Congestion charging

In this week's column in the Fairfax papers, I look at the case for congestion charging.

The same kind of technology that lets commercial trucks handle road user charges painlessly could be installed on petrol vehicles. Petrol excise would go away, with road user charges taking their place to collect the same amount of money for the land transport fund.

Carbon charges on petrol would, of course, remain.

The purpose of a congestion charge would not be to fund new roads, or road expansions, or public transport, or anything else. The purpose of a congestion charge would be to get rid of the hassle and time and frustration cost that each of us bears when stuck in traffic, and to replace it with a monetary charge instead that would allow traffic to flow freely.

If you'd like an analogy, think about the old Soviet Union. Prices were officially very low in the government's stores, but everyone had to sit in queues for hours if they wanted to be able to buy toilet paper. That's how we run our roads: the government's set price for getting onto the road is zero, but you have to queue.

Ideally, congestion charging would be revenue-neutral. Road user charges would fund the roads, but congestion charges' only job is to alleviate congestion. The government could take every dollar collected in congestion charges, net of the cost of running the system, and give every person in the country an equal payment out of the collected funds.

Letting prices work can solve a lot of problems. It can also then make additional investments in roads rather less necessary. Traffic engineers like building roads to handle times of peak use. Charges that spread that traffic load more evenly over the day mean that you don't need to invest as much in increasing capacity in the first place.

Even better, the collected congestion charges can start to tell you when it does make sense to increase capacity – to twin Wellington's Mt Vic tunnel, for example, or to turn some of the chokepoint traffic circles on Johns Road in Christchurch into offramps and flyovers. If collected congestion charges around the chokepoint signal that people really put a lot of value on getting across town, that starts making the case for increasing capacity.

If instead we see that the congestion charge needed to for traffic to flow freely around the chokepoint at peak hours is rather low, then the economics of fixes like a second tunnel are likely rather poor.

It's hard to tell which is true until we start pricing congestion.

Like carbon prices, congestion prices are one of those things where the economic merits are obvious, but the politics in getting there are hard. Heck, Mark Blaug explained the case for them in a public lecture at Canterbury more than a decade ago.

Making the charge revenue neutral will be important in making the thing feasible. If people expect this to be a tax grab to fund all manner of new initiatives, they'll rightly balk. Using a congestion charge that way makes a hash of it. If you use the thing with revenue as an objective rather than a byproduct, you'll set the prices incorrectly. I like the idea of just giving everyone a cheque for their equal share of the collected net revenues.

At the same time, we do need better ways of funding roading infrastructure. And that's where Road User Charges could come in. If we have the transponders in place for congestion charging, we can use them to set different base prices for different roads. If it turns out that a second Mount Vic tunnel makes sense, which we'd quickly see if the congestion charge necessary to ease traffic around the tunnel were high, then you could fund the second tunnel with a dedicated charge on that route - that dedicated road-specific RUC could pay off the bond that funds the tunnel. And if it looks like there's no way that driver demand, as demonstrated by willingness to pay to use that route, would cover the cost - well, then digging would be a waste of money and shouldn't be done.