Truck News

Road tolls, market forces and climate change

by Truck News

A news item caught my attention today (posted at the end of this entry). Toronto Mayor David Miller has stated he would consider tolling city roads -- as London England did, with great success -- in order to reduce commuting, downtown congestion and smog. The London mayor who introduced tolling in that city was actually a left-wing mayor (like Miller) and the concept, which is market-oriented, was anathema to his political followers, who decried it as a tax on the poor and said it wouldn't work. Well, it did work. I have been to London twice in recent years and, while there is traffic, there is very little congestion, even during rush hour. The tolls place a "price" on driving downtown from outside the city. If people want to do it, they can, but they pay. Because it's not considered "free" people who have other options (public transit, not going downtown, taking taxis) use them, and the roads are less congested. Tollling makes sense, if properly implemented, because it solves the "tragedy of the commons" where cars are concerned. When taxes pay for the construction of roads, people perceive their use of those roads as a right, and that their actions are without cost. But when too many cars clog the streets, there is in fact a cost -- loss to the economy from all those thousands of people sitting idle in traffic, wear and tear to the roadways themselves, and (most important) the cost in health care and environmental degradation from smog. It's excellent public policy to recognize this "cost" and to put a "price" on it. The price (market) signal turns the roadways into a market, rather than a commons. Over time, people adjust their behavior according to the market signals. When the roadways are perceived as free, people behave perfectly rationally -- competing to squeeze out as much of their share of the free public good as they can (by using the roads during peak hours, commuting, etc.). It's utterly predictable that "free" roads encourage suburban sprawl. If you can buy a house in exurbia for, say, two-thirds the price of that same house downtown, and your only penalty is to have to drive a bit more every day and not have access to public transit for your work commute, you will logically move to the cheaper suburban house because you can pay off your mortgage much faster and, besides, enjoy a more "bucolic" existence away from the "trafficy" downtown. (Okay, many people will not make this choice, but a glance at any map of the GTA and it's enormous low-density suburbs shows that millions of people will. But if you turn the commons into a market, if the roads are suddenly not "free" (at least, the downtown roads) then the equation changes. People don't so readily assume that it makes sense to live far apart from where they work. ?The cost of the impact of their behavior is no longer externalized onto taxpayers (in the form of road repairs, road construction, hospital care, etc.) or the general economy (the drag of millions of person-hours wasted in traffic). The cost is internalized directly back to the consumer of the service (the driver on the road). There's a further benefit. Not only are costs being appropriately assigned to users of the system, but the system itself changes -- it self-corrects. The very traffic congestion that inspired the tolls begins to melt away as people re-order their affairs. In the short-term, they drive less often to the city. They start to car-pool (i.e., share costs). More than any amount of proslytizing from government (nanny state nagging) could accomplish about the value of car pooling, people do it because it saves them money. Aha! The same force that inspires them to turn down their thermostat or turn off lights in empty rooms, or comparison shop for cheaper shoes, gets them to do the "right thing for the environment." They discover the "Kiss-N-Ride" and jump on the commuter train. They take cabs, trains, buses, street cars, bicycles and (gosh!) they even walk! Over the long term, the appeal of living in the suburbs and working downtown diminishes. Or, more correctly, people make decisions to follow such a pattern with the correct pricing in their heads. One can imagine that real estate values in urban cores -- even the cores of suburban areas -- will more perfectly reflect the value that one can work/shop/play in close proximity, and the values of outlying properties will be diminished. Butthis doesn't mean that the suburbds will become wastelands, ghettos. The opposite should occur: As municipal politicians see the new pattern, they will introduce planning rules to encourage density, thereby turning each suburban node into a small dense city unto itself, rather than a mere add-on to The Big Smoke. This is precisely what is happening now in the Town of Markham (where i once lived), which is a sad example of low-density sprawl that is reinventing itself and literally dropping a high-density core into its new "city centre." Light rapid transit and other public infrastructure will reinforce the idea over time that you can live in Markham, work there, and play, and only go downtown once in a