IMPRINTEUROPE Final Conference 45 February 2004

1
IMPRINT-EUROPEFinal Conference 4-5 February 2004

• Achieving Progress
• Across the Modes
• Phil Goodwin
• University College London

2
Background

• We pay directly for use of rail, bus, taxis,
  lorries, usually indirectly for use of roads
• Normally charged for direct costs eg fuel, wages,
  etc, but not for indirect costs of congestion,
  pollution, economic impacts
• Public funding for public transport is called
  subsidy - but for infrastructure is called
  expenditure

3
So transport pricing is distorted

• For two main different reasons
• commercial prices are distorted by subsidies and
  taxes
• consumer prices are distorted by the absence of
  external effects (positive and negative)

4
Theory

• Prices equal social marginal costs gives maximum
  benefit - if prices are more than this, people
  are discouraged from spending on activities that
  would bring benefit. If less, then people are
  encouraged to buy travel whose benefit (to
  them) is less than costs (to everyone else)
• the theory is absolutely solid - but many
  loopholes which allow it to be ignored...

5
YES BUT...

• yes but its not practical because of budget
  constraints
• yes but we are not ready yet because of
  imperfect knowledge
• yes but its only valid if all other prices in
  the whole economy are equal to marginal costs,
  and they are not
• yes but lets start with another mode

6
Rebutting the buts

• budget constraints
• imperfect knowledge
• all other prices
• where to start?

• Cross subsidise or value capture
• always - but the costs dont go away!
• never - but direction can be calculated
• This is the problem

7
The Key Questions

• Are external costs real or imaginary?
• Can we measure them accurately enough?
• Does charging for them have negative effects on
  the economy?
• Who gains? Who loses?
• What to do with the revenue?
• Do price changes influence behaviour?

8
The key answers

• Real or imaginary? Real
• Accurate? No, but enough for action
• Economy? Not charging is worse
• Gains? Yes overall, but not everybody
• Revenue? Must plough back
• Change behaviour? Small short run, large long run

9
Progress? - a mixed picture

• Cited as successes
• Progress to freight distance-based charging
• port charges Sweden, air charges Switzerland,
  road charges Norway, London...
• rail track and operation separation

• Cited as failures
• harmonisation of fuel tax
• slow progress of congestion charging
• rail track and operation separation

10
The thesis of 2 EU Agendas

• Marginal cost pricing for all modes - but two
  quite different meanings and objectives
• fair competition between companies in different
  countries, from the common transport policy
  (often implies prices down)
• reducing social costs, from the sustainable
  transport policy (often implies prices up)

11
Caveat

• This does not mean economy versus the
  environment. The distinction is between a narrow
  and broad definition of economy - ie based on
  commercial or social considerations. External
  costs are real economic costs. Consideration only
  of commercial private costs is now not a useful
  basis for transport policy.

12
Some information about London

• Congestion charging started Feb 2003
  Controversial, risk-taking Mayor
• 21 sq. km of central London (1579 total)
• Pay 5 (approx 7 euro) to drive in the zone,
  07.00-18.30 Mon-Fri. Pay by cash, post, www, or
  SMS on mobile phone.
• Camera recognition of car numbers

13
(No Transcript)
14
(No Transcript)
15
(No Transcript)
16
(No Transcript)
17
Price Elasticity Greater Than Expected

• TfL Mid-point Forecast
• -20 chargeable vehicles
• 120m revenue 1st year

• Outcome 1st 6 months
• -30 chargeable vehicles
• 68m revenue est. 1st year
• (also because of exemptions etc)

18
Lessons so far

• More successful than expected (no chaos)
• More popular than expected (no riots)
• More rapid effect on the national policy debate
  than expected (controversial Mayor invited back
  into Labour Party, Government setting up more
  positive studies for national application -
  nobody waited for the five year monitoring
  results!)

19
The IMPRINT 10 STEPS...

• (2, 4) Demonstrate pricing as a potential
  solution, part of consistent overall policy
  including revenues - yes, real progress
• (3, 6, 8, 10) Design something simple that works
  and has support, flexible enough to adapt over
  time - essential but be careful that it moves in
  the right direction, not making later progress
  more difficult

20
(5) Demonstrate likely outcomes

• Demand sensitivity to price is mostly larger, but
  more complex, than assumed. Dynamic trajectory of
  demand response is more important than
  equilibrium forecasts.
• External costs better understood (High Level
  Group, Capri etc), but but they are still
  underestimated, and congestion value of time
  will give way to reliability, hence variance.

21
IMPRINT-EUROPEFinal Conference 4-5 February 2004

• Achieving Progress
• Across the Modes
• Phil Goodwin
• University College London

22
IMPRINT-EUROPEFinal Conference 4-5 February 2004

• Achieving Progress
• Across the Modes

23
IMPRINT-EUROPEFinal Conference 4-5 February 2004

• Achieving Progress
• Across the Modes
• does not mean on each of the modes and cannot
  mean on all the modes. The critical path is
  that getting charging for private cars right is a
  precondition for success on public transport and
  freight