Road Pricing

Congestion Pricing, Value Pricing, Toll Roads and HOT Lanes

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TDM Encyclopedia

Victoria Transport Policy Institute

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About This Encyclopedia

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Updated September 4, 2007


This chapter describes various types of road pricing, which charge motorists directly for driving on a particular roadway or in a particular area. “Congestion pricing” (also called “value pricing”) refers to variable tolls, with higher prices under congested conditions and lower prices under less congested conditions, intended to reduce peak-period traffic volumes to optimal levels. “Toll roads” and “toll lanes” are roadway facilities financed by tolls. “High Occupant Toll (HOT) lanes” are High Occupant Vehicle (HOV) lanes that also allow use by low-occupant vehicles that pay a toll.

 

 

Description

Road Pricing means that motorists pay directly for driving on a particular roadway or in a particular area. Value Pricing is a marketing term which emphasizes that road pricing can directly benefit motorists through reduced congestion or improved roadways.

 

Economists have long advocated Road Pricing as an efficient and equitable way to pay roadway costs, Fund Transportation Programs, and encourage more efficient transportation (Market Principles). Road Pricing has two general objectives: revenue generation and congestion management. They differ in several ways, as compared in the table below.

 

Table 1            Comparing Road Pricing Objectives

Revenue Generation

Congestion Management

·       Generates funds.

·       Rates set to maximize revenues or recover specific costs.

·       Revenue often dedicated to roadway projects.

·       Shifts to other routes and modes not desired (because this reduces revenues).

·       Reduces peak-period vehicle traffic.

·       Is a TDM strategy.

·       Revenue not dedicated to roadway projects.

·       Requires variable rates (higher during congested periods).

·       Travel shifts to other modes and times considered desirable.

 

 

Different types of Road Pricing are described below.

 

Road Tolls

Tolls are a common way to fund highway and bridge improvements. Such tolls are a fee-for-service, with revenues dedicated to roadway project costs. This is considered more equitable and economically efficient than other roadway improvement funding options which cause non-users to help pay for improvements (Metschies, 2001). Tolling is often proposed in conjunction with road privatization (i.e., highways built by private companies and funded by tolls). Tolls are often structured to maximize revenues and success is measured in terms of project cost recovery. Tolling authorities may discourage development of alternative routes or modes.

 

Congestion Pricing

Congestion Pricing (also called Value Pricing) refers to variable road tolls (higher prices under congested conditions and lower prices at less congested times and locations) intended to reduce peak-period traffic volumes to optimal levels. Tolls can vary based on a fixed schedule, or they can be dynamic, meaning that rates change depending on the level of congestion that exists at a particular time. It can be implemented when road tolls are implemented to raise revenue, or on existing roadways as a demand management strategy to avoid the need to add capacity. Some highways have a combination of unpriced lanes and Value Priced lanes, allowing motorists to choose between driving in congestion and paying a toll for an uncongested trip. This is a type off Responsive Pricing, meaning that it is intended to change consumption patterns (Vickrey, 1994).

 

Cordon (Area) Tolls

Cordon tolls are fees paid by motorists to drive in a particular area, usually a city center. Some cordon tolls only apply during peak periods, such as weekdays. This can be done by simply requiring vehicles driven within the area to display a pass, or by tolling at each entrance to the area.

 

HOT Lanes

High Occupancy Toll (HOT) lanes are High Occupancy Vehicle (HOV) lanes that also allow use by a limited number of low occupancy vehicles if they pay a toll (Stockton and Daniels, 2000; Poole and Orski, 2001). It is a type of Managed Lane (WSDOT, 2001; Goodin, 2005). This allows more vehicles to use HOV lanes while maintaining an incentive for mode shifting, and raises revenue. HOT lanes are often proposed as a compromise between HOV lanes and Road Pricing.

 

Vehicle Use Fees

Distance-Based Charges such as mileage fees can be used to fund roadways or reduce traffic impacts, including congestion, pollution and accident risk. A proposal by the UK Commission for Integrated Transport (CFIT, 2002) proposes that existing vehicle registration fees and fuel taxes be replaced by a variable road user charge using GPS-based Pricing Methods, as a way to reduce traffic congestion and more equitably reflect the roadway costs imposed by each vehicle. Pay-As-You-Drive Vehicle Insurance, prorates premiums by mileage so vehicle insurance becomes a variable cost, which gives motorists an incentive to reduce traffic impacts, but provides no additional revenue.

