March 31, 2008
Series Editor: Ian Parry
Managing Editor: Felicia Day
Assistant Editors: John Anderson and Adrienne Foerster
Welcome to the RFF Weekly Policy Commentary, which is meant to provide an easy way to learn about important policy issues related to environmental, natural resource, energy, urban, development, and public health problems.
Twelve years ago, the world’s first high occupancy/toll (HOT) lane was introduced on SR 91 in California. This scheme allows drivers of single-occupancy vehicles to pay a toll to join high-occupancy vehicles on a fast-flowing freeway lane instead of using a free, but more congested, adjacent freeway lane. In this week’s commentary, Robert Poole evaluates this pricing policy and discusses why in fact it could actually be a better approach than a more comprehensive policy designed to alleviate congestion on all the freeway lanes through stiff tolls.
Next week's commentary, by Karen Palmer, will discuss issues in the design of emission permit auctions.
Useful Lessons from California’s Experiment with Congestion Pricing
Robert W. Poole, Jr.
Last December marked the 12th anniversary of the 91 Express Lanes, the world’s first high-occupancy toll (HOT) or express toll lanes. A private consortium, operating under a 35-year concession, added four lanes to SR 91, one of Southern California’s most congested freeways. Carpools with three or more passengers could use the new lanes at half price; all other cars (no trucks were allowed) would pay a toll set high enough to ensure high-volume but uncongested traffic flow at all hours.
Congestion pricing has turned out to work very well. Initially, the combination of added capacity on SR 91 and the fact that many vehicles switched to the new lanes yielded significant reductions in peak-period congestion on the regular or general purpose lanes (in addition to free-flow conditions in the Express Lanes). But after about five years, enormous growth in traffic in this commuter corridor led to the return of serious congestion in the general purpose lanes. The concession agreement included a rigid non-compete clause, preventing the addition of any more general purpose capacity. This was at the insistence of financiers, who saw huge risk in toll lanes that had “free” competition literally right alongside. This situation proved politically untenable, leading to the purchase of the express lanes by the Orange County Transportation Authority (OCTA) seven years after they had opened to traffic.
It was hoped by many (who didn’t understand congestion pricing) and feared by others (who did) that the agency would be under irresistible political pressure to reduce the gradually escalating peak-period toll rates on the lanes. To their credit, OCTA did just the opposite. Recognizing that correct pricing was the only way the lanes could deliver the promised benefit of a reliable, uncongested trip, they depoliticized the toll-adjustment process. Planners created an algorithm that uses measured traffic density in the express lanes, hour-by-hour, seven days a week. For any one-hour time block during peak travel times – where set traffic conditions are at risk of becoming more congested, as measured over a 12-week period – the toll rate for that time block is increased accordingly. The adjustment process also checks for under-use and permits automatic downward adjustments.
As of this writing, the maximum morning peak toll for the express lanes is $4.20. In the afternoon peak, when demand is much heavier, the maximum rate (for a single, one-hour period on a Friday afternoon) is $10.00. For most of the weekday afternoon rush hour, tolls are in the $5-9 range. The minimum charge during off-peak hours is $1.20.
The success of the well-studied 91 Express Lanes has sparked a boom in congestion pricing, encouraged by permissive language in successive federal transportation reauthorization bills and, especially recently, by incentive programs like the U.S. DOT’s Urban Partnership Agreement competition. HOT lanes are in operation in six metro areas and under development in half a dozen others. Many pricing advocates argue that while express toll lanes may be a good introductory measure, the real goal should be to price all lanes on all freeways, at least during peak periods. But recent research suggests that this may not be optimal.
Robert W. Poole, Jr., Director of Transportation Studies, Reason Foundation
Poole received his B.S. and M.S. in mechanical engineering from MIT and did additional graduate work in operations research at NYU.
Kenneth Small and others have documented the enormous variation among different motorists in their willingness to pay for driving on high speed lanes; in general, those with higher income or wages are willing to pay more to reduce their commute times and lower the risk of being late for work or other appointments. This variability in willingness to pay among drivers has important implications for road pricing policies. For one thing, it makes economic sense to charge different tolls on different lanes of a freeway, rather than imposing the same toll across all the lanes. Differentiated tolls allow motorists to choose which combination of low toll/low speed or high toll/high speed lanes they themselves prefer.
Moreover, motorists who place relatively little value on travel time savings may be hit especially hard when their only choice is to drive on the freeway and pay a toll, or not use the freeway at all. In fact, a uniform toll imposed on all freeway lanes with no exemptions may actually do more economic harm overall than good, compared with a baseline situation with no freeway pricing at all. If policymakers are concerned about avoiding excessive burdens on low-income motorists, Small and his colleagues suggest that the best policy compromise might be to have freeway lane alternatives with high and low tolls, and with exemptions for high-occupancy vehicles in the low-price lane. Even in this case, the gains over simply pricing one lane and leaving the adjacent lanes free of charge may not be that great.
In related work, Elena Safirova and colleagues have studied the conversion of existing HOV lanes in the metropolitan Washington, DC, area to HOT lanes. This appears to represent a win-win policy in several respects. Drivers of single occupant vehicles are better off as they can now choose to drive on the faster, premium lane, if the travel time savings more than compensate them for the toll. Drivers who choose to remain on unpriced lanes adjacent to the HOT lane also benefit from reduced congestion on that lane as some drivers switch to the premium lane. And the government benefits from obtaining a new source of transportation revenue.
Based on these results, urban transportation planners should feel confident about moving forward with politically feasible plans for networks of HOT lanes, rather than holding out for the politically difficult (and socially dubious) goal of pricing all lanes.
Views expressed are those of the author. RFF does not take institutional positions on legislative or policy questions.
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Orange County Transportation Authority. 2008. “91 Express Lanes Toll Policy.” Available at: www.91expresslanes.com/generalinfo/tollpolicy.asp.
Poole, Robert W. Jr. 2003. “HOT Networks: A New Plan for Congestion Relief and Better Transit.” Policy Study No. 305. Los Angeles: Reason Foundation.
Safirova, Elena, Kenneth Gillingham, Ian Parry, Peter Nelson, Winston Harrington, and David Mason. 2004. “Welfare and Distributional Effects of HOT Lanes and other Road Pricing Policies in Metropolitan Washington DC.” In Georgina Santos (ed.), Road Pricing: Theory and Practice, Research in Transportation Economics 9, Elsevier, 179-206.
Small, Kenneth A., Clifford Winston, and Jia Yan. 2006. “Differentiated Road Pricing, Express Lanes, and Carpools: Exploiting Heterogeneous Preferences in Policy Design.” Brookings-Wharton Papers on Urban Affairs pp. 53-96.