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Solving Traffic Jams with Congestion Pricing: Story of Central London

By Akshat Agarwal

ABSTRACT

With the rising population, traffic congestion has become an intolerable transport problem in most metropolitan cities. Traffic congestion has a deleterious effect on business activities & reduces the worker’s productivity. The paper analyzes the impact of congestion pricing as a method to abate the negative consequences of such a problem. Congestion pricing is a simple and effective system of surcharging the users of certain vehicles as a tool for stabilizing traffic levels in urban areas.

The study gives a comprehensive overview of the success of road congestion pricing system implemented in Central London and evaluates the potential benefits of such a system concerning major metropolises. When London enacted this policy in 2003, the overall vehicle traffic dipped down by 25.7% & public-transport ridership rose by 20% in just six years. There was a considerable fall in the concentration levels of various air pollutants. The revenues generated allowed the resurrection of the public transit system to cope up with higher frequencies of passengers & reduced pollution levels to a considerable extent. Certain economic principles that are integral to the cost-benefit analysis of road pricing are examined. The paper concludes by discussing the scope of road pricing as a promising solution to save future cities from chronic traffic gridlock. Keywords: Congestion Pricing, Public Transport Ridership, Potential Benefits, Metropolises, Cost- Benefit Analysis, Traffic Gridlock.


INTRODUCTION

Traffic congestion has become an urban disamenity for almost all metropolises around the globe. Agglomeration of economic activities and subsequent expansion of cities has led to stiff competition for space. This has, in turn, resulted in the inevitable surge of automobiles on roads. Enticed by productivity gains and a better lifestyle, the rising populations in mega-cities further add on new levels of traffic and travel demand. Most people believe that poor & unplanned road network is the leading reason behind traffic congestion. But due to insufficient funding, every State cannot fulfill the required demand for better roads. In the United States, it was estimated that across 471 urban areas, American spend 6.9 billion hours more on the road & approximately 28 million tons of CO2 are emitted each year due to fuel wastage (Shrank, 2009). Financial setbacks may incidentally dampen the increasing course of private-car use, but this would not solve the twin problems of air pollution and traffic gridlock. Economic downturns may temporarily dampen the rising course of private automobile use, but the twin challenges of air pollution and traffic congestion would still prevail (Pike, 2010) Thus, traffic congestion is simply the consequence of drivers failing to understand the impact that their vehicle would have on others. So even though the ‘net social marginal benefit' of driving is negative, traffic congestion would still happen as it is treated as a ‘neglected externality'.

London during the 1990s faced a similar problem of traffic congestion which on the brink of thetwentieth century had become so drastic that an average driver spent 36.8% of their on-road time stationery (Newbery, 1990). In response to these concerns, on February 13th of 2003, the congestion charging system was implemented London to cut air & traffic pollution under the supervision of then-mayor Ken Livingston (Deakin, 2009). The way congestion charging (pricing) worked was simple: A system linked with the overhead traffic cameras were used to detect the license plates of the vehicles. This data was processed centrally and used to apply the charges to the appropriate defaulters. So, if any vehicle (including private cars, goods vehicles, taxis, motorcycles) enters the Congestion Charging Zone (CCZ) during the applicable hours (7am-6pm), Monday to Friday, a charge of £11.50 (British Pounds) would be imposed on the account of the owner of the vehicle. People had the access to pay through various payment channels like retail stores, mobile wallets and net banking (Santos, 2004). The CCZ covers 28 km2 in the heart of London having 1.7% of the city surface and attracting 1.1 million people (Croci & Douvan, 2016).

A diverse & well-functioning public transport system is the contingent ingredient behind required for enforcement of a fair pricing scheme, like road pricing (Khan & Islam, 2013). Without diverse public transport alternatives, congestion pricing would just be a regressive tax and an additional burden on the middle-class. Thus, the London Scheme can be seen as an optimal road pricing theory that has the long-term objective to internalize the externalities associated with driving and efficiently use the revenues generated to resurrect the public transport systems (Litman, 2011).

Many metropolises around the world are facing a severe congestion problem. As the economy prospers, the number of vehicles will continue to climb in these urban centers and likely worsen the issue over time. Bearing the case study of London's congestion pricing policy, the objectives of the paper are to analyze & discuss how the London’s congestion charge has affected the traffic levels, use of public transport, overall road safety & the environment. The aim of these findings is to understand the reason as to why traffic gridlock is treated as a classic example of overuse of common resources which have unlimited & free access. The different distributional effects of the congestion charge would be explained with the help of present evidence. Lastly, it would examine the compatibility of the framework of this policy as an effective approach to curb congestion & air pollution in and around major urban cities around the globe.


