MINISTERIO DE FOMENTO CENTRO DE ESTUDIOS Y EXPERIMENTACIÓN DE OBRAS PÚBLICAS DIRECCIÓN GENERAL DE PLANIFICACIÓN Y COORDINACIÓN TERRITORIAL SECRETARÍA DE ESTADO DE INFRAESTRUCTURAS Y PLANIFICACIÓN Encuentro: “Tarificación” Madrid, 25 de octubre de 2004 Progress from Theory to Practice in Europe? Phil Goodwin University College London

Tarificación y Fiscalidad PEIT Conference Madrid Progress from Theory to Practice in Europe? Phil Goodwin University College London

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 public funding for roads is called ‘investment’

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)

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...

‘YES BUT...’ ‘yes but it’s not practical because of budget constraints’ ‘yes but we are not ready yet because of imperfect knowledge’ ‘yes but it’s only valid if all other prices in the whole economy are equal to marginal costs, and they are not’ ‘yes but let’s start with another mode…’

Rebutting the buts budget constraints imperfect knowledge all other prices where to start? Cross ‘subsidise’ or value capture always - but the costs don’t go away! never - but direction can be calculated This is the problem

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?

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

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

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)

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.

The UK Strategy, 1998 ‘Enabling’ legislation - each city could choose whether to have road pricing If they said yes, then they could keep the money, and spend it on transport improvements (We did not expect London to be first, but the Mayor of London was an adventurer, and London had the worst congestion and the smallest proportion of car commuters)

The danger The biggest distortion is the lack of road user charging, but the easiest pathway is to tackle public transport charging in the short run, roads in the long run… This makes things worse before they get better, and makes the long run objective more difficult to achieve

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, Mon-Fri. Pay by cash, post, www, or SMS on mobile phone. Camera recognition of car numbers

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)

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!)

Conclusion The issue of road charging is the most important to solve… And we need to remember that price is not the only tool of policy: there must be consistency with planning, physical management of the system, allocatioon of road capacity, ‘soft’ measures such as travel plans – and investment in new infrastructure is also distorted by wrong prices.