How to Kill Traffic Congestion: Apply market pricing to Canada’s roads

Commentary, Transportation, Stuart Donovan

Imagine that every flight on the same route cost the same – no matter what the season or time of day.  This would mean there was little capacity was available at peak times (leaving frustrated travelers unable to get seats); at other times, plenty of seats would be available on near-empty planes. This is roughly the situation commuters face in major cities driving costs remain the same all day, every day.

Nobody thinks twice about paying different prices for airfares. Young backpackers who explore the world with lots of time but little money take advantage of cheap prices on unpopular flights scheduled at inconvenient times. So red-eye flights in the middle of the night are cheap while Monday morning flights into Toronto are more expensive, because the latter is more convenient for businesses and worth the expense. 
We do not apply the same logic to our roads. That’s something economist William Vickery noted as early as 1963 when he wrote that “in no other major area are pricing practices so irrational, so out of date, and so conducive to waste as in urban transportation….” Vickery contrasted that with “nearly all other operations characterized by peak load problems, [where] at least some attempt is made to differentiate between the rates charged for peak and for off-peak service.”
While almost 50 years has passed since Vickrey started advocating for more accurate road pricing (during which time he received the Nobel Prize for Economics), our road use charges have remained almost entirely unchanged. Canada has persisted with a 1950s approach that uses fuel taxes as a proxy for distance, but sends no price signal about the time of use.
Three recent developments make the case for accurate road pricing even more urgent.
First, demand for urban transport continues to increase. Canada is now home to 34 million people (up from 19 million in Vickery’s time), of which an ever-increasing proportion live in cities. Meanwhile, vehicle registrations have grown approximately three times faster than population over the same period. Put simply, more people with more cars exist in Canada’s cities. The resulting congestion is estimated to cost $2-billion per year in Toronto alone.
Second, the technology required to charge different prices for using roads at different times has become more advanced and affordable. Even at relatively small scale applications, electronic road pricing costs only 28 per cent of the revenue actually raised. There are also good reasons to expect these costs will decrease further in the future, as large-scale road pricing schemes become more common.
Third, and most importantly, the effectiveness of road pricing has already been tried and proven. In 2006, Stockholm,  Sweden implemented a road pricing trial (that subsequently became permanent) which charged people who drove into the inner-city paying variable rates based on the time of day. For example, morning and afternoon peak period trips cost approximately $2.50 CAD, while people who travelled between 6:30 pm to 6:30 am paid no charge. Prices at other times varied between these two extremes.  
Stockholm’s trial confirmed the benefits of more accurate road pricing. Peak traffic volumes declined by about 25 per cent. That in turn reduced queues by 30 to 50 per cent, emissions by 14 per cent and traffic fatalities by five to 10 per cent. Transit usage increased by as much as 10 percent while public support for the scheme rose to 53 per cent after the trial from 40 per cent previously. Also, the road pricing scheme did exactly what economic theory said it should: Cars as well as light and heavy trucks reduced their road usage by 30, 21, and 13 per cent, respectively. In other words, “higher value” users, such as trucks, were more willing to pay the charges and benefit from faster and more reliable travel-times. Road pricing thus extracted more value from the available road capacity.
Accurate road-pricing encourages people to consider alternatives to driving. Ride-sharing (such as car-pooling and van-pooling) and transit are obvious possibilities although more subtle alternatives also exist. One example is telecommuting. Another is flexible work time, which might allow workers to work four, ten-hour days, such that workers reduce the need to commute into the city at busy times. 
The need, benefits and technology are all in place for accurate road pricing to become a reality. All that is needed is for Canada’s political leaders to open and advance the debate. Perhaps it is time for a Toronto trial?