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BITRE | Working paper 74

Because of the sheer enormity of congestion cost estimates, it is important to

understand how these numbers are derived. Without such insights, the congestion

cost estimates have little meaning or policy relevance. One danger is that the

congestion cost estimates will be drawn on to provide an indication of expenditure

that could be justified to reduce congestion. For instance:

Under various simplifying assumptions, it has been calculated that the maximum

justifiable expenditure in 2005 to address the worsening road transport social costs

could lie anywhere between $800 million and $11 billion in present value terms,

depending on the social costs to be avoided (CIE 2005, p. vii).

Similarly, Betalen voor Mobiliteit (2006), suggested that, given an estimated cost of

congestion of €1.4 billion per annum, then spending up to €140 million per annum

could be justified if it reduced congestion by 10 per cent.

Thus, if congestion cost estimates are to have a significant impact on policy then

it is critical to understand how the costs are derived. In this context, evaluations

of congestion charging schemes depend critically on understanding what the

‘congestion costs’ mean. As we discuss later (in relation to the assessment of the

success of the London scheme), the ex-ante and ex-post evaluations of congestion

charging schemes depend critically on how congestion costs are measured.

For two of the main components of congestion costs, increased travel time and

reduced reliability, there is no unequivocal value. Willingness to pay for travel time

savings is normally used as a guide to the value that road users place on their time.

However, measuring this is also fraught. As one analyst observed:

Of course in any real travel population, values placed on and willingness to pay (WTP)

for travel time savings differ widely from individual to individual and depending on

circumstances of any particular trip (Mallinckrodt 1999, p. 1).

In practice, values are assigned to time and, in some instances, to improved reliability.

The uncertainty inherent in these values become embedded in the congestion costs

estimates. Hence, these estimates must be approached with caution.

The sensitivity of the outcome of a project evaluation to the parameters used can be

accommodated by adopting sensitivity analysis as part of the scheme appraisals. For

example, if there is dispute or uncertainty over the value of road-users time then it is

important to know whether the viability of the project would be impacted by say, a

small reduction or increase in the value attributed to time.

1.2 Report outline

This report reviews the international experience with congestion charging to distil

the policy implications for Australia. This involves identifying the key issues and then

analysing them within a consistent public welfare framework.

While many experiences will not be directly transferable, overseas experience

invariably provides important lessons. For instance, why the London scheme, covering

less than 3 per cent of Greater London (Figure 1.1), should have such an impact on

the international debate when Singapore’s scheme has been operating successfully

for decades The London scheme, along with the development of many smaller

4

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