 

Road Space Rationing

A variation of road pricing is to ration peak period vehicle-trips or vehicle-miles using a revenue-neutral credit-based system. For example, each resident in a region could receive credits for 100 peak-period vehicle-miles each or $20 worth of congestion fees each month (Viegas, 2001; Kockelman and Kalmanje, 2004; Kalmanje and Kockelman, 2004). Residents can use the credits themselves, or trade or sell them to somebody else. The result is a form of congestion pricing in which the benefits are captured by residents rather than road owners or governments.

 

 

Table 2 summarizes these different categories of road pricing and their objectives. Some provide revenues, some reduce peak-period congestion, some reduce total traffic impacts (congestion, pollution, accident risks, road and parking facility costs, etc.), and some help achieve a combination of objectives.

 

Table 2            Road Pricing Categories

Name

Description

Objectives

Road  toll (fixed rates)

A fixed fee for driving on a particular road.

To raise revenues.

Congestion pricing (time-variable)

A fee that is higher under congested conditions than uncongested conditions, intended to shift some vehicle traffic to other routes, times and modes.

To raise revenues and reduce traffic congestion.

Cordon fees

Fees charged for driving in a particular area.

To reduce congestion in major urban centers.

HOT lanes

A high-occupant-vehicle lane that accommodates a limited number of lower-occupant vehicles for a fee.

To favor HOVs compared with a general-purpose lane, and to raise revenues compared with an HOV lane.

Distance-based fees

A vehicle use fee based on how many miles a vehicle is driven.

To raise revenues and reduce various traffic problems.

Pay-As-You-Drive insurance

Prorates premiums by mileage so vehicle insurance becomes a variable cost.

To reduce various traffic problems, particularly accidents.

Road space rationing

Revenue-neutral credits used to ration peak-period roadway capacity.

To reduce congestion on major roadways or urban centers.

This table summarizes the major categories of road pricing.

 

 

Road pricing impacts vary depending on various factors, including the type of pricing, how it is structured, and the transportation and geographic conditions in which it is implemented. For example, a fixed road toll may do little to reduce congestion if alternative routes and modes are poor, but it may provide significant congestion reductions if transportation alternatives (such as ridesharing, transit and telecommuting) are relatively attractive, and so a modest fee will cause a relatively large mode shift. In some situations, pricing will shift traffic and congestion problems to other routes or areas. Table 3 summarizes the benefits of various pricing strategies. Actual impacts will vary depending on circumstances. For example, in some situations HOT lanes will have greater congestion reduction impacts than others. The point is that these differences should be considered when evaluating and selecting pricing options.

 

Table 3            Road Pricing Benefits

Strategy

Revenue Generation

Congestion Reduction

Pollution Reductions

Increased Safety

Road  toll (fixed rates)

3

2

1

1

Congestion pricing (time-variable)

2

3

2

1

HOT lanes

1

2

1

0

Cordon fees

2

3

1

1

Distance-based fees

3

2

2

2

Pay-As-You-Drive insurance

0

2

2

3

Road Space Rationing

0

3

1

1

Rating from 3 (very beneficial) to –3 (very harmful). A 0 indicates no impact or mixed impacts.

 

 

How it is Implemented

Road Pricing is usually implemented by public or private highway agencies or local authorities as part of transportation project funding packages, for transportation demand management, or through privatization of highway construction and operations. Implementation may require approval of other levels of government (for example, U.S. federal law restricts tolling on the Interstate Highway System).

 

Road Pricing can be implemented at various scales:

·       Point: Pricing a particular point in the road network, such as a bridge or a tunnel.

·       Facility: Pricing a roadway section.

·       Corridor: Pricing all roadways in a corridor.

·       Cordon: Pricing all roads in an area, such as a central business district.

·       Regional: Pricing roadways at regional centers or throughout a region.

 

 

Table 4 illustrates the appropriate scale of various pricing strategies.

