Road Pricing for Congestion Management: The Transition from Theory to Policy Kenneth A Small Jose A. Gomezqbanez Reprint UCTC No 391 The Unzverslty of California Transportation Center Umvers~tyof Cahfornia Berkeley, CA94720 The University of California Transportation Center The Umverstty of Cahforma Center acuvmes Researchers Transportatxon Center (UCTC) at other umversitms within the ts one of ten regaonal umts region also have opportunmes mandated by Congress and to collaborate with UCfaculty estabhshed in Fall 1988 to on selected stu&es support research, education, and tramng m surface trans- UCTC’seducational and portatmn The UC Center research pro~ams are focused serves federal Region IX and on strategic plamung for is supported by matching improving metropohtan grants from the U S Depart- accesslblhty, with emphasls meat of Transportatmn, the on the specxal condmons m Cahfornta Department of Regmn IX Paracular attenuon Transportation (Caltrans), and is directed to strategies for the Umvers~ty using transportation as an instrument of economtc Based on the Berkeley development, whale aiso ac- Campus, UCTCdraws upon commodating to the regxon’s existing capabthtles and persistent expansmn and resources of the institutes of wh~Ie maintaining and enhanc- Tran~portatmn Studms a~ ing the quahty of life there Berkeley, Davis, Irvme, and Los Angeles, the Institute of The Center distributes reports Urban and Remonal Develop- on its research m working ment at Berkeley, and several papers, monographs, and m acadenuc departments at the repnnts of oublished amcles Berkeley, Davis, Irvme. and It also pubasnes Accers. a Los Angeles campuses magazine presenting sum- Faculty and students on other marles of selected studies For Umverslty of Cahfomla a l~st of Dublicatmns m print, campuses may pamc~pate m wine to the address below Umversity of Califorma TransportationCenter 108 NavalArctutecture Building Berkeley, California 94720 Tet 510/643-7378 FAX510/643-5456 Thecontents of this report reflect the viewsof the authorwho is responsible for the facts and accuracyof the data presentedhereto Thecontents do not necessarily reflect the official wewsor pohcmsof the State of Calfformaor the U $ Departmentof Transportation Thasreport does not conmtutea standard, spectflcatton, or regulatmn Road Pricing for Congestion Management: The Transition from Theory to Policy KennethA. Small Department of Econonncs Umversity of Cahforma, Irvme Irvlne, CA 92697-5100 Jose A. Gomez-Ibanez Kennedy School of Government Harvard Umverslty 79 JFK Street Cambridge, MA02138 Reprinted from Road Prtcmg, Traffic Congestton and the Envtronment Issues of Efficlency and Social Feastbthty K Button and E Verhoet (Eds), pp 213-246 (1998) UCTC No 391 TheUmverslty of California TransportationCenter Umversltyof Califormaat Beikeley 10. Roadpricing for congestion management:the Wansit.ionfrom theory to policy KennethA. Small and Jos A. Gomez-Ibafiez lO.l INTRODUCTION Traffic congestionis a classic externality, especially pervasive in urban areas. The theoretical and empirical relationships governing it have been thor- oughly studied. As a result, most urban economists and a growing numberof other policy analysts agree that the best policy to deal with it wouldbe some form of congestion pricing. Such a policy involves charging a substantial fee for operating a motorvehicle at times and places wheretbe.~ is insufficient road capacity to easily accommodatedemand. The intention is to alter peo- ple’s travel behaviorenough to reducecongestion. Re.se.an:hers have long speculated about how{o overcomethe practica! barriers to implementing some form of congestion pricing. The work of William ~,qckrey (t955, 1963, 1965, 1973) stanch out, but is by no means alone: other notable contributions addressingpolicy designand evaluation include W~alters(|961), UKMinistry of Transport(1964), Mohring(1965), May(1975), Gomcz-lballezand Fauth (1980), Knms(1989), and Small (1992). A comprehensivetwo.year study by the USNational Research Council (I 994) is almost entirely concerned with implenmatation. Additional recent policy evaluations include Grieeo and Jones (1994) and Emmet-inket al. (1995). Together, these works address technology and institutions for implementa- tion, relationship to road investment, welfare evaluation of ideal and not-so- ideal policies, financial policies for using revenues,and practical steps that could take us from current policies towardcongestion pricing. Public officials have recently becomemore interested in congestion pric- ing and other schemesJ’or charging for road use, such as toll roads or parking taxes. This broader groupof policies is often called road pricing. Theinterest in road pricing has been.stimulated by the desire to find newrevenue sources for transportation investments, and by the failure of alternative policies to significantly stem the growthof trafficcongestion. 