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BITRE | Working paper 74

Australian capital cities has been estimated to be $9.4 billion in 2005, rising to $20.4

billion by 2020 (BTRE 2007, p. xv).

In the United States (US), congestion costs are estimated at over US$78 billion a year,

with the average peak-hour traveller experiencing a tripling of the annual delay costs

over the past two decades. At a time when policy focus is on energy security and

efficiency, there is further policy concern with congestion in the US due to wasted

fuel: the increased congestion is estimated to consume an extra 2.3 billion gallons (8.7

billion litres) of fuel as engines idle in traffic jams or operate at sub-optimal speeds

(Mallett 2007, p. CRS-46).

The European Commission’s view is that:

… congestion is the scourge of European cities … the costs of traffic congestion

are enormous. In the European Union (EU), the total costs of road congestion have

been estimated at around 120 billion or some 2% of gross domestic product (GDP)

(European Commission 2001).

Rising vehicle numbers, which is a reflection of population growth, and vehicle usage

are two key factors in rising congestion. That is, the growth in vehicle numbers and

usage is the underlying cause of escalating congestion costs. For instance, in the

Netherlands, current congestion costs have been estimated at $1.4 billion per annum

(LogicaCMG 2003). Vehicle numbers have gone from 30 000 daily in 1970 to 70 000 in

2000 and increased by another 10 000 since then (World Highways 2006b).

The first systematic analysis of urban congestion in Canada estimated congestion

costs in the range of $C2.3 billion to $C3.7 billion per year (in 2002 dollars).

As with other studies, in other countries, time lost is the main congestion cost, in this

case being more than 90 per cent of the cost (Transport Canada 2006, p. i).

In Japan, the estimated cost of congestion in Tokyo’s city centre is almost ¥5 trillion

or around US$50 billion (Sato and Hino 2005, p. 608). Developing countries are facing

similar issues. Reports from Beijing indicate that, despite a 30 per cent increase in

capacity, rapidly growing car use is projected to result in heavy congestion with

average speeds in the city centre around 20 kilometres per hour by the end of this

decade (World Highways 2006a).

Traffic authorities are skilled at dealing with urban congestion and have a number

of policy options. However, there is widespread concern amongst these authorities

and policy makers that the potency of these policy options has diminished and that

more radical measures are called for. Thus, because prevailing measures appear to

be struggling to contain the upwards trend in congestion (principally through road

capacity expansion), policy makers have looked for other options. In particular,

attention has focused on the potential for congestion charging to either substitute

for or to supplement the standard approaches.

The primary attractions of congestion charging for reducing congestion are its

well-established theoretical economic foundations and the revenue stream that it

produces. 2 It is perceived by non-economists that an economist will always advocate

this approach. This is not the case.

2. The theoretical framework is presented in Appendix A.

2

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