Road pricing reform: a thorny issue

Melbourne freeway

In the fifth of a series of six articles, Professor David Hensher of the University of Sydney outlines the case for building in an appropriate pricing mechanism for the use of the road network.

The smart mobility paradigm is almost silent on the role that road pricing reform will continue to play and the opportunity that it will open up to give such reform a whole new meaning as part of an integrated pricing strategy. Specifically, we have concluded for many years now that there are few non-blunt instruments available to ‘tame’ congestion over the longer term and to relate the fee for use of the road network to the benefits that are obtained (allowing for internalisation of negative externalities).

Politics and marketing

We have also known for many years that pricing reform is not an issue of economics and planning, but of politics and marketing. Buy-in has become the raison d’etre as we continue to struggle to find ways to satisfy the voting population in ways that will gain political support and action (see for example, Hensher and Mulley (2014) and Hensher and Bliemer (2014)).

Digitally-defined mobility services, be they part of a subscription plan delivered by a broker (or integrator) under MaaS or even a standalone shared service such as Uber or Lyft, provide the opportunity to build in an appropriate pricing mechanism for the use of the road network1 which is provided by government.

‘Hidden’ road pricing reform

Such providers or plans are likely to use time varying pricing structures as well as relying on increasingly sophisticated digitally geo-referenced location platforms, and so may provide both the technology platform and the political cover to support a change in how we charge for use of the network2. The road pricing reform becomes hidden and becomes nothing more than a non-declared (to user) component of the cost of using a transport mode on the road network.

Integrators (or mobility brokers) however, have argued for a relaxation of congestion charges for pooled vehicles in those Nordic cities that have implemented them. Further, and similar to integrators, point-to-point orchestrators (particularly those involved in ride sharing) have argued that governments should implement exemptions from congestion charges and parking fees given the sustainable aspects of using their services.

This creates a dilemma because, on the one hand we have in MaaS a real opportunity to reform economic road user charges, and yet we see the arguments for giving concessions3 on congestion related charges as a way of attracting switching away from the solo driving private vehicle towards the sharing car model (although the suggestions in a previous section suggest a real possibility of high vehicle kilometres around the clock, even with fewer vehicles).

On balance, the arguments are weak on this matter given its small contribution to the financial impost of individual car users, and one suspects this might be a ploy of the integrators and orchestrators to reduce their subscription of service charges to customers as a way of growing profitability.

The London experience

We should also learn from the experience in London, where having been captured by the environmentalists, the then mayor (Ken Livingstone) gave exemptions to environmentally-friendly cars. London has had creeping upwards congestion, much of it fuelled by environmentally-friendly cars (as people make longer term decisions for durable purchases). The moral of the story is that if it is a road user charge, road users should pay it. If something is deserving of a subsidy, make it direct because this way it can be varied.

Moving to variable charges

I, amongst many others, have proposed ways of reforming the price associated with road use, moving away from fixed charges (that are essentially administrative such as registration fees) to variable charges such as distance (and time of day) price per kilometre. For example, Hensher and Mulley (2014) set about to identify a reform that would both now make Treasuries not financially worse off and the great majority of motorists, and which would ensure a high degree of buy in as the initial objectives.

Any demonstrated gains in reduced congestion would ensure as the next stage evidence for adjusting the charging regime. The proposed charging regime involved a 50 percent reduction in annual registration fees and a peak period only distance based charge of 5c/km. Motorists had the option to opt out and travel in the off peak periods (which is feasible for a sufficient number of motorists) reducing traffic by 6-10 percent in the Sydney Metropolitan Area, returning peak periods in normal times of the year to those experienced in school holidays.


1. The focus in on efficient economic user charges for the entire network in contrast to tolling which is road specific and typically based on commercial pricing and distortionary impact in terms of overall social welfare benefits for the entire network. The presence of toll roads under a PPP create a messy situation; however governments need to find a way to gain back control of the network, which has been lost in cities such as Sydney where private companies have 30 year concessions to operate the key motorways. See Hensher (2018) for a discussion.

2. Surge pricing, defined both by time of day and location, is a step in the right direction — it is service-specific though, not network encompassing. The congestion issue is compounded by temporal imbalances between demand for road space occupancy and its (more or less) fixed supply. In any discussion of ‘using smart transport to ‘resolve’ congestion’, a degree of temporal, and geographic granularity is desirable (as has always been promoted in road pricing reform – location and time of day) so as to focus the deployment or adoption of ‘vehicle sharing’ and ‘road user charging’ towards the domains of greatest challenge and opportunity.

3. Maybe a discount if it is more spatially/temporally efficient.

Author: Professor David Hensher

Professor David Hensher is Founding Director of the Institute of Transport and Logistics Studies at The University of Sydney. Among his many recognitions and achievements, David is a Fellow of the Australian Academy of Social Sciences, and the recipient of the 2009 International Association of Travel Behaviour Research (IATBR) Lifetime Achievement Award in recognition for his long-standing and exceptional contribution to IATBR as well as to the wider travel behaviour community. David has published over 600 papers in leading international transport and economics journals, as well as 16 books.

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