London Congestion Charge


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London Congestion Charge Market Failure

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London Congestion Charge

  1. 1. London Road Pricing Scheme Laura and Patrick
  2. 2. Market Failure in London! • Negative Externality: cost caused by production or consumption of a good to a third party • External costs of private transport in London: ▫ Detrimental air pollution (carbon dioxide emissions from cars) ▫ Heavy traffic in Central Area
  3. 3. Background Info • General ▫ Introduced in early 2003 ▫ First used in Central London  Expanded to west London ▫ Was the largest of it’s kind when it was introduced  Remains to be one of the largest in the world ▫ Still is frequently referenced in many towns’ bids to implement their own schemes
  4. 4. Background Info • Charge ▫ 8 pounds per day every time you go into the CCZ  7 pounds if you are part of a fleet of vehicles ▫ The charge is applicable between the hours of 6:00 in the morning to 7:00 at night ▫ Municipal vehicles, taxis, alternative fuel vehicles, and bicycles are exempt from the charge
  5. 5. Background Info • Operation and Fines ▫ CCTV cameras inside the CCZ record license plate numbers with 90% accuracy ▫ During the night computers cross reference the payees with their license plate numbers ▫ Those who have paid but have not been recorded will be refunded whereas those who have not paid but have been recorded will be fined
  6. 6. Background Info • Effects ▫ 20% decrease in traffic in the CCZ ▫ Harmful pollutants significantly curbed
  7. 7. Proposed Remedy • The proposed remedy was to… ▫ introduce a road pricing scheme to… ▫ decrease the number of drivers, therefore… ▫ decreasing congestion, noise, and pollution
  8. 8. Rationale Of Road Pricing • Road pricing: economic concept regarding direct charges applied to the use of roads ▫ Examples: fuel taxes, license fees, parking taxes, tolls and congestion charges • Two objectives: ▫ Revenue generation for road infrastructure ▫ Congestion pricing for demand management
  9. 9. Does Remedy Work? • According to Ken Livingstone, ex-mayor of London: The Congestion Charge is highly effective in decreasing traffic… ▫ Traffic levels + associated carbon dioxide levels have been cut ▫ Bus services have improved and roads are safer ▫ London’s air quality has improved thanks to reduced vehicle emissions ▫ Funds are invested back into transport system and used to encourage walking, cycling and greater use of public transport
  10. 10. Does Remedy Internalize Externalities? • Therefore, if he was telling the truth: ▫ The Congestion Charges cover the marginal social cost of urban traffic  External costs of traffic are compensated with funding for better bus services and roads  Funds can also be used to clean up air pollution
  11. 11. Does Remedy Internalize Externalities? • And… ▫ Road pricing decreases marginal private benefit  Congestion Charges act as disincentive for consumers  Demand of the demerit good is reduced to a more socially optimal level
  12. 12. Bibliography • • • http://www.niches- 13_pricing_ok_low.pdf • •