EYE CANDY WARNING: This post contains no pictures.
In a recent post I penned an “ode to demand-based transport pricing”. The main suggestion was that incorporating “time” into our transport pricing would be beneficial because it would help us to allocate our limited transport capacity to people who valued it more highly.
I also proposed a distinction between what I called “strategic” and “operational” issues. This distinction is useful, I think, because it encourages us to step back and examine some pertinent issues with more focus and clarity. That’s not to suggest the issues are fully separable, and in many situations they are not, but more that our understanding of the “whole” can be improved by an understanding of the “parts”, even if we at some point have to stitch them back together to form a “whole”.
The distinction between strategic and operational issues can be understood as answering the following two broad questions: 1) What are we trying to achieve from a time-of-use pricing scheme? and 2) How might we go about implementing such a scheme to achieve the desired outcomes? The following sub-questions seem to stand-out as being strategically important, i.e. they help us to answer the first question posed above:
- What are we trying to achieve through time-of-use transport pricing? Time-of-use transport pricing schemes seem to have two over-arching objectives, namely they can raise revenue and/or manage demand. In my opinion demand management should be the focus, because there are many more efficient ways we could raise revenue if required, e.g. fuel taxes and general property taxes. This suggests to me that the main advantage of time-of-use pricing lies in its ability to influence demand, rather than raise revenue.
- What should we do with the revenue? Even if raising revenue is not the focus, it is a unavoidable outcome. This in turn raises the issue of what to do with the revenue? Some people on this blog have called for it to be ring-fenced for public transport, but I think that’s unnecessarily provocative. What we could do is simply tip the extra funds into an Auckland specific transport fund that could be used to fund whatever was the highest priority project of the day. Of course, time-of-use pricing in itself will reduce the need for major road capacity expansions and increase demand for public transport and walking/cycling, so you would expect more money to flow towards these alternatives. The other thing to consider is that how revenue is used is the major determinant of whether a pricing scheme is progressive or regressive, i.e. its distributional impacts, which is discussed below.
- What is the process for investigating, developing, trialing, and potentially implementing a time-of-use transport pricing scheme? If there’s one lesson we can take from Stockholm’s experience with time-of-use road pricing, then it’s the potential benefits associated with pro-active public engagement. In Stockholm, time-of-use road pricing was initially implemented as a trial, which was then subject to a public referendum. Over time, public support for Stockholm’s scheme increased from circa 30% to 70% and the scheme has subsequently been permanently retained. Bork bork bork.
- What transport modes should be considered for time-of-use pricing? Previous conversations about time-of-use transport pricing, such as ARPES, have had a relatively narrow focus on applications to road pricing (aka “congestion charging”). But are not the general principles of time-of-use pricing also relevant to public transport, even if the pricing differentials would vary between modes depending on their individual demand/supply characteristics? I would have thought that implementing time-of-use schemes for both road and public transport would provide a fairly strong riposte to the claims of unfair treatment that might be put forward by road user groups, such as the AA.
It seems that we could work to gain agreement on the answers to these “strategic” questions, without time-of-use transport pricing being a fait accompli. But it seems to me that until we get agreement on those high-level strategic questions it’s not really worth delving too deeply into the details. Answers to the questions posed above seem to be necessary but not sufficient to implementing a scheme.
Now what can we also say about the aforementioned “operational issues”? From where I’m sitting the main operational questions seem to be:
- How can we balance precision and simplicity? Singapore and London, for example, have relatively simple pricing structure, but this in turn limits their ability to shape demand. In general, it seems that the simpler the pricing scheme the more one gets away from the objective of demand management and instead it becomes more about revenue raising. In contrast, Stockholm has a more precise pricing structure where costs are allowed to vary in half-hourly increments. This enables those crafty Swedes to price the “peak of the peak” higher than other periods. Bork bork bork.
- What are the efficiency/distributional impacts of different pricing structures? For example, a gantry-based cordon around the Isthmus, as considered in ARPES, would tend to drive a wedge between the central city and peripheral suburbs. In contrast, putting a charge on all trips into and within the central city (irrespective of whether they cross the cordon) would seem fairer and more effective. Thus the design of the scheme can have a large influence on its efficiency/distributional impacts, as you would expect.
- How might we manage the efficiency and/or distributional impacts? This is quite straightforward really – it’s basically about investigating whether any of the operational issues raised in answering the previous question can be resolved or mitigated and how those measures might change over time.
I’m sure there are many other operational issues that I have not touched on. But in the interests of keeping this post to a reasonable length I’ll leave those to others to highlight. Before finishing up I wanted to tackle one final issue in more detail: Namely the often-raised concerns over the distributional impacts of time-of-use pricing schemes (aka “equity impacts”).
But first I want to place two important caveats on this discussion. The first thing is that I place a high value on equitable social outcomes. So much so that I would say that child poverty and inequality of opportunity, rather than transport , is the #1 issue facing New Zealand. The second caveat is that the distributional impacts of time-of-use transport pricing is sufficiently important to deserve their own post, so I hope you’re not too disappointed with a quick discussion now.
Nonetheless, there is one concept that I have been pondering that I think is worth raising, namely the issue of “transient distributional impacts” (for lack of better jargon). What I mean by this is that the distributional impacts of time-of-use transport pricing may in themselves vary considerably over time. This might occur because:
- Our current transport pricing is (on the surface at least) relatively regressive. This is because low income households tend to own less fuel-efficient cars and travel more regularly at off-peak times. So they tend to pay more fuel tax per kilometre, and pay more for capacity expansions they probably should. Thus, shifting the costs of major capacity expansions more onto the people that are creating the need for them may be broadly progressive compared to the status quo.
- Low income households are more sensitive to prices and also tend to occupy less specialised and more dispersed jobs. So in the long run, low-income households may be more responsive to time-of-use price signals, even if there are some households that are adversely affected in the short run. Low-income customers tend to have more flexibility about when and where they travel and thus benefit more, on average, from lower off-peak prices.
For this reason I would encourage those who are concerned with regressive distributional impacts in the short-term to think very carefully about whether they are potentially forgoing progressive distributional impacts in the long-term (and perhaps forever). Put another way, while time-of-use transport pricing may potentially have adverse distributional impacts on a small number of households for a few years following implementation, it may also have large positive impacts for many households for many years into the future (if not permanently).
If this is indeed the case, then the distributional impacts of time-of-use transport pricing may be best managed by implementing some targeted transitional measures to support adversely affected low-income households, at least for a few years after the scheme is implemented, rather than not implementing it at all. The challenge becomes one of managing the negative distributional impacts in the beginning, knowing that in the long run the distributional impacts are likely to be positive.
So my takeaway point is this: As a society let’s not stop thinking about time-of-use transport pricing even if the “right” answer is not immediately obvious. Or put more succinctly “we haven’t got the money, so we’ve got to think.”
P.s. If you would like to read more about time-of-use transport pricing then here’s some links you may find interesting:
- MoT’s website on the Auckland Road Pricing Evaluation Study (well worth a peruse)
- Jonas Eliasson: How to solve traffic jams (det här är väldigt bra, tack så mycket! Bork bork bork)
- Winning the battle with traffic congestion (a more detailed policy paper, by yours truly)