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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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.
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.
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 (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 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.
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;
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.
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.
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,
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.
|
“I’ll
tell you how to solve |
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)