Group 4:

Niklas Aalto-Setälä
Petr Hajduk
Pietari Peltonen
Niko-Matti Ronikonmäki
Eric Roselius
Emilia Taskinen

Congestion Charges in London and

Stockholm
Congestion Pricing in General

Why there is congestion?

Congestion on road network is a common problem in the modern urban environment. It is
one of the common forms of congestion that occur in the urban systems and demand of
certain good exceeds its supply. From the perspective of road network, congestion occurs
when too many cars use the specific road. In that stage the vehicle density exceeds the
capacity of the road and the speed on the road declines. This phenomenon is described in
the figure 1 (Zaidi et.al, 2015).

Figure 1 Basic Freeway Traffic model (Zaidi et.al, 2015)

Theory of congestion pricing

Certainly congestion is caused by the exceeded usage of the road. So why does it happen?
The idea of the congestion pricing is strongly linked to the economics and especially on the
fields of urban and transportation economics. It is a measure that is created to solve the
congestion problem on the road network by adding extra fees or taxes for the road users.
The fundamental idea is to make car users to pay their social marginal cost of driving
(Brueckner, 2011). This idea that is introduced later on.

To begin with, the idea of congestion pricing is that the demand (q) for road capacity
depends on the price the users pay for it. The higher the cost of the use of the infrastructure
the less are people willing to use it. The price in this case does not only mean the price of
the fuel or toll but also the price of the travel time transferred to value in money. We call
this value general cost g, see the equation 2 below. (Evans, 1992)

Equation 1 - The demand function:

q = q(g)

Equation 2 – Generalised cost of using the road

g = p + v(q/c) (in case that q < c)

Where p is the tax imposed on the road, v means delay due to congestion congestion, c is
fixed capacity of the network.

The reason to add this tax to the users is to create a situation, where road users end up
paying their real marginal cost at the whole society’s level. Congestion problems arises
when road user don’t face the real cost for his actions. This means that the marginal social
cost of road usage (MSC) exceeds the average social cost of the road that user faces (ASC).
One should note that the costs are mainly caused by the time costs, which are linked to the
speed on the road network. With this setting it is quite natural that the demand of the road
is above its social optimum and the road network is congested. (Brueckner, 2011)

In the figure 2 this problem is presented, but the ASC-curve is now defined by the time
usage curve t(D). As the congestion charge is presented as the difference between social
marginal cost and the average social cost, road users will adjust their behavior towards the
socially optimal level, where demand equals the marginal costs. (Eliasson, 2016)
Figure 2. Marginal cost of road traffic and pricing element. (Eliasson, 2016)

As seen in the graphs we should aim for the optimum speed ​vm in order to reach the
maximum possible flow and getting the most of the existing network. This can be achieved
only by regulating the input and thus the demand. Congestion pricing offers one way how to
achieve the reduction in the demand so that it is actually possible to avoid the gridlocks. We
can actually even think of this as an example of the game theory problem since if nobody
leaves their car at home, nobody profits, but if someone does, everybody profits. Putting
the price tag on the crowded parts of the network is a way how to do it. The optimal state
can be obtained from Equation 2 above.

The optimal way to set congestion pricing have risen a lot of discussion in transport
engineering and in the economics. One classical requirements for the good pricing scheme is
described by the Nobel Prize winner William Vickrey in 1992. His thoughts are widely
discussed and have worked partly as a basis for the real world implementations too, but
naturally part of the suggestions have past their time. Key issues of his ideas are that pricing
should be close to the theoretical marginal social costs, they should vary in time and there
should be no exceptions for different car users (Vickrey, 1992).

Equality issues
Congestion pricing creates a problem with equality since only the richer part of the
population can afford to pay the additional price. However congestion pricing could still be
taken as a win-win situation because not only that money got from additional pricing can be
used for more public transport connections but there is also additional advantage for public
transport from the smooth traffic and therefore there is better reliability.

