II. WHAT IS CONGESTION PRICING?

An image of an overhead sign across a road with overhead antennas. Transponders are read by overhead antennas, allowing tolls to be paid without stopping.

Transponders are read by overhead antennas, allowing
tolls to be paid without stopping

Congestion pricing - sometimes called value pricing - is a way of harnessing the power of the market to reduce the waste associated with traffic congestion. Congestion pricing works by shifting purely discretionary rush hour highway travel to other transportation modes or to off-peak periods, taking advantage of the fact that the majority of rush hour drivers on a typical urban highway are not commuters. By removing a fraction (even as small as 5%) of the vehicles from a congested roadway, pricing enables the system to flow much more efficiently, allowing more cars to move through the same physical space. Similar variable charges have been successfully utilized in other industries - for example, airline tickets, cell phone rates, and electricity rates. There is a consensus among economists that congestion pricing represents the single most viable and sustainable approach to reducing traffic congestion.

Although drivers unfamiliar with the concept initially have questions and concerns, surveys show that drivers more experienced with congestion pricing support it because it offers them a reliable trip time, which is very valuable especially when they have to be somewhere on time. Transit and ridesharing advocates appreciate the ability of congestion pricing to generate both funding and incentives to make transit and ridesharing more attractive.

There are four main types of pricing strategies, each of which is discussed in more detail later in this section:


A chart displaying peak periods vehicles throughout during the hour with heaviest traffic, State Route 91 - priced vs. free lanes

Effects of Pricing on Vehicle Throughput

Vehicle "throughput" on a freeway is the number of vehicles that get through over a short period such as an hour. Once freeway traffic exceeds a certain threshold level, both vehicle speed and vehicle throughput drop precipitously. Data show that maximum vehicle throughput occurs at free flow speeds ranging from 45 mph to 65 mph. The number of vehicles that get through per hour can drop by as much as 50 percent when severe congestion sets in. At high traffic levels, the freeway is kept in this condition of "collapse" for several hours after the rush of commuters has stopped. This causes further unnecessary delay for off-peak motorists who arrive after rush hour.

With peak-period highway pricing, a variable toll dissuades some motorists from entering freeways at those access points where traffic demand is high, and where such surges in demand may push the freeway over the critical threshold at which traffic flow collapses. Pricing prevents a breakdown of traffic flow in the first instance, and thus maintains a high level of vehicle throughput throughout the rush hours. As shown in the graph above, each variably priced lane in the median of State Route 91 in Orange County, California, carries twice as many vehicles per lane as the free lanes during the hour with heaviest traffic. Pricing has allowed twice as many vehicles to be served per lane at three to four times the speed on the free lanes.

Technology for Congestion Pricing

With congestion pricing, tolls typically vary by time of day and are collected at highway speeds using electronic toll collection technology. Traffic flows freely, and there are no toll booths. Vehicles are equipped with electronic devices called transponders or "tags", which are read by overhead antennas. Toll rates for different time periods may be set in advance, or they may be set "dynamically" - hat is, they may be increased or decreased every few minutes to ensure that the lanes are fully utilized without a breakdown in traffic flow.

Tags range from simple to highly sophisticated devices. Simple tags are "read-only," meaning that they can provide an identification number to overhead readers using power from incoming radio frequency energy. More sophisticated tags are battery-powered, and have processing power and memory. Tags are now the normal way tolls are collected from regular users - 70 to 80 percent of tolls are now collected this way on most urban commuter toll roads in peak hours. Simple "sticker" tags may be obtained for less than $10.

Global Positioning Systems (GPS) are used to collect truck tolls in Germany on the autobahns. In tests of such systems in the United States, an in-vehicle device records charges incurred based on its location as identified by the GPS unit in the vehicle. All location and payment information remains in the vehicle, and the vehicle owner periodically uploads the summary of charges to a processing center along with payments. The costs of such systems are currently high - as much as $500 per vehicle in Germany. Their high costs can be justified by additional services provided by the systems, such as in-vehicle navigation and commercial fleet management. Also, the need for roadside equipment for toll collection is reduced.

Cameras are an essential complement to tags and GPS units to gain a record of the identity of vehicles that don't have a working tag or GPS unit. Cameras can be used to deter toll violators. This is known as "video enforcement." In cases where a tag is required for use of a facility, camera images allow a follow-up of violators and imposition of a penalty.

Use of a toll facility may be permitted without a tag or GPS unit. In this case, a camera-based system is used to collect what is termed a video toll. This toll includes the additional costs for administration. Cameras are being improved steadily in their capabilities and some believe that very soon toll operators could rely entirely on video tolling.

