Congestion pricing explained by video

Lewis Lehe was an economics student who decided to use video to explain some economic concepts. These videos were featured on Rustwire here.  He is keen on the concept of congestion pricing, and frankly this is one of the clearest ways of explaining the issues around rationing road use by price.  I think these are excellent.

How do you price a road? Half res from Lewis on Vimeo.

Is congestion pricing fair? from Lewis on Vimeo.

Just imagine the difference videos like this would have made with debates on road pricing in the UK, New York and elsewhere.  Lewis has exceptional communications talent.

Growth in toll roads in the Philippines

Manila Bulletin reports that the Philippines will see a major expansion in toll roads and PPP highways as the country continues to improve its infrastructure.

Ramoncito S. Fernandez, president and CEO of Metro Pacific Tollways Corporation (MPTC).  MPTC is the holding company that has under its wing the Manila North Tollways Corporation (MNTC), the builder and concessionaire of the North Luzon Expressway, and the Tollways Management Corporation (TMC), the operations and maintenance (O&M) operator of both the NLEx and the Subic-Clark-Tarlac Expressway.  

A range of new toll road projects are expected including the 13.2km North Luzon-South Luzon Connector, but there are also light rail projects expected to attract PPP investments.

Yet again a developing country sees merit in using private capital to build and run highways and to charge directly for use, funny how so many developed countries find this a big challenge.

14 December day of decision on San Francisco congestion pricing

San Francisco Business Times notes that the San Francisco County Transportation Authority board will decide 14 December whether to commission further studies for a congestion pricing pilot.  The pilot is  expected to last up to 12 months, but not start till 2015.

Will Taiwan be first with mandatory OBUs for national freeways?

Taiwan has had barrier controlled toll highways for some years, with its own bespoke developed Electronic Toll Collection (ETC) system (although not electronic free flow).   Now it is moving to make it compulsory  to have OBUs by 2012 as it moves towards a distance charging system.   It is understood that this means distance measured by segment, similar to the LKW-Maut in Germany.  However, unlike the LKW-Maut it will be a DSRC (dedicated short range communication, otherwise know as tag and beacon) based measurement of distance.

The proposal is controversial, because the bespoke tags are expensive and Automatic Number Plate Recognition (ANPR) is still to be used and available.  In principle, the key benefit is to get rid of toll stations and the congestion they can create, but beyond that charging by distance will be closer to usage than ever before.  

If Taiwan achieves conversion to full electronic free flow on a nationwide freeway network for cars it will be a world first, as the only free flow network systems that exist are for heavy vehicles only.

(In the context of this post I am treating Taiwan, Republic of China as a sovereign state distinct from the People's Republic of China, acknowledging that there are two sovereign governments on the territory known as China.  So as a result I am using the convention that Taiwan is, de facto, a sovereign state).

London Congestion Charge to offer detection based accounts

Until 4 January 2011, the only way individual motorists could pay for the London congestion charge was to prepay - in effect a declaration based model whereby one paid (either online, by phone or over the counter) for a day or more use of the roads within the congestion charge zone.   If you didn't drive on that day, it didn't matter.  This prepayment meant that money was collected regardless of usage, and meant that earlier inaccuracies with Automatic Number Plate Recognition (ANPR) technology did not weaken overall revenues.  

You see one of the earlier issues was that the cameras originally introduced in 2003 only reliably detected and read a number plate around 60% of the time.  Given the average trip usually saw a vehicle pass by 2.5 cameras, this wasn't much of a problem, but by requiring everyone to prepay it eliminated the issue except for enforcement purposes.  However, since then the cameras have been replaced and the accuracy levels have significantly improved (I believe around 75%-80% on average but cannot confirm). 

One of the pledges of the current London Mayor, Boris Johnson, on being elected was to make it easier to comply with the congestion charge.  So from 4 January 2011 for a £10 registration fee, motorists will be able to set up detection based accounts which will charge based purely on usage.   In other words if your vehicle is detected within the charging zone during charging hours (and you are registered) you will be charged automatically with a £1 discount (reason presumably being because the payment details already exist, and automatic debits are cheaper to process than individual one off payments).

This change is one of several occurring on that date which includes:

- An increase in the base charge to £10 (£9 for detection based accounts);

- Termination of the Western extension charging zone, reducing the congestion charge to its original size.

