Congestion pricing can raise most of the money we need to pay for The Big Move while providing immediate benefits to drivers and the regional economy.
By Ryan McGreal
Published April 04, 2013
this article has been updated
This week, Metrolinx released a short list of proposed investment tools to pay for The Big Move, the 25-year regional transportation plan for the Greater Toronto and Hamilton Area (GTHA).
Metrolinx will present its final investment strategy to the Ontario Government in June to pay for the remaining $35 billion in projects, which includes Hamilton's east-west B-Line LRT as one of the top priorities.
Whatever other tools the Ontario Government decides to adopt to pay for The Big Move, congestion pricing on GTHA highways should definitely be a core component.
Highway congestion pricing can singlehandedly raise most of the money the Province needs to pay for The Big Move. Even better, congestion pricing confers immediate and significant benefits to drivers and the economy as a whole, even before the new transit infrastructure is built.
Even better for politicians, congestion pricing is a safe political gamble to the government that puts it in place, because it tends to become more popular over time as people experience it.
Congestion pricing imposes a monetary surcharge on drivers to drive on congested highways.
The idea behind congestion pricing is simple and comes from economics: raising the price of something reduces the demand (just as lowering the price increases demand). Since the demand for a "free" good like a highway will always outstrip the supply, the most effective way to reduce demand is to impose a price.
And before irate drivers interject to argue that they pay for highways through gas taxes, permits and so on, we must note that the numbers do not support this claim. Even if every conceivable charge to drivers is taken into account, Canadian roads and highways are still subsidized out of general tax revenues to the tune of billions of dollars a year.
At the same time, traffic congestion is a negative externality - an action undertaken by individuals that imposes costs on society as a whole. Those costs include the local environmental costs of air pollution and the global environmental costs of climate change.
They also include the economic cost of lost efficiency in the movement of people and goods through the region. Sitting in traffic is expensive, which is why the Toronto Board of Trade is recommending tax and toll measures to fund The Big Move.
Congestion pricing acts to internalize these external costs of congestion by applying it directly to the people producing it. The goal is to reduce the peak demand, i.e. morning and afternoon rush hour, by enough vehicles so that traffic can flow freely.
It's important to remember that congestion is a non-linear phenomenon, so small increases in traffic beyond the highway's capacity lead to disproportionate increases in congestion. The inverse is also true: small reductions in peak traffic can lead to large reductions in congestion.
As such, the highway toll should be variable based on time of day. Commuters should be rewarded for driving at off-peak times by paying much lower charges than if they drive during rush hour.
Before we go any farther, please take a few minutes and watch this TED talk by Jonas Eliasson, the director of the Centre for Transport Studies at the Swedish Royal Institute of Technology. Thanks to the manner in which Stockholm adopted congestion pricing, we have a delightfully scientific case study in how drivers respond to price signals.
Stockholm was able to eliminate traffic congestion literally overnight by implementing congestion pricing that reduced traffic volumes by 20% during peak times.
Eliasson also notes that people are remarkably adaptable and respond immediately to incentives - or "nudges" as he calls them. When the congestion charge was eliminated after the trial period ended, the congestion came back, again literally overnight. He explains:
Travel patterns are much less stable than you think. Each day people make new decisions, and people change and the world changes around them, and each day, all of these decisions are sort of nudged ever so slightly away from rush hour car driving.
It's important to remember that highway traffic at any given time is an agglomeration of different people doing different things for different reasons. You, personally, might not feel that you have any alternative to driving on the highway at rush hour, but the evidence from cities that have established congestion pricing demonstrates that around 20% of drivers are able to choose alternatives.
In any case, when the money raised by congestion pricing is invested in coordinated regional transit, it serves to increase the number of people who can choose alternatives over time.
More broadly, as new investment and development is anchored around transit nodes rather than highways, the mix of living and employment opportunities starts to shift toward clusters in which more people are able to take advantage of transit to commute.
People respond to price signals, but we are predictably irrational about it, making common weighting mistakes in how we evaluate costs and benefits and weigh risks.
We are a lot more sensitive to costs than to savings. For example, when grocery stores offered a 5-cent discount for every bag you brought in, almost no one took advantage of it. As soon as stores changed the 5-cent discount into a 5-cent cost, bag reuse increased dramatically - by as much as three-quarters.
This is irrational, since a 5-cent saving is economically identical to a 5-cent cost - yet we mostly ignore the former and respond to the latter.
Our blind spot about costs includes weighing money over time. The financial opportunity cost - not to mention the impacts on health and well-being - of sitting in stop-and-go traffic is enormous, but that cost in time is not enough to deter most people from commuting in traffic.
Researchers have actually documented the 'weighting mistake' that leads people to buy "cheap" houses a long distance from jobs and other amenities. People both over-estimate how much happiness they will get from a bigger suburban house and under-estimate how much misery they will get from long commutes.
In fact, a full accounting often finds that the overall transportation costs offset the savings from lower housing prices - and that those costs are actually getting worse, not better.
Congestion pricing works because it imposes a direct price on driving during rush hour that commuters cognitively can neither ignore nor fail to calculate. It works because it interacts with human psychology to make people conscious of the cost of driving.
It also works because it means that people who are willing to pay can drive on the highway at full speed, even during rush hour. That in itself, helps to shift public sentiment in favour of congestion pricing.
In Eliasson's presentation on Stockholm's experiment in congestion pricing, he he noted that public opinion about the congestion pricing went from strongly opposed before the charge was implemented to strongly in favour afterwards.
Even more remarkable was the fact that people did not know they had changed their minds. In surveys following the congestion pricing system, the people who supported it said they had always supported it, even though a majority of people had previously opposed it.
That's yet another example of the ways in which people are predictably irrational, but it is also an example that even risk-averse politicians can take advantage of.
Congestion pricing comes with strong evidence of effectiveness to support it, and also strong evidence that people who experience it come to agree with it.
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