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Congestion Pricing — A Primer: Overview

What Is Congestion Pricing?

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 some less critical or more 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:

  1. Variably priced lanes: Variable tolls on separated lanes within a highway, such as express toll lanes or high-occupancy toll (HOT) lanes.
  2. Variable tolls on entire roadways: Both on toll roads and bridges, as well as on existing toll-free facilities during rush hours.
  3. Zone-based or cordon charges: Either variable or fixed charges to drive within or into a congested area within a city.
  4. Area-wide or system-wide charges: Per-mile charges on all roads within an area or on a roadway network that may vary by level of congestion.

Technology for Congestion Pricing

With congestion pricing, tolls typically vary by time of day and are collected at highway speeds by using electronic toll-collection technology. Traffic flows freely, and there are no tollbooths. 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," that 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 by 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 during 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. These high costs can be justified by the additional services provided by the systems, such as in-vehicle navigation and commercial fleet management. 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 do not have a working tag or GPS unit. Cameras can be used to deter toll violators. This is known as video enforcement. In cases in which a tag is required for use of a facility, camera images allow for a follow-up of violators and an 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 toll operators soon could rely entirely on video tolling.

Variably Priced Lanes

Photo. An overhead antenna apparatus on a busy highway. Overhead antennas like this one are used to read transponders on the vehicles below, allowing tolls to be paid without the cars having to stop.

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

Variably priced lanes include express toll lanes and HOT lanes. On HOT lanes, low-occupancy vehicles are charged a toll, whereas 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 increasingly are 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, whereas each commuter in a four-person carpool pays only one-fourth.

Variable Tolls on Roadways

Photo. Traffic passing under an electronic road pricing (ERP) gantry in Singapore.

Traffic passes under an electronic road pricing (ERP) gantry in Singapore.

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 also can 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. By preventing congestion, pricing recovers this daily waste of public investment that occurs on congested highways.

Real-life examples show the effects of pricing. In Ft. Myers, Florida, a 50-percent discount on the toll is 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.

Zone-Based or 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 by using low-tech daily charges. In 1998, the city shifted to a fully automated electronic charging system. In 2003, a zone-based pricing scheme was introduced in central London. A cordon-pricing scheme functioned in central Stockholm on a trial basis in 2006 from January through July, and was made permanent in August 2007. (See section on Examples From Abroad).

Graph depicting the difference in fees for travel within Stockholm.
Table. Graph depicting the difference in fees for travel within Stockholm according to time of day. The fees range from $1.38 to $2.76, with higher fees occurring during rush hours (8:30-8:59 and 5:20-5:59pm). Dollar rates have been converted from Swedish krona at current rates.

Fees for travel within Stockholm vary 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 or System-Wide Pricing

The State of Oregon has tested 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 was tested, with higher charges during congested periods on high-traffic road segments. The Puget Sound Regional Council tested the travel behavior impacts of a similar charging system in the Seattle metropolitan area during 2005–2006. Charges were 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 or 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.

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, because 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 and 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. Although 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.

Maximum toll schedule for I-15 HOT lanes, San Diego, California.
Toll Rates
Evening Period (Northbound)
3:00-3:30 3:30-4:00 4:00-4:30 4:30-5:00 5:00-5:30 5:30-6:00 6:00-6:30 6:30-7:00
$4.00       X X      
$2.00   X X     X    
$1.00             X  
$0.75 X             X