REVIEW OF LITERATURE

The starting point for any study on congestion pricing should be based on the works of Vickrey & Walters (1992) who were the first economists to write a seminal paper about the concept of congestion pricing. It explains how after the end of the Second World War, there was a sudden surge in the sales of automobiles which ultimately became a big issue for the commuters. Recommendations for increasing the fares of the New York City Subway System were given, to ease the high frequencies of travelers. A set of principles to be followed for implementing efficient congestion pricing for roads and parking were also listed. Different methods & technologies are being used for congestion pricing. For this purpose, it is vital to review the characteristics of such tools which can be differentiated by their function. Palma & Lindsey (2009) investigates the various technologies and their applications which can determine the scope of congestion pricing as an effective system and maximize its efficiency. They categorize the methods into various types like roadside-only systems, digital photography-CCTVS, vehicle- only systems, and tag-and-beacon systems. They explain how the ‘jam factor' (on a scale of 0-10) can act as an indicator to determine the intensity of the congestion. Their work helps to understand the scope of different congestion pricing methods and their limitations.

The growing traffic congestion in major parts of the world is an alarming concern and needs to be addressed. Ridder (2016) explains the efficacy of congestion pricing as a potential tool to eradicate the problem. It further compares the case studies of London, Singapore, Stockholm, and Milan to understand how congestion pricing, as a public policy has impacted their urban centers. Santos (2004) further argues how congestion pricing is theoretically simple but politically an onerous concept. It states that if congestion pricing is applied rigorously and fairly, the system would prove to be an effective tool for reducing both congestion and pollution. Their works helps to understand, in detail, how efficiently the road pricing scheme has been implemented in various cities throughout the decades and the underlying political and economic factors which led to this policy change. However, neither of their works depicts the clear picture about how the congestion pricing scheme has been successful in raising the overall net economic welfare of the Central London zone. The subject work lacks a practical approach towards using empirical evidence to support their put-forward arguments.

They also report that the result of their survey showed that 78% of the people in Central London believed that roads had become much safer after the implementation of the scheme. Li et al. (2012) reveals that casualties due to four-wheeler accidents went down by 6.1%, although it increased with bicycles (13.5%). This data coincides with Green et al. (2016) which pointed out a 32-36% fall in accidents. Croci & Douvan (2016) focuses on determining the differences in the effectiveness of the scheme with a particular focus on the elasticity of the use of private vehicles to charge. The key benefits and repercussions of the strategy were also crucial to apprehend. Due to lack of sufficient data, they weren't able to fully complete their analysis. By reviewing the works of Pike (2010), a descriptive analysis of various types of congestion charging systems are understood and taken into consideration.

On similar lines are the thoughts of Kalmanje & Kockkelman (2005) which provides a well- defined set of best road-pricing recommendations for policymakers and planners who want to implement congestion pricing. It considers congestion charging experiences in London, Singapore, Stockholm & Hong Kong and listed the quantitative observations for each city. Rooney (2014) also emphasizes how the net revenues generated by this system could be used for transit and further discusses the various flexible payment systems which are the necessary components to be facilitated. A lot of useful and compendious data on traffic flow will be analyzed and presented very creatively to provide a basis for understanding the utmost relevance of congestion pricing as an economic policy. It is vital to understand the anticipated effects of such a scheme and the financial implications that it would pose on London's economy. The significance of understanding the economics involved in the Congestion pricing mechanism can well be grasped by the works of Santos & Shaffer (2004). It presents the basic theory of optimal road pricing describing London's scheme and then computed the elasticities concerning the marginal congestion costs. Knorr & Eisenkopf (2006) calculate elasticities of demand for trips by car with respect to generalized costs were estimated to be between –1.45 and –2.28. A negative elasticity of demand implies that the scheme has been successful in reducing traffic levels. The works of both economists have describe the effects on traffic & public transport and its empirical evidence which was used for further research & study in this paper. Schaller (2010) suggests that the introduction of congestion pricing is perhaps a sign that the world is ready to shift road pricing to a practical center stage.

