? We calculated how different systems of road use charges affected households on different incomes, and how driving patterns changed under different prices.

Even small reductions in congestion can produce large benefits.

Even small reductions in congestion can produce large benefits.Credit:John Veage

The evidence does not support other common policy responses to traffic congestion. Building new roads does little to relieve congestion. Placing tolls on roads can push traffic onto others.

However, even small reductions in congestion can produce large benefits. On congested roads, reducing traffic by 5 per cent can increase traffic speeds by up to 50 per cent.

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Congestion-based charges can be a more progressive way to fund roads than the existing system of registration fees and fuel taxes.

Congestion-based charges can be a more progressive way to fund roads than the existing system of registration fees and fuel taxes.

The question is: what would the optimal charges be? Drivers often plan their travel ahead of time, so Uber-like surge pricing is not necessarily the best way to go. Could simpler fixed charges, based perhaps on time of day or location, be effective?

In 2015-2016, Transurban Group implemented the Melbourne Road Usage Study to answer these questions. More than 1,400 drivers across greater Melbourne installed GPS devices in their vehicles for eight to 10 months. Every month participants accumulated real money from reduced charges as a result of their decisions about driving.

The Melbourne Road Usage Study tested three simple charges:

  • a flat distance-based charge of 10 cents per kilometre

  • a time-of-day charge of 15 cents per kilometre at peak times and 8 cents at other times

  • a distance-plus-cordon charge where drivers were charged 8 cents per kilometre at all times plus A$8 if they entered the inner city.

Charges that vary by time of day were most effective at reducing driving at congested times. Drivers subjected to a higher cost of driving in the weekday peak hours of 7am to 9am and 3pm to 6pm reduced travel by 10 per cent during these periods.

While a simple 10 cent charge on distance travelled did reduce driving, this was mainly outside the congested inner city and at off-peak times – mostly in the middle of the day and on weekday evenings. Most freeway congestion occurs around morning and late afternoon commutes.

Congestion-based charges can be a more progressive way to fund roads than the existing system of registration fees and fuel taxes.

The fuel excise makes up almost half of the average annual road bill in Australia. It’s essentially a distance-based fee, but more fuel-efficient vehicles pay less per kilometre travelled. Hybrid vehicle drivers, for example, contribute much less to fuel tax revenue.

Yet, although hybrids contribute less to air pollution, they increase congestion just as much as their petrol-guzzling counterparts. And congestion is a much greater shared economic cost than vehicle air pollution.

Annual vehicle registration fees make up most of the remaining road bill. These provide no incentive to reduce congestion.

Fuel taxes and registration fees put a disproportionate burden on low-income households in the outer suburbs. Our research shows these households would be better off if roads were funded more by congestion charges.

So what is the optimal congestion charge? Economic theory tells us to price at the cost that each extra user imposes on the system.

With road use, though, the calculation is difficult. To fix rates in advance, we would need to know exactly how much longer everyone’s trip is when each extra driver joins each system. And we’d need to cost that slowdown for each individual on the road at that time (i.e. value their time and, potentially, the cost to them of being late).

Would it be better to combine a time-of-day charge with targeted locations? How effective would it be to charge more for using highly congested arterial roads at peak times? Would this simply push congestion onto nearby local roads? How large a gap between peak and off-peak prices is needed to produce a strong response?

Another interesting option is the i10 model outside Los Angeles. Two lanes are for traffic willing to pay more to get to their destination faster.

Dynamic pricing ensures traffic in these lanes flows freely – if too many use these lanes and traffic slows, the price increases. Drivers can decide every few kilometres if they want to pay more to stay in the express lanes. Those who must get somewhere on time are able to, and the fee revenue can be used to reduce road costs for others.

The study provides evidence that well-designed road use charges could help reduce congestion by encouraging people to drive at different times, take other routes or use other transport. This could lead to better use of existing infrastructure, thereby reducing costs, while generating revenue for infrastructure investments. Under such a system, drivers who contribute little to congestion could see substantial gains.

Leslie A. Martin is a lecturer (assistant professor) in economics at theUniversity of Melbourne and Sam Thornton is a master of economics candidate at theUniversity of Melbourne

This article was originally published on The Conversation. Read the original article.

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