Congestion Tax

A Government of India Committee in Public Transport has recommended the setting up of a regualtory transport body, with the power to enforce physical restrictions on the use of personal vehicles and limit the availability of road space for them. Its other suggestions are - a cap on the number of cars per household by restricting ownership of vehicles; stonger penalties like suspending and cancelling licences in case of traffic violations and accidents; specifying minimum basic service standards for transport industry; identifying busy areas; and including popular shopping destinations in every city, as "traffic free zones". It has also recommended levying a congestion charge on personal vehicles.

Some of the recommendations are long overdue and should be implemented, while others like cap on ownership of vehicles are bound to distort incentives and fail. Implementing some of them will throw up interesting challenges. The most interesting possibility arises from the recommendation on a congestion tax.

Congestion charge became popular with London Mayor Ken Livingston's decision to introduce it on road usage in certain areas of London in 2003. The policy yielded immediate results with significant reduction in congestion, especially in the city center and is now widely acknowledged as a success. The London scheme requires drivers to pay £8 per day if they wish to continue driving in central London during the scheme‘s hours of operation or 7.00 AM to 6.00 PM on working days. The vehicles have to be registered and cameras read the vehicle registration mark as you enter, drive within or exit the Congestion Charging Zone and check it against the database of registered vehicles.

The Adam Smith Institute has this to say about road pricing. "Road pricing has the potential to ease traffic congestion in cities and elswehere. Imposing a price deters marginal users, who respond by not travelling (making the children walk to school instead of driving them, for example, or shopping more locally rather than in town), or car-sharing, or planning their tasks so that they need to make fewer journeys, or by using public transport, or by travelling at some less congested time. A charge that is limited to the morning and afternoon peaks may be sufficient to have a clear effect on congestion, as people decide to make their journey a little earlier or a little later in order to avoid the charge.

One problem, however, is how and where to draw the boundary. A cordon system, whereby all journeys into the city boundary are charged, may raise revenue, but will not necessarily reduce congestion on particularly problematic junctions and streets. If only the most congested areas are priced, residents just outside the border may complain that they face large charges for short journeys (such as to the local shopping centre or school) that take them over the line. And the fear is that people will park in residential streets in order to avoid driving into the centre and facing the charge. Many of these, and other problems, can be solved by an electronic system, which allows pricing to be made highly discriminatory. In principle, there does not need to be any boundary ring - individual streets and junctions can be charged. The data collected through electronic systems can also be used to help plan future road infrastructure."

Daniel Gross in the Economic View column of NYT, What’s the Toll? It Depends on the Time of Day, outlines the advantages of congestion pricing.
"Congestion pricing — the concept of charging higher fees to consumers for a good or a service at times of heavy use — is well established in businesses like hotels, long-distance phone service and air travel."

The latest edition of The Economist carries an article about a proposal for road pricing in the UK. It argues, "A pricing system would solve the biggest problem faced by motorists: the lack of a proper way to allocate capacity. The current tax system penalises more polluting cars, and those that consume more fuel. But congestion costs go unpaid. In the absence of charging for road space, capacity is rationed instead by delays and queues. And whereas congestion is concentrated in urban areas and along big trunk roads, the burden of road tax is spread equally (and unfairly) across both rural and urban drivers."

The RAC Foundation in the UK have come up with a report in favor of road pricing. Its studies show that, "Having a meter in the car outlining the cost of each journey will lead to a reduction in journeys by highlighting the actual cost of the trip - RAC Foundation research has found that most motorists regard fuel, tax and insurance as "sunk costs" and do not relate them to individual journeys. In Oregon the "pay as you go" group showed a reduction in miles traveled even thought they were paying the same amount as those paying tax at the pumps. Where the charge varied at rush hour there was a 20% reduction in travel."

Governments being sensitive to public opinion are naturally apprehensive of any new taxation proposals. Here the success of Ken Livingston selling the congestion tax by sugar coating it with a commitment to improve public transport is instructive. The RAC report advocates an eminently sellable scheme whereby fuel duty (at around 50p a litre, among the highest in Europe) is abolished and replaced with a 14p carbon charge. Motorists would then pay per kilometre according to how busy the road was. City drivers (currently subsidised by their rural counterparts) would pay more, while country drivers—or those who avoid the rush hour—would pay less.

Congestion tax will take some time to come to India, especially given the need for it to be non invasive. This will require installation of electronic devices, sensors and cameras along roads, and maintaining databases of vehicles registration and other information. Vehicle owners too will have to share the expenditure involved in monitoring this. But it is only a matter of time before some form of restrictions make their entry into our cities too.

Update 1 (3/6/2011)

In 2008, New York Mayor Mike Bloomberg's proposal to charge drivers $8 to enter a congestion zone in Manhattan south of 60th Street during peak hours was defeated in the Council. Critics viewed the proposed congestion fee as a regressive measure that overwhelmingly benefited affluent Manhattanites.