No doubt this will reduce compliance costs for users, and will be of great benefit to motorists.  However, the financials wont add up unless the savings from automatic direct debits are more than enough to make up the losses from the handful of vehicles that wont be detected on their trips.  Even 75% accuracy of ANPR cameras (and I would have thought London should be pushing 85% nowadays) with average 2.5 readings should be enough.

I will write more about the other London changes later.

Details of these changes are in this leaflet.

Ohio next major toll road privatisation?

Associated Press is reporting that the newly elected Ohio Governor, John Kasich (Republican) has said he is interested in privatising the Ohio Turnpike Commission, which is responsible for the 388km long Ohio Turnpike toll road.   The road runs east-west from Indiana to Pennsylvania, and is the I-76, I-80 and I-90. 

The privatisation is being investigated, with one concern being whether the price obtained in current market conditions would be worth it - although given the size and scale there is little doubt it would raise well over US$1 billion.   The toll road fully funds its own operation and maintenance and is so successful that the previous Governor diverted surplus revenue from the road to fund other road improvements in the state.

Hopefully if sold the new owners will be able to invest in new capacity and to vary charges to manage congestion.  Such privatisations should enable owners to optimise utilisation of their assets.

In any case, privatising the Ohio Turnpike would be an enormous transaction, rivalling the Chicago Skyway and Indiana Toll Roads, and showing once again, that government need not finance or manage highways.

UPDATE:  One report states that a sale is unlikely according to a spokesman for the Governor elect, because the state would not get a good price in the current investment climate.

San Francisco congestion pricing debate heats up

As reported on 17 November, one of the most significant road pricing proposals in the USA today are the two options presented by the San Francisco County Transportation Authority to introduce cordon pricing.  

One is the central city cordon (right), which would see an AM peak (0600-0900) charge of US$3 with a PM peak (1500-1900) charge of US$3.  The charge would be capped at US$6 and those who pay tolls on the Bay and Golden Gate Bridges would get a US$1 discount.   Residents, the disabled and "low income" drivers would get 50% discounts.  For what it is worth, it is my preference although I'd want to be sure that roads to bypass this cordon were clearly marked and capable of handling through traffic.  Indeed the appraisal done of this option indicates it is better, although I am not fully convinced of those results.

The second option is the southern cordon (right) which imposes charges at the Golden Gate and Bay Bridges, and more controversially one at the administrative boundary of San Francisco County at the southern end.  The charges would be the same.  

Now I have a few problems with the concepts, in particular I don't think you win motorists over by spending the majority of the money raised on modes other than roads (public transit needs serious structural and governance reform in San Francisco so I would prefer it was reformed before it got more subsidies), but in principle this is a significant leap forward.

San Francisco Streetsblog outlines some of the more irrational arguments, but also the media coverage that evades the facts around the proposals.   

One that I wanted to highlight is that by Adrienne Tissler who bizarrely argued that the proposals would increase congestion because of peak spreading (she didn't call it that because she doesn't actually understand it).  She made this astonishing contradictory assertion:

Drivers who can will adjust their drive times to avoid the toll hours, creating congestion during nontoll hours. This just means bad traffic all day, at all hours.

So she figures, correctly, that some drivers will change drive times, but she claims there will be "bad traffic all day at all hours".  However, what does she think happens when people change driving times?  There is less traffic at the most congested times.   Presumably the charging hours have been set because at other times there is capacity in the road network that can be used without creating significant delays.   Otherwise, Adrienne Tissler, 2010 vice chair of the Metropolitan Transportation Commission, doesn't understand basic economics because she thinks increasing the price of a basic commodity INCREASES demand.

In NO case where congestion charging has been introduced has congestion suddenly worsened at other times or on bypass routes (that will be the next argument - the quaint notion that when faced with a charge, motorists will avoid the place they were intending to go to in the first place, clogging up other roads).

As I mentioned before, if you want all of the publicly available information about the San Francisco congestion charging proposals it is here.

I firmly believe that the county line proposal is not worth pursuing, but it will be the one argued by most opponents because it doesn't really match where congestion is, rather it is simply an administrative boundary.   If it gets dropped then the San Mateo County opposition may be diluted as one report indicated there wont be opposition to a central city focused charge.

