London Congestion Charge: Cost-Benefit Analysis

Road pricing is the application of various charges to the usage of roads. These charges include fuel taxes, tolls, parking taxes, licence fees, and congestion charges. Pricing may vary by time of day, or by the specific road or vehicle type using the road. The two main aims of road pricing are generating revenue and managing demand. The latter can be achieved through congestion pricing, which is a system of surcharging users of a transport network in periods of peak demand to reduce traffic volumes to optimal levels. This variable pricing strategy aims to regulate demand, thus enabling congestion management without increasing supply. Market economics theory, which includes the congestion pricing concept, proposes that road users will be forced to pay for the negative externalities they create, making them conscious of the costs they impose upon each other when consuming during the peak demand, and more aware of their environmental impact. The very notion of urban congestion pricing was proposed in London as a response to the challenges faced by the Ministry of Transport around 1960. These challenges consisted of a significant increase in the number of new car registrations, the considerable cost of congestion for the road users due to the reduced average travel speed and corresponding delay, and other negative impacts on the environment. In this regard, the positive and negative aspects of the London congestion charge can be considered as follows:

Positive Aspects Of The London Congestion Charge:

Analysing the results of the TfL study(2003) indicates that the most important positive aspect of the London congestion charge is the time-saving to drivers and passengers of vehicles that continue to use the road system after charging is introduced – including cars, taxis, buses, and commercial vehicles within and outside the charging zone. This is a common point highlighted by Leape(2006), Mackie(2005), Raux(2005) and Prud’homme and Bocajero’s(2005). In addition to time-saving, a reduced travel time and an improved journey time reliability (of an average of 30%) are two other key positive aspects of the congestion charge(Leape,2006, Mackie,2005, Raux,2005 and P&B,2005). Factors that contribute to these two positives include an almost 30% reduction in congestion, a 30% decrease in traffic delays inside the zone, an 18% decrease in traffic entering the zone during charging hours, and a 15% reduction in traffic circulating (vehicle Km) within the zone. Evidence on average travel speeds on roads inside the charging zone indicates that the all-day average network travel speeds increased from a pre-charging average almost 17% (Leape,2006). Other benefits include a considerable decrease in queuing time at junctions (Leape,2006), the environmental benefit of reducing the pollution emissions by 34% (P&B,2005), and an improvement in safety, by 2-5% or 30-70 fewer accidents per year for Central London(Mackie, 2005). Through reallocating road space from private cars to public transportation (Leape,2006), the congestion charge has increased public transport patronage. For example, bus passengers entering the charging zone in the morning peak period rose by 38%, while number of private cars decreased by 16%, which in addition to direct time savings, reduced accidents and lowered carbon dioxide emissions (Leape,2006). Increased number of bus passengers and reduced average operating costs (increased speed, travel time reliability) have enabled providers to offer some combination of improved service levels (more routes, higher frequencies) and lower fares (Leape,2006). These effects can encourage an even greater use of public transport whilst also reducing average costs per passenger to transport providers, leading to further shifts from car travel to public transport, and an additional reduction in congestion.

Negative Aspects Of The London Congestion Charge:

The higher-than-expected set-up and operational costs for the congestion charge must be considered as the most prominent negative aspect. In London, the operational costs were more than twice the level initially estimated (implementation costs averaged £95 million in the first two years). This resulted in the net annual revenue falling far short of expected levels (Leape,2006, Mackie,2005, Raux,2005 and P&B,2005). A congestion charge is likely to have different effects across businesses and land value in the long term. Negative effects are the changing land-use patterns and reduced land value caused by a restriction on car mobility within the congestion charge area (Tehran Congestion Charge Study, 2005). This decrease in car trips could have an adverse impact on retail businesses located within the congestion area, whereas it could benefit those outside the zone (Leape,2006).

Summary:

Although the cost-benefit estimates for the London congestion charge, produced by Transport for London (2003a), is subject to some controversy by P&B(2005), Mackie (2005) and Charles (2005), generally the London congestion charge has been both a political and practical success in reducing congestion and related negative externalities. It has also been met with a high level of satisfaction from most Londoners. As mentioned above, the time-savings to drivers and passengers of vehicles resulting from increased average speed and decreased delay is the most important positive aspect of congestion charging. Increasing reliability of travel time for car and bus, decreasing queuing time at junctions, decreasing the level of pollution emission and improving safety, as well as improving public transport patronage and improving its level of service all must be considered as positive aspects of congestion charges. In contrast, the high operational costs of running the scheme is the dominant negative aspect of congestion charging. This can significantly influence the net annual revenue for the congestion charging scheme. Moreover, other factors such as decreasing the flow of mobility in the congestion charging zone in the long term can lead to changing the land-use patterns and probably decreasing the land value. As mentioned by P&B(2005) there were concerns that the diverting impact of the congestion charge could lead to higher levels of congestion on the inner ring road that borders the zone and the area surrounding congestion zone, which needs to be considered in more detail. Therefore, a degree of caution is appropriate before generalizing from the London experience.