 

Table 4            Appropriate Scale of Pricing Strategies

Strategy

Spot

Facility

Corridor

Cordon

Regional

Toll Roads (fixed rates)

X

X

X

 

 

Congestion Pricing (time-variable)

X

X

X

X

 

HOT lanes

X

X

 

 

 

Cordon Fees

 

 

X

X

 

Distance-Based Fees

 

 

 

 

X

 

 

A variety of Pricing Methods can be used to collect fees, as summarized in Table 5. Newer electronic pricing systems tend to have lower costs, greater user convenience, and more price adjustability, making Road Pricing more feasible.

 

Table 5            Summary of Fee Collection Options (Pricing Methods)

Type

Description

Equipment Costs

Operating Costs

User Inconvenience

Price Adjustability

 

Pass

Motorists must purchase a pass to enter a cordoned area.

Low

Low

Medium

Poor to medium.

Toll Booths

Motorists stop and pay at a booth.

High

High

High

Medium to high.

Electronic Tolling

An electronic system bills users as they pass a point in the road system.

High

Medium

Low

High

Optical Vehicle Recognition

An optical system bills users as they pass a point in the road system.

High

Medium

Low

High

GPS

GPS is used to track vehicle location. Data are automatically transmitted to a central computer that bills users.

High

Medium

Low

High

This table summarizes various pricing methods. Newer methods tend to have lower costs, greater convenience and price adjustability, making them more cost effective and politically acceptable.

 

 

Road pricing should be implemented in conjunction with improved transportation options, so consumers have viable alternatives. For example, congestion pricing can be implemented with Transit and Rideshare and Flextime improvements so motorists have more ways to avoid driving on the priced road. This reduces user inconvenience, reduces the fee needed to achieve a given reduction in vehicle traffic, and increases its effectiveness at reducing traffic congestion.

 

Wit and Humor

“I’ll tell you how to solve Los Angeles’ traffic problems. Just take all the cars off the road that aren’t paid for.”  -Will Rogers

 

 

Travel Impacts

The travel impacts of Road Pricing depend on the type and magnitude of fees, where it is applied, what alternative routes and modes are available, and what is assumed to be the alternative or Base Case (TDM Evaluation).

 

·       Pricing roads that would otherwise be free can shift vehicle travel to unpriced routes, alternative modes and closer destinations, and reduce vehicle trip frequency.

 

·       Congestion Pricing (i.e., higher rates during peak periods) can cause vehicle trips to shift from peak to off-peak periods.

 

·       If Road Pricing is used to fund roadway capacity expansion that would not otherwise occur, it may increase total vehicle travel (Rebound Effect).

 

·       Road Pricing reduces total vehicle travel if used to fund roadway capacity expansion that would otherwise be unpriced (funded through other taxes).

 

·       The better the travel alternatives (transit, ridesharing and cycling), the more Road Pricing will cause mode shifts.

 

 

The travel impact of HOT lanes depends on the price structure used. If the price is too low, the facility will experience congestion, reducing the performance for both single-occupant vehicle users and HOV users, resulting in reduced transit and ridesharing. It is therefore important for the sake of overall transportation system efficiency that HOT facilities be managed to favor HOV performance.

 

Several studies have investigated the sensitivity of vehicle travel to road tolls (Transport Elasticities). These indicate a price elasticity of –0.1 to –0.4 for urban highways (i.e., a 10% increase in toll rates reduces vehicle use by 1-4%), although this can vary depending on the type of toll, type of traveler and other factors (TCRP, 2003). Mekky (1999) finds that traffic volumes and trip lengths decline significantly if tolls exceed 10¢ per vehicle kilometer (Canadian dollars). A state-preference survey of suburban automobile long-distance commuters indicates that financial incentives are the most effective strategy for reducing automobile trips. A US$3.00 per round-trip road toll is predicted to reduce automobile commuting by 25% (Washbrook, 2002). One study estimates that congestion pricing can reduce up to 5.7% of VMT and up to 4.2% of vehicle trips in a region (Apogee, 1994).

 

Table 6            Estimated Fee To Reduce Vehicle Trips 10% (May and Milne, 2000)