The concept of congestion pricing illustrate as a classic example of overuse of a common resource. Their works characterizes this economic theory to bring stability in traffic levels by reducing the number of cars on road and to encourage people to use alternatives including less congesting forms of public transport. Congestion pricing has not only affected traffic but has led to a surge in housing prices to a great extent. In order to determine the effectiveness of the London’s CCZ on housing prices, Tang (2017) analyzes rich data on traffic flows and compared roads and properties in the proximity of the CCZ. It finds that the homebuyers are likely to pay up to 5% more to enjoy a 10% reduction in traffic near their area. Arnott & Small (2004) further details how channeling the revenues collected from the congestion charging has enhanced the reliability and quality of public transport to a next level which would further lead to a more equitable redistribution of benefits to the home-owners living near the zone. The works of Replogle (2006) explains why implementing fuel tax and constructing better roads won't be enough to solve the problem of traffic congestion in the long-run and further suggested congestion tolls could lead metropolises around the world one step closer to abate the bottlenecks of such a big urban-problem. On an international level, congestion pricing has long been successful as a road pricing project throughout the last decade. Bhatt & Higgins (2008) draw lessons from a sample of projects with the richest and the most relevant experiences: London, Stockholm, and Singapore. Each city receives an in-depth attention in areas including planning, design, implementation, and evaluation.

In contrast, this academic paper aims at improving the existing literature on various fronts. The paper will provide a reliable and credible estimation of the effect of congestion charging on urban-traffic. The in-depth analysis of London's case study will be used to employ a more representative interpretation of the data set. Further, the paper will detail how the revenue generated from the scheme has helped London in the environmental and economic prospects. Further, the paper will sight the potential of how congestion pricing can help urban cities and future megalopolises to control traffic levels and stimulate overall stability. Therefore the research and its findings would be a significant improvement to the existing literature.


METHODOLOGY

The paper has fundamentally used secondary source of data and takes a case-based approach to examine the effects of the congestion charging scheme implemented in the Central Area of London. A lot of research papers specific to the analysis of the London’s congestion charging scheme were reviewed to get an overall insight about how the pollution levels and public transport were affected because of congestion pricing. The quantitative data for analysis was retrieved from the annual reports (2002-2008) of the Department of Traffic flow of London (TfL). This data was collected from 174 access points located in the entire congestion charging zone of Central London, monitored by traffic cameras using Automatic Number Plate Recognition (ANPR) technology.

The empirical approach is based on the lines of fairly recent literature to examine the effect of London’s congestion charge on the level of traffic flow, use of public transport, road safety & the environment. The more recent traffic flow data was converted to percentage form to illustrate year-by-year changes in traffic entering the CCZ during charging hours. Around twenty papers covering a wide spectrum related to congestion pricing being implemented as a public policy were reviewed to get a better understanding of how this scheme could help curb the problem of traffic gridlock in the urban metropolises around the world. Some papers talk about the benefits and repercussions of the various kinds of road pricing strategies that have been used so far in this world. While others provide an in-depth case study analyses of congestion pricing experiences in countries like Stockholm, Singapore.


RESULTS
The resulting impacts of the congestion charge in Central London can be monitored under 4 main fronts: traffic level, road safety, public transport & the environmental impact. Further, the results show how the generated funds have helped to enhance prosperity in the streets of Central London.

Effect on Traffic Level & Congestion:

As shown in Table 1, the introduction of a congestion charge saw a 14% reduction in overall traffic level in just one year of its operation i.e. between 2002 and 2003 and a further 2% reduction in 2005. Among cars, there was a 33.5% reduction within the first year and further down by 4% by the end of 2005. The interval of 2004-05 saw a relatively lower fall in traffic level because of the increase in the congestion charge from £5 to £8. There were reductions in number of vans entering the CCZ by 11% in 2003 and further down by 3.5% by the end of 2005. The traffic constituting heavy vehicles having more than four wheels also saw a reduction of 18% in 2003 and further down by 3.5% by the end of 2005. The number of licensed taxis (exempt from congestion charge) increased in numbers by 17% in 2003 and further to a smaller extent of 0.7% by the end of 2005. Buses and coaches were in fact, increased in numbers & frequencies during this time period and hence saw a rise in their respective traffic level by 23% in 2003.

London observed a 33.5% reduction in car traffic entering the CCZ in London, within the first year, which basically adds up to ~70,000 inbound car trips that were not made. Comparing the net result of the year 2006 with the baseline year (2002), car traffic was cut down by 25.7% which clearly suggests that, as expected, the congestion charge was successful to influence the judgment of the private car drivers on various fronts: whether to travel a specific trip, when to travel & which mode of travel. Even though there has been a moderate drop in the flow of commercial traffic including vans and +4 wheelers, it has been more than compensated by a quick rise in the net frequencies of taxicabs (13%), bicycles (49%) & two wheelers (8.5%) by the end of 2006. There is evidence related to a considerable rise in the average travel speed inside the CCZ of Central London. Before the congestion charge was introduced, the average speed in the Central London area was 17.8 kmph (11 mph) in 2002 which leaped by 27% to 22.7 kmph (14.1 mph) in 2006 (Transport for London, 2008). This not only signifies lesser traffic jams in the CCZ, but also leads one to the fact that congestion in terms of time-delay experienced has dropped considerably.

