The Experience of Area Licenses and Cordon Tolling to Date

While economists have long advocated charging urban motorists for use of congested road space at peak periods, the idea of road pricing has only recently been implemented in practice. How successful are existing pricing schemes in Singapore, London, and Stockholm, and what lessons can be learned from experience in these cities?

The idea of introducing a corrective charge or tax to account for a negative externality goes back to Arthur Pigou. Area licenses and cordon tolling, a kind of Pigouvian charge aimed at reducing traffic congestion, help to correct the congestion externality with the added benefit of being clear and simple for drivers to understand.

With area licenses, drivers are charged for being in a certain area at certain times of the day, regardless of how many times they come and go from that area, how much time they spend in it, or how much they drive in it. Cordon tolls charge drivers when they cross a geographical boundary that typically surrounds the most congested area in town. They may be charged when they cross in or out, or in both directions, usually only during certain times of the day. Like with an area license, the charge is not linked to the time or distance travelled within the cordoned area.

Singapore pioneered a paper area license in 1975, and turned it into an electronic system in 1998. London implemented an area license in 2003. Stockholm introduced a cordon toll in 2007. All three projects succeeded in reducing traffic congestion and increasing speeds.

Singapore

The Singaporean paper-based area licensing scheme (ALS), which in practice was not an area license but a cordon toll and should have been named the cordon toll scheme (CTS) instead, required vehicles entering in the morning (and later on, exiting in the evenings) the 2.7 square mile restricted zone to purchase and display a paper area license on their windshields. In 1998, the ALS was replaced with a much more advanced and fine-tuned system: electronic road pricing (ERP). Vehicles, equipped with in-vehicle units and smart cards are automatically charged every time they cross under a boundary, called a gantry. These gantries are located on the most congested roads, and charging applies from 7:30 a.m. to 7:00 p.m. Monday to Friday, excluding public holidays. The charges, which are adjusted periodically in order to maintain target speeds, vary according to vehicle type, time of the day, and location of the gantry. Cars can pay up to S$4 (US$3) for crossing a gantry at peak times, and trucks up to S$8 (US$6). The only vehicles exempt from paying are emergency vehicles, such as ambulances, fire engines, and police cars.

The paper-based ALS was effective in increasing average speeds (by almost 90 percent) and reducing traffic volumes (by 45 percent). Car entries were reduced by 70 percent. When ERP replaced the ALS, traffic speeds remained in the optimum range of 20 to 30 km per hour. The objective of ERP was not to increase ALS speeds, but rather to tweak the system in order to charge road users more accurately for actual usage.

London

The London Congestion Charging Scheme (LCCS) was implemented in central London in 2003 and extended to the west in 2007. All vehicles entering, leaving, driving, or parking on a public road inside the 15 square mile charging zone (CZ) between 7:00 a.m. and 6:00 p.m. Monday to Friday, excluding public holidays, must pay a daily congestion charge of £8 (US$12.5). Enforcement is undertaken with automatic number plate recognition (ANPR).

The number of vehicles entering the original CZ during charging hours decreased by around 20 percent, with most of this reduction occurring in the first year of the LCCS and maintained throughout. Congestion, defined as the difference between the average travel rate and the free-flow travel rate, decreased by 30 percent in the first year of the program. Over the period from 2005 to 2007, however, average delays eventually went back to pre-charging levels, despite the decrease in both the number of vehicles entering the original CZ and the number of vehicle-kilometers driven.

The reasons behind this increase in congestion include a high number of road works, increased bus services, and an improved environment for pedestrians. Part of the newly recovered network space is now for the exclusive use of buses, cyclists, and pedestrians.

The total benefits—including time savings, reliability benefits, vehicle fuel and operating savings, accident savings, and environmental benefits, and allowing for charge-payer compliance costs and disbenefit to deterred trips—are £245 (US$383) million per year. The operating costs total £99 (US$155) million per year, leaving an annual net benefit of £146 (US$228) million.

Although there are more vehicles exempt from the charge in London than in Singapore or Stockholm, and these exemptions detract from economic efficiency, they have helped with public and political acceptability.

Stockholm

The congestion tax in Stockholm, implemented in August 2007, is a cordon toll system with a boundary surrounding the entire city—a total area of roughly 13.7 square miles. As in London, enforcement is undertaken with ANPR. Each passage into or out of the area surrounded by the cordon costs SEK 10, 15, or 20 (roughly between US$1.5 and US$3) depending on the time of the day. The accumulated passages made by any vehicle during a particular day are aggregated and the vehicle owner is liable for either the sum of the charges or SEK 60 (US$8.5), whichever is lower.

Exemptions include emergency vehicles, buses, diplomatic cars, motorcycles, foreign registered vehicles, military vehicles, disabled parking permit holders, and alternative fuel vehicles.

The number of vehicles crossing the cordon during charging hours decreased by around 20 percent compared to 2005 (pre-charging) levels, both during a preliminary trial phase and also after the charge was introduced in 2007. During 2008, however, traffic started to increase slowly because of growth in population and car ownership, an increase in the share of exempt alternative fuel cars, and inflation, which has caused the charge to drop in real terms.

Congestion, measured as excess travel time over free-flow travel time, decreased by roughly 50 percent on the main thoroughfares approaching the city center, 20 percent in the city center, and just over 15 percent on the outer roadways. The annual net benefits in Stockholm are SEK 654 (US$92.6) million, excluding investment costs. These, however, will be recovered within the four first years of operation.

Will Other Towns And Cities Follow Suit?

Even though the idea of congestion charging is not new in the economic literature, it took many decades before the first policy, in Singapore, was implemented. Hundreds of studies have been published showing that congestion pricing makes sense on economic grounds, and Singapore, London, and Stockholm prove that congestion pricing can reduce heavy traffic and increase speeds.

One concern about these schemes is that they might divert drivers, leading to worse congestion elsewhere in the road network. Although this indeed happened in all three cases, it was not an unmanageable problem. In Singapore, new gantries were introduced on roads that become too congested and the charge was decreased on priced but underutilized roads. In London, timing of traffic lights was successfully adjusted so that congestion did not increase. Traffic in Stockholm increased on uncharged bypasses, but this only reduced the total time gains from the project by 4 percent.

Although these cities are all very different, they each had frequent and reliable transit in place before road pricing went live. This may be key to the success of the projects, as most of the deterred car journeys in all three cases switched to transit. Another important lesson, especially for democratic nations like Sweden and the UK, is that using revenues in a clear and transparent manner helped to increase public acceptability in both cases.

Although the ERP in Singapore is the most sophisticated system, simpler projects like those in London and Stockholm can go a long way toward making traffic move. They are straightforward, effective in reducing congestion, and—if well designed—leave a net social benefit.

Georgina Santos is a university lecturer at the School of City and Regional Planning at Cardiff University. She specializes in transport and environmental economics.

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