Transport networks are awash in spillovers, or externalities. When you travel, your choices don’t just affect you – they also have an impact on others around you. When you drive a car, you might be putting others at increased risk of a crash, reducing air quality on the street, or delaying other people in cars or buses. When you park a car, you are often the recipient of a regulatory subsidy, as minimum parking requirements artificially increase parking supply and bundle its costs into other goods and services. When you take (most) buses and trains, you benefit from a fare subsidy intended to encourage you to avoid participating in road congestion.
When you travel by foot or by bike, you really don’t do much harm at all.
Because transport externalities are so pervasive, there is an important role for government policy to enable or encourage people to avoid them, or at any rate to offset their ill effects. Sometimes this might mean regulating – e.g. imposing tighter pollution standards on road vehicles. Sometimes it might mean investing – e.g. building grade-separated public transport to give people the opportunity to “opt out” of congestion. And sometimes it might mean improving price signals – e.g. by putting congestion pricing or demand-responsive parking charges in place.
But how much do we need to care about these externalities (and related subsidies)? How large are they, anyway?
To get a sense, I’ve compiled the existing data and made some rough estimates where no comprehensive data was available. Here’s the summary:
|Externality||Annual cost||Source / derivation|
|Congestion||$250 million to $1.25 billion||Wallis and Lupton (2013); lower figure is their estimate of the avoidable cost of congestion|
|Road crashes||$677 million||Ministry of Transport monitoring data|
|Poor air quality||$466 million||Health and Air Pollution in New Zealand study; data reflects mortality and morbidity costs associated with PM10 emissions from motor vehicles|
|Greenhouse gas emissions||$150 million||Estimated based on Ministry of Transport data: 12,688,000 tonnes CO2 emitted from road transport in 2013; Auckland had 30.1% of national VKT in 2013; CO2 emissions valued at $40/tonne|
|Public transport fare subsidies||$170 million||Estimated based on forecast annual average opex of $320 million over the 2013-2022 period (see page 26 in 2012 RPTP) and a PT operating cost recovery rate of 45%|
|Parking subsidies||$500 million||Based on Donovan and Nunns (2015) estimate that applying MPRs to business activities may cost up to $10,000 per employee, multiplied by 700,000 employees in Auckland and converted to annual values using a 6% discount rate|
|Total externalities / subsidies
||$2.2 to $3.2 billion|
A few observations on these estimates:
- The most significant transport externalities are associated with driving motor vehicles.
- Even under the most generous assumptions, congestion costs are no larger than the health costs of vehicle operation – crashes and bad air. Yet we prioritise congestion reduction to a much greater degree than health and safety.
- Some of these costs have direct financial implications – parking and PT subsidies come out of someone’s pockets, after all – but the largest ones don’t. Congestion wastes people’s time and frustrates them, while the cost of crashes and poor air quality is reduced enjoyment of life and premature death.
Lastly, $2.2 to $3.2 billion in annual costs seems quite large. But how do transport externalities measure up against Auckland’s overall economy and Aucklanders’ transport habits?
First, perhaps we should compare these externalities against the size of the Auckland economy. According to Statistics NZ’s nifty Regional GDP data, in 2014 Auckland’s economy was worth $81.2 billion. This suggests that, even if we fully eliminated all transport externalities and the resulting gains translated into increased income for Aucklanders, it would have a pretty minor impact on our wellbeing.
Second, perhaps we should compare transport externalities to the costs that users directly bear when they travel. Because we’ve accounted for both monetary and non-monetary externalities above, we have to do the same here and bundle together the time and money that Aucklanders spend travelling.
According to the 2013 Household Expenditure Survey, the average Auckland household spent $176 per week on transport, including vehicle purchase, vehicle operating costs, PT fares, and air travel. As there are around 470,000 households in Auckland, this equates to roughly $4.3 billion in annual transport-related spending. Furthermore, 2011-14 Household Travel Survey data suggests that Aucklanders spend around 558 million hours travelling per annum. If we value travel time at 40% of current median hourly earnings of $22.83, it would be “worth” around $5 billion. In total, user costs are equal to around $9.3 billion per annum.
Consequently, transport externalities are equivalent to 23-34% of user costs, which is quite significant. It suggests that transport users – principally drivers – can externalise many of the costs of their choices on others and on society. While the gains from eliminating transport externalities might be small relative to Auckland’s GDP, policies that “price in” externalities may have a considerable effect on individuals’ decisions about transport.
What do you think about transport externalities? A big problem, or not such a concern?