Flat tolls, "stepped" variable tolls, and "dynamic" tolls

The first roads in the United States and in many other countries were toll roads. In these cases, toll rates were fixed at a flat rate, since their purpose was to raise revenue, not to manage demand. If tolls are to be used to manage demand, they must vary by the level of demand. They may be set in advance by time of day, based on traffic volumes observed - during the past week, month, or quarter. In each case, the toll schedule may appear as a "stepped" form, as shown below.

Tolls to manage demand may also be set "dynamically." Under this approach, a maximum toll rate may be specified in advance for selected time periods (see schedule for I-15 HOT lanes shown below), but actual tolls typically vary below the maximum based on real-time traffic observed on the facility. While a driver knows the maximum rate that can be charged, actual rates (which are generally lower) are known to him or her only a few minutes in advance of approaching the priced facility. The driver can then choose to use the priced facility or continue to use toll-free facilities.

A chart displaying Maximum Toll Schedule for I-15 HOT Lanes, San Diego, California

Variably Priced Lanes

Variably priced lanes include Express Toll lanes and HOT lanes. "HOT" is the acronym for "High Occupancy Toll." On HOT lanes, low occupancy vehicles are charged a toll, while High Occupancy Vehicles (HOVs), public transit buses and emergency vehicles are allowed to use the lanes free of charge or at reduced rates. HOT lanes create an additional category of eligibility to use HOV lanes. People can meet the minimum vehicle passenger requirement - or they can choose to pay a toll to gain access to the HOV lane.

With citizens growing more frustrated with under-used HOV lanes, HOT lanes are increasingly being viewed as a solution that can reduce public opposition to HOV lanes. Surveys show that low-income commuters express a high level of support for having a priced express lane option. This is valuable when they absolutely must get somewhere on time. In places like San Diego, support from low-income travelers is over 70 percent. Low-income commuters also benefit from toll-financed transit improvements.

Express Toll lanes are similar to HOT lanes. The difference is that all vehicles are required to pay a toll - HOVs do not get free service. This makes enforcement of toll-cheaters much easier. However, many travelers still have an incentive to carpool. By sharing the ride, each person in a two-person carpool pays only half the price, while each commuter in a four-person carpool only pays one-fourth.

Variable Tolls on Roadways

With this type of pricing, flat toll rates on existing toll roads are changed to a variable toll schedule so that the toll is higher during peak travel hours and lower during off-peak or shoulder hours. This encourages motorists to use the roadway during less congested periods, and allows traffic to flow more freely during peak times. Peak toll rates may be high enough to guarantee that traffic flow will not break down, thus offering motorists a reliable and congestion-free trip in exchange for the higher peak toll.

Variable tolls can also be introduced on existing toll-free facilities to manage traffic flow. Again, tolls vary by time of day and are charged only on congested highway segments to manage traffic flow and recover the highway's capacity to carry the number of vehicles it was designed for. The most efficient way to operate our freeways is to prevent congestion and keep traffic moving freely. When traffic flow collapses under congested conditions, capacity is lost (see box at right). By preventing congestion, pricing recovers this daily waste of public investment that occurs on congested highways.

Real life examples show the impacts of pricing. In Ft. Myers, Florida, a 50 percent discount on the toll was offered on the Midpoint and Cape Coral bridges for a short period of time before and after the rush hours. Survey data revealed that, among those eligible for the discount, there was an increase in traffic of as much as 20 percent during the discount period before the morning rush hours, with corresponding drops in the rush hour itself.

Cordon Pricing

Cordon pricing involves charging a fee to enter or drive within a congested area, usually a city center. Singapore introduced the first such pricing scheme in 1975 using low-tech daily charges. In 1998, the city shifted to a fully automated electronic charging system. In 2003, a cordon pricing scheme was introduced in central London. A similar scheme functioned in central Stockholm on a trial basis in 2006 from January through July.

A chart showing the fees for travel within Stockholm varied according to time of day, with higher fees during rush hours (dollar rates converted from Swedish krona at current rates)

Source: Stockholm Trial Expert Group

Area-wide Pricing

The State of Oregon is currently testing a pricing scheme involving per-mile charges, which it will consider using as a replacement for fuel taxes in the future. A congestion pricing component is being tested, with higher charges during congested periods on high traffic road segments. The Puget Sound Regional Council has been testing the travel behavior impacts of a similar charging system in the Seattle metropolitan area during 2005-2006. Charges are based on the type of facility being used and its level of congestion.

Use of Revenues from Pricing

Congestion pricing can generate substantial revenues from tolls. A portion of the revenues generated will be needed to operate the toll collection and traffic management systems. Net revenues after payment of operating costs can be used to pay for expansion of roadway facilities, to support alternatives to driving alone such as public transit, to address impacts on low-income individuals by providing toll discounts or credits, or to reduce other taxes that motorists pay for highways such as fuel taxes, vehicle registration fees or sales taxes.

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