Explain why economists are concerned about the main environmental problems associated with the growth of road traffic in the UK

1. Explain why economists are concerned about the main environmental problems associated with the growth of road traffic in the UK.

Transport, of course, contributes to the environmental problems that face us. There is little argument that transport pollutes the environment and, through CO2 emissions, it is a major contributor to the greenhouse effect and global warming. Within transport it is the road sector that attracts most criticism and cause for concern. Other modes, particularly rail, are more environmentally friendly for the carriage of passengers and freight than road transport.

At a more local level, transport imposes much more localised external costs, particularly on those living and working in urban areas close to main roads, transport depots and so on. These negative externalities include:

* Noise pollution; Lorries in particular cause high levels of disturbance. Traffic noise produces a level of pitch which over long periods becomes unwelcome to the human ear. Prolonged exposure to traffic noise can disrupt lifestyle, increase stress and make it difficult to relax.

* Atmospheric pollution; Road traffic produces CO2 emissions, particularly from exhaust systems. As with noise, the local incidence of pollution from Lorries is greater than that from cars. Diesel engines are rather ‘greener’ than their petrol equivalents, although there is particular concern over nitrous oxide emissions.

* Visual Intrusion; this is a less obvious negative externality and relates to situations where road traffic impairs or devalues the view in an urban or rural landscape. Sadly, in many historical cities, buildings seem to rise from a plinth of cars and visitors and residents obtain less visual enjoyment than they might from their surroundings.

* Blight; again, urban road transport is the main culprit. This type of negative externality is invariably caused by planning and similar problems associated with the building of new roads or providing facilities to speed up traffic flow.

* Accidents; road traffic accidents are very costly to the community, in terms of the physical damage caused and in the serious injuries and loss of life which can occur.

Traffic congestion is therefore a good example of market failure; social efficiency is not achieved. Consequently the actions of road users affect people other than themselves, so causing side-effects or externalities.

The externalities caused by congestion are invariably negative; that is, the marginal social benefit of using cars is less than the marginal private benefit. This is illustrated in the diagram below, in which DD is the demand curve for travel. The vehicle miles demanded will be Q1 when the price to the motorists is P1 (this is the cost of using the vehicle, per mile). The social optimum is at E1, where price=marginal social benefit. There is over-consumption of Q1-Q2.

Measurement of the costs of congestion in practise is a complex calculation and includes: additional value of time costs to motorists, particularly for work journeys, increased fuel and other running costs, reduced vehicle productivity, particularly for goods vehicles and finally additional costs to users and operators of public transport systems. An even more complex estimate of the costs of congestion would be if the cost of other negative externalities (arising from exhaust fumes for example) were included.

The concern for the economists therefore is because of the amount it will cost them to fund for e.g. accidents as road traffic increases.

2. Discuss how a more sustainable transport policy might reduce these environmental problems.

Over the years many approaches have been put forward for dealing with the problem of traffic congestion in cities. Most of these have been planning or engineering solutions, which have little to do with economics and involve the following:

* Making better use of the road network – this is a typical approach put forward by traffic engineers and can involve controlling parking on busy roads, creating urban clearways and bus lanes, improving road junctions and park-and-ride schemes.

* Building more roads – a natural solution in many respects and one that has been persistently practised in many towns and cities. Realistically, infrastructure development is necessary, but the problem is that our ability to construct, fund and accept new road schemes, particularly in urban areas, is below what is necessary to enhance the flow of traffic. There is also the additional problem that when new roads are built, this tends in itself to generate an increase in demand.

* Improving public transport – this is a logical approach that has been pursued with much more vigour in the rest of Europe, where many cities have integrated efficient passenger transport systems which receive substantial subsidies. With the exception of a few projects such as Tyne and Wear Metro and the more recent new tramway developments in Manchester, Sheffield and elsewhere, this approach has not been favoured by the UK central government since 1979, even though local support may have been extensive, also since the privatisation of buses, it is even harder for these schemes to work due to price ranges in different areas by different bus companies.

* Increasing the cost of urban travel to motorists through a variety of existing and proposed fiscal measures. Increased fuel costs, parking charges e.g. Bedford CPZ; another distinct possibility for the future is road pricing, and it is this that I am going to describe in great detail.

The basic principle of road pricing is that users should pay the costs they impose on others. Road pricing is seen by economists as the only realistic solution to the problem of urban road congestion. The basic principle stated above makes it different from all other proposed approaches. It is also the only one which is economically efficient. Moreover, road pricing ensures that the prices charged for transport services are more or less in line with their costs – as a result, the market mechanism can allocate traffic efficiently to different modes of transport.

Road pricing should not be considered in isolation – it should be seen as part of a set of measures including those of traffic management and public transport improvement via indirect and direct charges. It must also be recognised that road pricing is potentially a very contentious issue. Realistically, therefore, road pricing is likely to be introduced on a limited basis only – such as the controversial scheme for Cambridge announced in 1991 but then scrapped for political rather than transport expediency. Diagram 2 shows the basic principles behind road pricing. Assuming that road space is in unlimited supply and that it is provided free to users, consumers will demand Q0 at zero price. This is the basic market equilibrium.

The assumption of unlimited supply is unrealistic – any road has a capacity by definition, which can be shown at QC on the diagram. The marginal private cost curve, which shows the supply of road space for users, can be drawn upwards from this point. Equilibrium now is at E1, where MPC=MSB; that is, motorists are paying the private costs of using their vehicles. This is not the socially optimum point, as road users impose externalities on al other road users. Hence, the social costs of congestion exceed the private costs – the MSC curve is above that of the MPC. If all these costs were taken into account, the social optimum would be E2, where the volume of demand is less and the price paid by road users is higher than the market determined equilibrium.

Road pricing is a particularly good example of an economist’s solution which is fine in theory but subject to much debate in practise. In recent years, advanced technology has made it easier to work out the actual cost of congestion caused by the individual motorist.

Road pricing does have certain important advantages:

* It is a market-based solution to the problem of congestion.

* It is the only solution to congestion that is likely to result in a fall in traffic and an increase in vehicle speeds.

* Revenue from road pricing could be used to fund improvements in public transport.

On the other hand, it does have its disadvantages:

* It is socially disruptive in so far as all road users will pay the same level of charge at a particular time, irrespective of their incomes. Under certain circumstances, it could actually be progressive, although this argument is seldom recognised.

* There are genuine problems of estimating external costs of traffic congestion and establishing these in relation to road pricing charges.

* The technology, although much more advanced in recent years, is relatively unproved and could be subject to abuse and evasion.

* The level of charge must be carefully fixed in relation to the price of the elasticity of demand for travel if congestion levels are to be reduced.

In conclusion, the practical problems of introducing road pricing have so far deterred other cities looking for a solution to their congestion problems. It remains to be seen whether the growing consensus amongst transport economists in favour of road pricing will actually be matched by its practical functioning. The costs of congestion are now so great that they cannot be ignored. As The Economist states, “road pricing tomorrow is the only solution to the jam today – the ball is now firmly in the politicians court.

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