Congestion Pricing: Lessons from London

This week we are very happy to introduce Jonathan Leape, of the London School of Economics, who discusses London's attempt to address traffic gridlock through a novel congestion-pricing scheme. Clearly, urban congestion poses major public policy challenges, which will only become more acute as growth in demand for travel continues to outpace our ability to build new road capacity. On the other hand, thanks to new technologies, we now have the ability to contain congestion by charging motorists for using busy roads. So how successful is the London congestion policy, and what lessons might be learned for other congested cities like New York?

Congestion is steadily increasing on city streets around the world, imposing a heavy cost on urban economies that depend on rapid, reliable movement of people and goods. In the United States alone, the Texas Transportation Institute has calculated that traffic delays cost $78 billion a year in wasted time and fuel. Taking account of the additional costs of doing business, lost productivity, and unrealized business revenue means that the overall cost of congestion is much higher, as shown in a recent study of congestion in New York City.

Theoretically, economics provides a solution: put a price on congestion paid by the people who contribute to it. There are other ways of trying to deal with congestion, such as building new roads, regulating parking, or subsidizing public transportation, each of which has its role. But only congestion pricing creates the right incentives when individuals are deciding whether to travel, when to travel and how to travel. The idea has been under discussion for decades, and the question has been whether it can actually be done in practice. Now, over the past five years, London has demonstrated that indeed it can.

But London's experience also makes clear the conditions that a city and its leadership must meet if congestion pricing is to be effective and, as in London, popular.

The first condition is a level of public and business concern about the costs of congestion that puts the problem well up the political agenda. By the end of the 1990s, average speeds in central London were below 10 mph throughout the day and commuters into London spent almost 30 percent of their time stationary during peak periods. In public opinion surveys, public transport and congestion outranked crime as the most important problems requiring action.

The impact of the scheme exceeded expectations. In the first year of the charge, traffic delays in London dropped by 30 percent, journey time reliability increased by 30 percent, and average speeds rose 17 percent, reflecting a sharp fall in traffic jams at intersections (the time spent traveling at speeds less than 6 mph decreased by one-third). The charge also changed who was using the roads: private car trips dropped by 34 percent, and trucks and vans by 5 to 7 percent, but bus, taxi, and bike trips all rose sharply. The overall impact was a noticeable improvement in traffic conditions.

The London experience has also shown that it's possible – and important – to spread the benefits of congestion pricing widely. By committing to plough all the revenues raised by the congestion charge into public transportation improvements, London has ensured that congestion pricing didn’t just improve mobility for car drivers who can pay the charge (the "Lexus lanes" problem) but also increased access to the city centre for everyone. Innovative policies, such as the popular mass bike-share program in Paris, can also help to spread the benefits.

In fact, the shift from cars to buses outstripped predictions. Inbound bus passenger numbers increased 37 percent in the first year, about half of whom had previously traveled by car. This increased the bus share of incoming passengers to almost 10 percent, with most of the remaining passengers split evenly between rail and subway. A key reason for the surge in bus passenger numbers appears to be the "virtuous circle" for bus transport that can result from congestion pricing. The higher cost of rush-hour car trips and increased bus travel speeds, due to reduced congestion, result in increasing passenger numbers and falling average costs – which, in turn, lead to improved service levels and lower fares that stimulate further shifts to public transport and additional reductions in congestion. With one million people traveling into midtown and downtown Manhattan every day by private car, the potential for a virtuous circle in New York is evident.

But London also offers a warning to Mayor Bloomberg in New York. Because congestion pricing has been more successful than Mayor Livingstone expected, it has brought in less revenue – a problem that was compounded by set up and running costs that far exceeded expectations. Tight control of costs is essential if the increased investment in mass transit and other transport alternatives necessary to make the scheme successful are to prove sustainable.

The central lesson of London's great experiment is that congestion pricing will get and keep public support only if it is part of a larger congestion management strategy that improves public transportation. And it will only work if the impact of the scheme is highly visible and the benefits are spread widely.

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Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.

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