However, the conventional arguments will come out.  The fear it will damage retail (when the charge doesn't cover the daytime interpeak).  The fear it will hurt the poor (some of whom don't drive, and it ignores the proposed discounts for residents and the low income).  The fear it is just another tax (which it arguably is, but for which the revenue will be put into a cash starved transport system). 

Yes a lot of detail needs to be ironed out, including how and whether all the discounts can be affordably introduced (I have designed a low income discount scheme for road pricing and it is far from cheap if it isn't to become an easy source of fraud), and how the roads adjacent to a cordon (and through it) will be managed.  However, San Francisco has an opportunity to show the rest of the USA how basic fundamental free market principles of pricing can be used for the greater economic and environmental good of a city, when applied to roads.

Commentary - Urban congestion charging needs governance reform

One of the biggest problems facing any policy makers seeking to introduce any form of congestion pricing in a city is not a matter of technology, or designing an appropriate geographically based charge, or even the political difficulties in gaining support, but rather something more mundane, but arguably more important - governance.

No city that has introduced a substantive form of congestion charging has done so without addressing this issue, and it comes down to having one entity responsible for all of the charged roads.   London has 33 local authorities, which almost certainly could not have come together to set up the congestion charge unless there had been an overarching authority responsible for arterial roads (Transport for London).  Singapore similarly has one agency responsible for its charged roads.  Stockholm's congestion charge is the responsibility of two agencies.  Cities with many local authorities face limitations as to what can be done with road charging.   This was alluded to this week in Australia where it was reported in the Brisbane Times that Brisbane has an advantage in having a single local authority, compared to cities such as Sydney which have 43.

The solutions to this depend very much on what the policy objectives are.

Governance reform that merges local authorities or at least merges control of arterial roads is one option, as has been seen in London.   This is what is likely to be necessary if the intention is to introduce area or cordon charging.   The key reason being to have only one entity responsible for procurement, but also one entity responsible for all of the work related to congestion charging around signage, redesigning intersections, rephasing traffic signals and the like.   These are all activities often ignored in the discussion of congestion charging.   It is very important that one entity is responsible for ensuring good standards of service are offered to motorists with the congestion charge, but also ensuring smooth traffic flows (and good use is made of revenues).

Many investigations into congestion pricing consider the important financials and economics, with assessment of costs, revenues, demand impacts, impacts on congestion and emissions.  However, far fewer consider whether the existing governance of roads in the city concerned is appropriate.

The unspoken truth is that most cities run roads like bureaucratic centrally planned services, with very much an engineering focused approach.   These transport departments or streets units or whatever are not focused on delivering front office customer service to motorists.  The closest they get to this is parking fines, which are typically treated as offences.   Roads are not delivered as utilities to paying customers, and this is the problem.   Road pricing means motorists are customers, they have queries, they will hold accounts, they will change account details, have disputes and need to be told when prices, terms, conditions and offers change.   That level of communication, handling of money, need for service and need to be responsive is not built into government monopolies typically.

The model I advocate for getting motorists on side with congestion charging is to develop a more retail, more service oriented approach with a dedicated organisation that is about delivering roads as a service to those paying for them.  That means delivering what users want, not what engineers think they should have nor what politicians think.  However, that is another story.

Those interested in progressing road pricing should never assume that existing agencies or organisations are well placed to manage a road pricing programme or be sufficiently dynamic to unlock the full range of benefits available.   It is a critical area of work that is often neglected as most of those interested in road pricing have engineering or economics backgrounds, not backgrounds in public and private sector governance and institutional reform.

Puerto Rico seeking to privatise toll roads

Bloomberg reports that the US territory of Puerto Rico has shortlisted four bidders for the privatisation of two toll roads on the island.

All four consortia are led by either Spanish or Brazilian road/infrastructure investors:

- Spain’s Abertis Infraestructuras SA and Goldman Sachs’s Infrastructure Partners II unit; 

- Brazil’s Cia. de Concessoes Rodoviarias; 

- Spain’s Itinere Infraestructuras SA and Citigroup Inc.’s Infrastructure Investors unit; and 

- Spain’s Obrascon Huarte Lain SA and Morgan Stanley Infrastructure Inc.