while of other big city pleasures. If this same mechanism is applied to other "free" services, a virtuous cycle should ensue. Markham, for instance, is introducing a user-pay system for garbage (bag tags), in combination with free (tag-less) collection of recyclable materials and organic waste. Unsurprisingly, the town is closing in on its goal of diverting 60 per cent of solid waste from landfill. The town already meters water consumption, which appears as a (not buried) line item on bills. Gas and electricity consumption is already metered by suppliers (including discounters with long-term contractual plans that lock in prices). Imagine the further advances that will be achieved in Markham and every other town and city when each appliance in each household is equipped with "smart meters" telling the owner/user exactly how much it's costing them -- in real time -- to use power for a given period. Again, pricing behavior appropriately will lead people to behave rationally, if they're provided a rational context. If I know, for instance, that it will cost me half as much in electricty pricing to run my dishwasher during the night, while I'm asleep, I will take the time to figure out the slightly complicated digital setting on the front of the machine to make this happen. I will even dig out the owner's manual, or search for it online (by keying in the product name or description). Whereas such a task once sat idle on the endless "to do" task list (along with trimming the hedge in the front yard, or replacing the burnt-out back porch light), it now moves onto my priority "action list" for today, because of pricing. Smart metering will cause me to operate my clothes washer and dryer during non-peak hours for the same reason. But again, there are other benefits and changes that will occur, that movefrom the individual to the systemic. For example, I will likely take a keen interest in the energy efficiency of every appliance that I own or purchase. I'll start to pay attention to the stickers on these machines, and the issue will become part of my research into what I will buy, beyond bottom-line price and styling. I might decide to retire the inefficient beer fridge in the basement when I learn that it's the single greatest power consumer in my home, sucking up power senselessly day and night. And that's just the "low-hanging fruit." I will eventually replace my standard incandescent light bulbs with fluorescents. I will buy rechargeable batteries instead of throwaways. I will install water-saving shower heads. And I may in fact do away with certain appliances altogether, or use them less. (I have recently discovered that it takes only slighly more time to wash dishes than load and empty the dishwasher. And since it makes for a good "chore" for my kids, it costs me nothing personally.) Now let's switch to the view from ten thousand feet. If I'm doing this, millions of other people will be as well. Our combined rational behavior in the new system takes many many megawatts of consumption off the grid. But more importantly, market forces smooth out the peaks and valleys of power consumption. And, since electricty production and consumption is virtually instantaneous, new power plants are not required. The existing system can meet demand and even be in surplus, because infrastructure adequately serves the robust "middle" of consumption, rather than strain to meet peak demand (e.g., everyone cranking up their air conditioners on a hot summer's day, and running their dishwashers at the same time, etc., etc.). And then the planners and the suppliers of power are under less pressure to build mega-projects based on worst-case demand scenarios, and can invest in a more diverse -- dare I say "green" -- array of options. Many people in Ontario, for example, are already buying their power from Bull Frog -- an alternative energy supplier that emphasizes hydroelectricty and wind, etc. So I've extrapolated quite an arc of opportunities from the initial example of road tolls. Beyond municipal services like roads, drinking water and wastewater treatment, power supply, garbage collection and so on, many further opportunities exist in the realm of such things as extended producer responsibility for packaging, electronics and other products. I haven't even touched on trading/credit systems for emissions, that bring market discipline to another perceived "free" commons -- the atmosphere. But an interesting tie-in, in that regard, is that Toronto Mayor Miller's motivation to introduce road tolls is not directly about relieving traffic congestion, but rather to help get the city into compliance with its own four-year goal of reducing greenhouse gas emissions, and climate change impact. The the very macro climate change issue is triggering very micro level policy instruments. A perfect example of "think globally, act locally." I believe that over time, more and more environmental activists will embrace market solutions to environmental problems, as command and control regulation proves to be an approach with certain limitations -- namely that it punishes bad behavior rather than reward correct (or, I should say, rational) behavior.