213 214 Palittcaland social feastbility As a result, practical experience with road pricing has been increasing worldwide. For many years, the only example of congestion pricing was Singapore, a case that has received mixed reviews. Todaythere is consider- ably more experience to draw from, as well as several quite detaded plans that madeconsiderable progress towards pohtical approval. These cases cover a wide range of sites, objectives, and details of implementation. Manyare described by Hau (1992), Lewis (1993), and Gomez-Ibafiezand Small (1994). This chapter summarizes 13 such cases, including Singapore, and draws lessons about implementation from them. In particular, we examinehow well the theoretical advantages of congestion pricing hold up in the transition to practical and politically acceptable policies. The cases are divided into four broad categories: congestion pricing of a center city, center-city toll rings designed primarily to raise revenue, congestion pricing of a single facility, and comprehensivearea-wide congestion pricing. Table 10.1 lists our cases according to these categories, and shows whether each case is already imple- mented,is under study, or, as in one case, is a limited-time experiment. Table 10.1 Cases of road pricing studied Type of road pricing Degree of implementatmn In place Behavioral Under study (starting date) experiment (dates) City center: Singapore (I 975) Hong Kong congestion pricing Cambridge, UK City center: toll ring Bergen (1986) Stuttgart Stockholm Oslo (1990) (1994-95) Trondheim( 1991) Single facility: Autoroute A 1, congestion pricing France (1992) State Route 91, California (1995) Interstate 15, San Diego (1996) Area-wide: Randstad congestmn pricing London Roadpricing for congestionmanagement 215 10.2 PIONEERS: CONGESTIONPRICING OF CITY CENTERS Three cities have seriously considered congestion pricing of a city center, each pioneering a different methodof applying or implementingthe concept. Singapore was the first to design and implementa practical, low-tech scheme for congestionpricing. Singapore’sinitial systemwas very simple: the priced area is defined by a single cordonline surroundingthe city center, the tech- nology consists of paper windshield stickers, and enforcement is through visual inspection by traffic officers. HongKong was the pioneer in fully- automatedcharging; its electronic road pricing (ERP)scheme was a flexible and comprehensivesystem involving multiple cordons. For Cambridge, Eng- land, the new concept was congestion-specific charging, an attempt to more closely approximatethe theoretical ideal of congestion pricing by makingthe charge vary in real time in a mannerreflecting the severity of congestion actually encounteredwhile inside the priced area. Only one of these systems is operational. Singapore’s Area License Scheme (ALS)was inaugurated in 1975 and still operates today; the city has recently inaugurated an electronic system to replace its manualcharging and enforce- ment. Hong Kong’s ERPscheme was subjected to extensive technological field trials as well as exhaustive desk studies for prediction and evaluation, but was withdrawn due to public opposition. Cambridgehas also been the site of a technological field trial but the schemewas abandonedwhen a new and unsupportive council cameto powerin 1993. 10.2.1 Singapore’s Area License Scheme Singapore’sALS is part of an extremely stringent set of policies designed to restrict automobile ownershipand use in this crowdedisland city-state of three million people. The national governmentchose the ALSover conven- tional road tolls and higher parking charges because space for toll stations was lacking in the city center and it thought higher parking charges wouldbe ineffectitve in the face of heavy through traffic and numerouschauffeur- driven cars. The ~,;ize and structure of the fee has varied over the years. Whenfirst implemented in 1975, the fee was imposed only on vehicles entering the restricted area during the morningpeak period. Carpools and taxis carrying four or more people were exempted, as were motorcycles and commercial trucks. For cars, the fee has ranged from approximately $1.50 to $2.50 per day in UScurrency equivalent.I In 1989, the charging hours were extended to the afternoon peak (but still in the inbounddirection, since that producedthe desired effect on through traffic) and the exemptionswere eliminated for all 216 Pohtical and social feasibihty vehicles except public transit. In 1994, the hours were extendedto include the t~me between the morning and afternoon peaks. Collection costs have been modest, amountingto about I 1 percent of revenue in