Puerto Rico's Republican Governor is driven by a US$3.3 billion budget deficit that it is seeking to close by retiring debt to reduce net interest payments.   The privatisation will be a concession to own, operate and maintain the roads for 40-50 years.  

The roads to be sold are the Jose de Diego highway (Highway 22) and Highway 5 which generate around US$90 million p.a. in revenue, but the key will be making sure the concessionaire actually manages the roads to a high standard rather than simply regards the tolls as a way to make money.

Once these concessions have been sold, more are to come.  Privately owned roads?  Yes.   They exist all over the world, and finally more and more administrations are coming to appreciate the money that can be made from selling highways, but also the innovation that it can bring.

Australian Federal Government advocating road pricing

The Australian newspaper has reported that the Australian Federal Infrastructure and Transport Minister, Anthony Albanese, has launched a discussion paper called Our Cities.  The report claims that without forms of road pricing, such as congestion charges, the congestion reduction benefits of major highway projects will not be sustained.  It makes the long recognised observation that congestion cannot be relieved simply by building new road capacity.

The discussion paper is available here, and seeks feedback by 1 March 2011 on the report.   A brief look at this paper shows that it seeks a National Urban Policy and covers a wide range of infrastructure issues that I will not go into (this is Road Pricing blog after all).  

Key references to road pricing include this statement (p.22):

The option of more effective pricing gives clearer and more consistent signals to commuters and carriers of freight about the real cost of road use or other mode such as air or rail. Road congestion charging has already been introduced in cities like London, Singapore and Stockholm. The experiences and lessons from these international examples are worthy of further consideration. There are also ongoing debates about whether road pricing is warranted, or even cost effective, in Australia’s biggest cities. However, the widespread adoption of affordable Global Positioning System technologies may provide more options in future. The social implications of such approaches will also need careful consideration.

In other words, pricing can take transport closer to user pays and Australia should look at the benefits that have come from the three major international implementations of congestion charging.  The mention of GPS shows interest in moving beyond the limitations of the technologies used in those cities.

Part of the motive is maintaining mobility, but also ensuring environmental impacts are managed as is said here (p.24):

Without the use of complementary demand-side measures, such as road pricing and congestion charging, some proposals for additional road capacity are unlikely to lead to sustained reductions in congestion and may further impact the environment and reduce urban amenity.

On page 25 it mentions that Australia already has electronic toll collection (now with fully electronic free flow toll roads in Melbourne and Sydney) and is developing "cordon zones with congestion pricing", which is perhaps an exaggeration, although it is certainly being investigated.

Page 58 has the consultation questions, although submissions need not be limited to those.  Question 8 is:

What is the role for pricing reform (such as water, roads or carbon pricing) in meeting the challenges of Australian cities?

Clearly the potential is enormous to help manage congestion, and improve the allocation of resources for roads and in the demand for other modes.

The key point is that road pricing is now in the mainstream policy agenda for transport in Australia, at the Federal level.  There is much in this discussion paper, outside the scope of this blog, which I might criticise and much to agree with.   However, it will be interesting to see the response this paper gets from submitters, and if pricing reform is not simply dismissed and put into the too hard basket.  Given the current Australian Federal Government is now a coalition between Labor and a number of independent MPs (after Labor lost its overall majority), it is somewhat bold to be advancing an agenda often perceived as being politically risky.

Australia has seen extensive highway networks built in the past 20 years using private finance and tolling, including many new urban corridors in Sydney, Melbourne and Brisbane in particular.  This has exposed large numbers of Australian motorists to tolls, including most recently peak time congestion based tolls on Sydney Harbour Crossings.   Road pricing in the form of tolls has helped build these roads, and indirectly helped manage the demand generated from these roads reducing transport costs.  The bigger question is whether pricing existing roads to manage congestion can be implemented in Australia.

The main disappointment I have from the discussion paper, from a road pricing perspective, is how it did not raise the option of replacing some existing road charges (e.g. fuel tax and annual registration fees) with road pricing as a way forward.  The National Transport Commission (which advises on these issues) already has alluded to this.

However, it may simply be premature to make that jump, and for now the interest will be whether road pricing moves more clearly onto the agenda for urban transport policy in Australia.