Still, it’s a question if better public transportation overweighs the impossibility of using a car
for these people that can not afford to pay for the congestion pricing. Overall benefits for
the whole society should be still huge, since richer people using cars profit and already
existing public transport riders profit.

Congestion charging in London

The London Congestion Charging was introduced in 2003. Congestion charging is a part of
the Mayor’s Transport Strategy. With this arrangement it is desired to reduce congestion,
improve bus services, journey time for car users and distribution of goods (Transport for
London, 2008). At the moment, the charging zone is located in the Central London and the
size of the zone is 21 km​2 ​(Transport for London, 2016). If a motor vehicle drives in the area
on weekdays between 7:00 – 18:00 the charge is £ 11,50 per day. There are many
exceptions for pricing, different vehicles and certain days. The vehicles aren’t charged
during public holidays or between Christmas Day and New Year’s Day (Transport for
London).
Transport for London is in charge of the payments and from 2011 they have been offering
automated payment systems. This Auto Pay system records the number of days when a
vehicle travels in the zone and in the end of the month the sum is taken automatically from
a credit card. When using Auto Pay the charge is lower, £ 10,50 per day. This discount is
offered because fare collection is simpler via Auto Pay for Transport for London. However,
there is an annual payment of 10 pounds. There are also other ways to pay the fare, such as
text message or London Road User Charging account. The charge rises to 14 pounds if it is
paid in the following day. After that the driver will get a Penalty Charge Notice. Penalty for
not paying the charge is between 95 – 135 £ (Transport for London).
The congestion charge is for the most of motor vehicles. However, there are exemptions.
Residents living inside and right next to the zone get 90 % discount from the charge. 100 %
discount is available for disabled people with Blue Badge, certain breakdown vehicles,
vehicles with nine or more seats, vehicles that emit less than 75g/km, motor tricycles and
roadside recovery vehicles. Other exemptions are for example taxis, privately hired cars and
public transport (Transport for London). There have been 61 000 valid charges for each
charging day from July to September in 2016 of which approximately 5 000 were resident
charges (Transport for London, 2016).

Results of the congestion charging

Transport for London has published annual monitoring reports of congestion charges from
2003 to 2008. The reports from 2007 and 2008 discussed mostly the Western Extension
which was removed after few years. Therefore, the reports from 2004 to 2006 will be the
main resources here. The effects of congestion charging in London was assumed to be seen
in congestion, traffic patterns, public transport, behaviours, economy and environment. The
numbers that changed in 2003 in the effect of the congestion charges have remained quite
the same according to the reports of the following years. Also some changes have happened
because of general traffic trends like increased cycling (Transport for London, 2003).
Figure 3: (Transport for London)

In the charging zone the congestion had reduced by 30 percent during the first year of
congestion charging. In addition, there had been approximately 15 % reduction in traffic
that enters the zone during charging hours and circulation within the zone. In wider area,
congestion had reduced a little bit in the Inner Ring Road of London but total traffic had
small increase there (Transport for London, 2006).
London has also proved that congestion charge increases the use of other modes of
transportation (picture). The use of cars had dropped 33 percent and according to surveys
over half of these trips had transferred to public transport. Some shifted to other modes of
transport like taxis and bicycles. The rest either had changed their routes to divert the zone
or drive outside charging hours (Leape, 2006).
What it comes to public transport, Transport for London have been able to improve bus
services with the revenues of charging. For example, in 2005 £ 5 congestion charge resulted
£ 90 million revenues and the money was mostly used to improve bus services. As a result,
both bus network and reliability of the service has increased. In addition, overall reduction
of traffic volume has directly reduced NOx and fine particles in the air of the congestion
charge zone. However, this arrangement hasn’t had particular effect in the emissions of the
Inner Ring Road in general. Congestion charging has had only small effects of business or
economic growth. Also number of accidents have remained stable (Transport for London,
2004).