Effect on Road Safety:

There is evidence that the congestion charge has helped enhance the safety of the streets of Central London in various ways. Overall traffic accidents have fallen down by an astonishing 42% between 2003 and 2015 (Croci and Douvan, 2016). This tremendous fall in number of traffic accidents surprisingly outweighs, even the fall in overall traffic level. Accidents related to private cars fell down from 26% to 16% between 2003 and 2015 (Transport for London, 2016). One reason which can be attributed to the fall in traffic accidents is the 63% rise in the number of bicycles (which are relatively safer mode of travel) in the Central London region In fact, reported accidents related to bicycles rose by 9% between 2003-2015 (Transport for London, 2016). The results clearly portray the long-term falling course of accident rates in and around the CCZ of the Central London region. There is not enough evidence to prove that this fall is attributed with the congestion charge scheme, but it does gives one a perception that the scheme has, to some extent influenced the accident rate. Thus, fewer cars on the road have reduced the overall risk of accidents and fatalities and contributed towards a safer road environment

Effect on Public Transport:

The aim of the scheme was to relocate as many road-users (especially vehicle-drivers) from the road space to public transit facilities (buses & underground). It can be observed from Table 1, the number of buses entering the CCZ increased by 25.7% towards the end of 2006 as compared to what it was in 2002. There is evidence relating to the increased bus-ridership in the CCZ. From winter 2003 to winter 2004, the bus passengers around the congestion charging zone, increased by 38% which amounts to ~31,000 additional passengers (Transport for London, 2005). This signals the improved bus services in the region, which in turn, was because of the higher revenues collected by the transport providers. In the fiscal year of 2007-08, the net revenue w.r.t transportation was reported to be £112 million (₹980 Crores), and subsequently investments were made for the purchase & improvement of the buses & coaches of London (Transport for London, 2009). These kinds of investments are very necessary for the overall success of the Congestion charging system, as it improves the capacity for road-users to shift from vehicles and also to enhance their accessibility to alternate travel options.

More buses and lesser cars in the traffic means lower congestion, which also means that there the travel speeds for buses would thus be relatively higher. This further encouraged more passengers to choose bus coaches as their preferred mode of travel (Leape, 2006, p. 12). Increased passenger frequencies and lesser travel time allows the transport providers to offer a blend of improved public-transit service facilities like higher frequencies of buses, improved buses, lower fares & more bus-routes. It further allows the transfer & reallocation of road-users to public transport and improves the gains of the transport providers. Although bus-ridership rose by a considerable extent, the same expectations were not met with the underground rail trips. Within the first year of the congestion charge (2003-04), there were 16,500 lesser rail-passengers, which meant a drop of roughly 11%. (Transport for London, 2004). The Transport for London (2005, p.40-41) attributed various factors responsible for the fall in rail-passengers, which included the downturn in the domestic economy, drop in London’s tourism, the war with Iraq and the prolonged closure of the Underground Central Line.

The provision of an improved and diverse public-transport system coupled with the congestion charging scheme, plays an important role in reducing the chances of traffic gridlock and thus ensures overall public welfare maximization. Thus, it is very essential to implement an effective pricing scheme, so that it promotes fair social outcomes. Effect on Environmental Front:

Table 2 shows the different levels of average emissions of various air pollutants, in μg/m3 that were released in the atmosphere of the Central London area, pre- and post- congestion charge (2002 vs. 2003). The concentration of 8 major pollutants namely: Carbon Monoxide, Nitrous Oxide, Nitrogen Dioxide, Nitrogen Oxide, PM2.5, PM10, Sulphur Dioxide & Ozone. Percoco (2007) believes that the concentrations of all such pollutants are widely considered as indicators of air-pollution in most urban areas. A negative difference of the two components (Year 2002 vs. 2003) represents a fall in the concentration level of that particular pollutant. After the implementation of the congestion charge, the level of pollution of most pollutants dropped significantly in just a single year. Carbon Monoxide, Sulphur Dioxide & Nitrogen Oxide dropped by 39.41%, 37.83% & 14.88% respectively. This shows that the policy change has had a direct impact on the reduction of the pollution level in the city. The effect can be partly attributed to the fact that the Central London roads, post-congestion charge had the lesser car traffic. Low emission cars, electric vehicles, public buses & coaches were on the rise which ultimately explains the lowered pollution level. Transport for London (2009) estimated that the Carbon Dioxide (CO2) levels were down by 12% in the Central London Area between the years 2002-2009. This also meant that London was saving 103 tonnes of CO2 on an annual basis, which constituted to ~1.1% of overall United Kingdom’s CO2 Pollution (Givoni, M. 2012). Utilization of the Generated Revenues:

Since the 1990’s, the transport investments in London had long been insufficient to meet the prevailing demographic and economic development which was because London’s congestion problem became very serious by the brink of the twentieth century (Safirova et al., 2001). Transport for London (2004), stated that, after the successful completion of the first year of congestion charge, the legislation’s transport strategy for financial year 2004/05, focused on the long-term improvement of the roads of London and to reach the optimal utilization of public transport (mainly for public buses). Table 3 represents how the London’s Government has planned to spend the revenues generated from the scheme, on public transport and road safety. With the total planned expenditure of £133 million, 61.65% out of it would be spent on diversifying the bus-networks and 27.83% for better roads. The Government also focused on allocating funds (~3-4% of total spending) for improving late-night bus services, better pathways for bicycles & for installing CCTV cameras for buses. With reported revenues of £252 million, the congestion charge has resulted in a net income of £119 million. This highlights a very crucial feature about the idea of congestion charge as a public policy i.e. a very significant amount of generated revenues were invested back in the transport sector. The main purpose of investing back the funds to the transport sector points the integrated nature of the scheme to realize London’s long-term objective of a better public-transport system.


DISCUSSIONS

The mere purpose of the policy is not to force a penalty on a commuter who cannot afford to pay, but to realistically imply the actual cost of driving and internalize the cost. Congestion Pricing is not a very new idea but the light of its success can be seen by the benefits of its implementation in Central London (since 2003). Recent developments relating to Congestion Pricing scheme are ongoing in major metropolitan cities like New York, Washington & Hong Kong. Transport for London (2016) mentioned that the trend observed in Central London points the fact that the £11.50 congestion charge has actually reduced traffic and pollution levels to a great extent, and has revived the public transport system at the same time. Thus the entire cost of driving vehicles was internalized with the help of congestion charge and the benefits were enjoyed thereafter. This is a lesson that most of the developed and developing cities with densely-populated urban centers should learn and apply to have a sustainable future, free from pollution and traffic gridlocks.

The results show that the respective public policy implemented in London had achieved its main objective of reducing overall traffic level and using the generated revenues to restructure the public transport system. The roads of Central London were then safer as the number of accidents had dropped significantly. Because of the charge, the sales of electric and low-emission vehicles were up, and thus contributing to lower pollution. The revenues helped to diversify and expand bus services around London in higher level of frequencies which increased bus-ridership in London. Because of construction of better pathways and sidewalks in the streets of London, the number of bicycles rose by near three-fourth of what it was before the implementation of the policy. This conveys the fact that cleaner alternatives were the substitutes of the gas vehicles on the roads. So, the effects of the policy mainly associated with the increased reliability of public- transport and the net time-savings appears to be largely in line with what was expected. The London’s congestion pricing scheme has set a benchmark for many other policy-makers around the globe by giving rise to a new initiative for achieving the goal of national road pricing. Bhatt (2008) argued that London has a very well-functioning and diverse public transport system (bus, rail & underground subway) which helped as an alternative for road travel. It further asserts that the geography and the roads of Central London were suitable enough for having this policy implementation.


CONCLUSION

Everything that has been covered in this paper is quite sufficient to prove the fact that Congestion pricing can be used as an effective public policy to solve the problem of traffic gridlocks and air pollution. The paper quantitatively exploits how changes in traffic flow, air pollutants, public transport and use of generated revenues has been affected since the introduction of congestion pricing in Central London. Collaborating the results, it was found that there was a 25.7% overall reduction in traffic of all vehicles in Central London between 2002 and 2006. The rate of accidents fell down by net 42% between 2002 and 2015. The subsequent revenues earned from the fines and penalties were invested back to expand the public transport facilities as well as to finance the road safety plan. Carbon emissions dropped by 11% in the Central London area between 2002 and 2015. Given the present scenario of traffic congestion is increasingly becoming severe in most urban metropolises; congestion pricing is the solution to the issue if there is fair and rigorous implementation of this scheme. Nevertheless, there is a nee of transparency, cooperation and efficiency in the legislature to allow well-functioning of such a policy.

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