Congestion Pricing

pricing and “the poor”

Is congestion pricing — charging more to use a facility when it's in high demand, in order to decongest that facility — an unacceptable burden on the poor?  Joshua Arbury of the Auckland Transport Blog  asks this on my recent post on congestion pricing terminology:

Fundamentally though, there's a political question to consider. Is it acceptable to have a road pricing scheme that prices the poor off the roads to create more room for the rich? Because, in a nutshell, that's effectively what road pricing/congestion charging/decongestion charging is.

These discussions will never get anywhere until we can separate two completely different questions:

  • What is the accurate price for this facility that arises from the relationship of supply and demand?
  • For whom, and for what social purposes, should we offer discounts from that price?

Australian and British transit agencies offer a nice example of how to keep this clear.  As in North America, transit in those countries routinely offers discounts to senior citizens and the disabled, because, well, we as a society want to honor those people.  Those discounts don't serve any particular transit agency mission, but the society judges them to be important.   Fine.  So in both Australia and Britain, the cost of those discounts is added up and a central government reimburses the transit agency for that amount, as a "shadow fare."  The transit operator can then count all riders as equal, and compete for all riders as being of equal value to it, because it experiences them as all paying the same fare. 

That's very clean, because it separates transit's real purpose from a separate (perfectly valid) social agenda, rather than just expecting transit operators to pay the cost of the social agenda. Seniors and disabled persons get their discounts, but the transit operator continues to value their patronage as much as they would value that of a full-fare customer.

Meanwhile, back on the roads, our current prevailing road pricing policy is that "when demand for road space exceeds supply, government will subsidize everyone's travel so as to elminate any monetary cost."  The effect, of course, is that instead of paying in money we pay in time. That's what congestion is.  Something of value is being given away for free, so we have a long queue of people waiting for it.  If you want to "fix congestion," you have to change the price. 

Is that hard on "poor" people?  Yes, it is, like many things.  The answer may be to subsidize the price as an expression of a social objective, in exactly the way that British and Australian governments subsidize senior/disabled fares as something entirely separate from other transit subsidies, thus enabling them to more cleanly connect each spending to a public purpose.

watching our words: congestion charge or price or (shudder) tax

There seems to be a flurry of new interest in congestion pricing, partly under the pressure of tight budgets almost everywhere.  But journalists can muddy the waters by describing congestion pricing as either exploitative or punitive.

Last month, I was invited to contribute to a Sydney Morning Herald thinkpiece on the subject.  My contribution, the second of four pieces here, emphasises that congestion pricing is not about paying for congestion, it's about paying to avoid congestion.  The core point:

Suppose you announce that you'll give away free concert tickets to the first 500 people in a queue. You'll get a queue of 500 people. These people are paying time to save money.

Other people will just buy a ticket and avoid the queue. They're choosing to pay money to save time.

Today, we require all motorists to wait in the queue. When stuck in congestion, we are paying for the road space in time rather than in money.

Shouldn't we have a choice about this? Why are we required to save money, a renewable resource, by spending time, the least renewable resource of all?

Unfortunately, the Sydney Morning Herald framed the whole piece with the question, "Should motorists pay for the congestion they cause?"    The implication is that congestion pricing is punitive, that some citizens believe that other citizens should be punished for their behavior.  The question seems designed to sow misunderstanding and inflame rage.  To their credit, none of the four expert responses — even the one from the auto club opposing the congestion charge — really took this bait.

So there's a problem with the terms congestion charge and congestion price.  The terms sound like "paying for congestion," when the truth is the opposite, we're being invited to choose whether to spend money to avoid congestion.  A more accurate term would be congestion avoidance price or even better, congestion avoidance option.  But those are too many words. 

Should we call it a decongestion price

Real congestion pricing is about giving free and responsible adults a set of options that reflect the real-world geometry of cities.  The core geometry problem is this:

  • Cities are, by definition, places where lots of people are close together.
  • Cities are therefore, by defintion, places with relatively little space per person.
  • Your car takes 50-100 times as much space as your body does.
  • Therefore, people in cars consume vastly more of the scarce resource, urban space, than the same people without their cars — for example, as pedestrians or public transit riders. 
  • When people choose whether to drive, they're choosing how much scarce urban space to consume.
  • If urban space is to be used like any other scarce resource, its price needs to be deregulated so that it is used efficiently. 

Congestion pricing is a form of deregulation.  It is the most libertarian concept imaginable.

There's another way to mess this up, and that's the term "congestion tax."  Here's the New Zealand Herald

Aucklanders may be levied to drive through increasingly congested streets in the absence of Government funding of the region's "strategic aspirations".

A paper released by Local Government Minister Rodney Hide before Auckland's first spatial plan due out in 11 days suggests raising revenue by charging motorists to drive around the Super City at peak times.

Hide makes clear that this isn't a congestion price intended to reduce congestion.  It's just another tax, intended to raise revenue.  So just to be clear: If it's congestion pricing, there are public transit (and bike-ped, and casual carpool) alternatives that enable people to get where they're going.  The congestion price cordons on the CBDs of London and Singapore work because there's abundant public transit to those places, so relatively few people absolutely have to drive into them.  The San Francisco Bay Bridge tolls have a congestion-pricing value because there's both abundant transit and casual carpool options for avoiding them. 

If, on the other hand, you're in a place where there's no reasonable alternative to driving — such as large parts of Auckland — then anything  that suppresses driving will suppress travel, and that means it will suppress economic activity.  And if you're just taxing economic activity, then this is really no different from sales taxes, Goods and Services Taxes (GST), or income taxes. By taxing economic activity, you're suppressing something that government and society should be encouraging.  That's not a libertarian idea; quite the opposite.