The Western Extension

The charging zone was extended during 2007 – 2011 in western area. However, majority of
public consultation of this Western Extension backed its removal. Even though the traffic
volume and CO2 emissions and pollutants from the vehicles had decreased it was stated
that the extension had negative effects. For example, the area right outside of the zone
suffered increasing demand of parking and local business had negative impacts because of
the congestion charging (Transport for London, 2008)
Congestion charging in Stockholm
Congestion charges were implemented in Stockholm in august 2007, following a trial period
of seven months during 2006 (Eliasson, 2014). The trial system was implemented as a way
to “test whether the efficiency of the traffic system could be enhanced by congestion
charges” (Eliasson, 2014). It was also expected that the charges would “reduce congestion,
increase accessibility and improve the environment” (Eliasson, 2014). The congestion
charging system initially had major opposition from both citizens and politicians. Despite the
initial negative attitudes, the system had gained favor among 2/3 of the population and all
political parties when finally being implemented (Eliasson, 2014).

The current toll zone area is around 35 km² large (see map) and has around 330 000
inhabitants, of which around 60 000 commute outside the zone for work daily. Inside the
zone there are some 23 000 workplaces, which all in all employ around 318 000 people. As
of 2014 there were some 18 different charging points (the points have since undergone
small changes) located in different parts of the city. The system automatically detects cars
that pass these stations and automatically sends them an invoice of at the end of each
month for the total sum. The charges are in effect during weekdays from 06.30 to 18.29,
with some holidays also exempt from the charges (Transportstyrelsen2).

The Charging is, as earlier stated, fully automatic with tolls being collected both when
entering and leaving the congestion charge area. The charges are currently as follows,
depending on which time of the day a tolling station is passed: 11, 15, 25 or 35 SEK (raised in
2016) (Transportstyrelsen2). There is also a max sum that can be collected for an individual
vehicle per day, which currently is 105 SEK (raised from 60 SEK) (Transportstyrelsen2). The
charges can either be paid directly from the invoice received, but it also possible to set up
an automated payment method which makes it easier to remember to pay each month.
Both systems don’t require any additional payments (Transportstyrelsen).

Initially there was an exemption for alternative-fuel vehicles, which meant that any vehicle
propelled by any means other than gasoline or diesel fuels. This was later abolished in 2012.
The exemption was intended to stimulate the sale and market introduction of such vehicles,
which was hugely successful, with these types of cars rising from 3 % market share to 15 %
in 2009. The reason for its abolishment was that it had was seen that it had served its
purpose, but also that there was some room for abuse. For example cars that run on biogas
could also run on diesel. (Eliasson, 2014)

Results of the congestion charging

The initial test phase during 2006 saw traffic immediately dropping in the city leading to less
huge reductions in congestion. The effects stabilized at around 22 % reduction in traffic,
which led to around 30-50 % less congestion. Also the public opinion seemed to change,
with the share of positive articles regarding the project rising from 3 % to and 42 % while
the negative articles decreased from 39 % to 22 %. (Eliasson, 2014).

After the trial, traffic volumes rebounded immediately to pre-toll levels with the same
happening after the final implementation in 2007, as seen below in the graph.

Figure 4: Traffic volumes during weekdays from 0700-1900 (Transportrytselen)

From the graph we can see that traffic volumes have remained constant after the tolls were
implemented. From this can be implied that traffics elasticity with regards to the charges
has changed from -0,70 to -0,85 in 2009, since external factors, such as population growth,
should have increased demand. Another decrease in traffic volume can be seen after 2009
when the vehicle exemptions were abolished. That time around 6-8 % of total traffic
consisted alternative-fuel vehicles. (Eliasson, 2014).

Figure 5: Traffic reductions compared to 2005 levels (Eliasson, 2014).

Reductions in traffic volumes also led to decreased congestion and shorter travel times. This
also led to an increase in time reliability. (Eliasson, 2014)
.

Figure 6: (Eliasson, 2014)

Reductions in different types of emissions of up to 15 percent in the center of the city was
also a positive change that came from the reduced number of vehicles. This will according to
estimates lead to around 25 less premature deaths per year in the inner city area of
Stockholm and around 30 less deaths per year in the Stockholm metropolitan area.
(Eliasson, 2014).

