Paul Callow: Tolls a powerful incentive

Congestion charging and public transport investment are two sides of the same coin, writes Paul Callow

Traffic congestion on the Auckland Harbour Bridge. Photo / NZH
Traffic congestion on the Auckland Harbour Bridge. Photo / NZH

If you build it they will come, was the advice given to Kevin Costner in the film Field of Dreams. A better analogy for infrastructure, particularly transport infrastructure, would be "they are coming so you had better build it before they get here" which neatly encapsulates the approach to infrastructure planning as well as many of the risks carried with it.

Imagine the derision Mr Costner would have faced if no one had turned up, or the abuse if far too many people arrived and swamped the facility.

These are both problems faced by infrastructure and transport planners every day in trying to avoid building white elephants or services that are under-capacity from the start.

The primary difficulty is that we are trying to understand human behaviour, which is notoriously difficult to either predict or control, and this creates risk for the developers and owners of infrastructure. We only have to look at some of the problems faced with toll road projects in Australia, where demand risk has been passed to private sector developers, to see the serious financial consequences of getting it wrong.

It is not all bad news though. There is no doubt that providing better services attracts customers. The city of Perth, having been on the verge of abandoning its rail system in 1979, has achieved dramatic improvements in patronage rising from around 7 million trips in 1992 to over 56 million today. It achieved this through extending its coverage and modernising and electrifying the service improving frequency and quality.

Better services are all very well but the investment needed in infrastructure, and in particular transport services such as heavy rail and road, is always large and begs the inevitable questions around who should pay. The answers are never simple and require striking a balance between what the users should contribute and what should be paid for by the rest of the taxpayers or ratepayers, as well as making sure the asset or service is fully utilised. One thing we do know is that the way a service is priced is a very strong driver of if and how it is used. This brings us back to the question of trying to control behaviour, and hence use, of our expensive infrastructure assets to realise the benefits while making sure they are fully but not over-utilised.

Making public transport "free" for example would dramatically increase use but likely result in overcrowding and deterioration in service levels. In any case it is never truly free; the cost just falls elsewhere, in this case on ratepayers, many of whom wouldn't use the service.

What this illustrates is the power of financial incentives on infrastructure users and that these links are much more direct for publicly provided services than private cars.

Ask anyone what their train or bus fare to work is and you will get a detailed summary of the per-trip price and savings to be had with 10-trip or monthly tickets. Ask someone who drives how much their commute costs and you will likely get a blank look. Interestingly, car drivers, as well as trucks and commercial road users, are the beneficiaries of a very significant piece of public infrastructure, the road they are driving on. Think how their behaviour would change if they were faced with a similar direct cost for their journey as a public transport passenger is for theirs. For a start they could make a direct comparison between the two and might choose to leave the car at home. If you want someone to think carefully about what they use, put a price on it.

In essence, this is what congestion charging and road pricing has done for the cities that have adopted it. It has confronted road users, particularly the drivers of private cars, with a cost for using the road. This has been a powerful incentive to change behaviour with many switching to public transport. Those who remain in their cars benefit from less clogged roads as well as contributing through the charge they pay to fund public transport.

But road pricing is not a magic answer. There need to be safeguards and genuinely feasible alternatives for people to use.

It is, however, a very powerful tool for helping realise the benefits of transport investment and achieving the transport goals that government sets for itself.

Critics say, "we have already paid for the road," and indeed we have, but that is missing the point. We are also paying for the congestion through the time we lose sitting in traffic, which could better be spent at work, with families and friends or, frankly, doing pretty much anything else.

As the man in Field of Dreams said, "If you build it they will come", but think carefully about what to charge at the gate.

Congestion charging: the London way

In the late 1990s, London suffered from some of the worst traffic in Europe, with the equivalent of 25 busy motorway lanes of traffic trying to enter the central city every weekday morning.

Drivers would spend half their commuting time waiting in queues, costing the local economy millions of pounds every week in lost time.

In February 2003, Mayor Ken Livingstone introduced a congestion zone around a 21km2 portion of the central city. Vehicles entering the zone were charged a flat fee, essentially during daylight hours from Monday to Friday.

The results were both immediate and dramatic in terms of the drop in traffic congestion.

Though critics argue that congestion in central London is currently close to the levels experienced before the introduction of the scheme, taking into account the increase in population during this period supporters say that congestion would be much worse without the congestion zone.

On balance it would seem that congestion charging in central London has had the desired effect in changing commuter behaviour and reducing congestion.

Factors supporting this successful outcome included:

• Careful evaluation of a range of options.

• Strong and unwavering political commitment.

• A rigorous public consultation process.

• The fact that the congestion charge was introduced as part of an integrated transport strategy with the revenues collected reinvested in transport improvements including increased public transport.

Paul Callow is Corporate Finance Partner and Energy and Infrastructure Sector Leader at Deloitte

- NZ Herald

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