Another positive effect was that retail didn’t suffer in anyway due to reduced traffic in to
and out of the city, which was one of the initial fears of the project. (Eliasson, 2014).

Figure 7: Map of congestion charging zones

Comparison of London and Stockholm systems
The basis for both cities were very similar, which is not an accident. Stockholm’s system
have a lot of similarities and there is multiple key people that have worked for the
implementation and planning of the systems. The designed areas both located in the city
core area, and were roughly of same size (LON 21 km^2 and STO 35 km^2). The main aim of
the congestion charge system implementation was to reduce the amount of trips made by
cars to reduce the amount of congestion, increase the use of other (mainly public) modes of
transportation. Also other objectives included decrease in pollution and increase in time
reliability.

The charge system was tested in Stockholm in 2006, and taken into permanent use in 2007.
In London the charging system was implemented in 2003. The charging hours are very
similar (LON 7:00-18:00, STO 6:30-18:29), only one hour in the duration of charging
duration. Both cities had exemptions from charges at certain holidays.

Charging systems
The actual charging can happen automatically in both cities. London has taken a special
AutoPay to use, with which the fares are a bit lower, since the fare collection is simpler with
it. Other payment methods are also available, but they are more expensive. The users of
AutoPay are charged automatically from credit card at the end of each month. In Stockholm
the system is quite similar. The logs from fare collection points are summed up and the
invoice is sent to the user each month, but also an automatic payment system can be used.

In London the charging is justified, when the vehicle enters the limited zone, and once the
vehicle has entered the zone, it can drive there the whole day with the same “ticket”. The
pricing in London varies from 12,35 to 13,53 euros per day per vehicle. The amount depends
on the payment method, as the users of AutoPay have the cheaper daily charge, but must
pay the annual service charge of 11,76 euros. In Stockholm the charging happens by driving
past a charging station or checkpoint, where a fare is collected for each time a vehicle
passes this point. The price of a single ticket depends on the time of the day and it varies
from 1,12 to 3,58 euros.The total value of fares collected per day has a maximum though:
10,73 euros.

Exemptions
In London the residents living in or right next to the charge area are granted a 90% discount
from the charge, and disabled get a 100% discount. Public transportation vehicles, taxis
recovery vehicles, vehicles with high passenger capacity and environment friendly vehicles
are also freed from the fares. In Stockholm the exemptions considered alternative-fuel
vehicles (other than gasoline or diesel). This had a significant effect on the use of alternative
fuels (from 3% to 15%) but was later abolished.

Results
In London congestion reduced by 30 % and traffic by 15% in the charge area. The charge
system also increased the use of other transport modes. Car use dropped 33% in the area,
even though some of those cars just went around it. With the profits of the congestion
charges, the Transport of London has been able to make the public transport more reliable
and effective. In Stockholm the results were very similar. The traffic amount reduced by
22%, which meant about 30-50% less congestion. Decrease in traffic amount lead to shorter
travel times and better time reliability.

The effect of congestion charge system implementation had a bit different effects on
businesses in the two cities. In Stockholm retail didn’t experience any kind of negative affect
because of the charge system. In London the local businesses experienced, that the new
system had a small negative effect on the economy. The businesses in the Western
Extension area experienced a more negative impact.

Conclusion
Congestion pricing as a tool have its roots in the fields of economics and transport
engineering. The main goal for the systems is usually to reduce the negative externalities
that car traffic causes in the urban areas, especially congestion in the road network. Other
goal for the congestion pricing can be a finance, as it usually creates decent revenue for its
owner. London system is following the externalities reduction goal as Stockholm’s system
have on top of that a financing goal too. But both systems have created impacts on the
transport systems that are align their goals and the reductions in car traffic are distinct.
References

Brueckner J. 2011. “Lectures on Urban Economics”. Massachusetts Institute of Technology.

Eliasson J. 2016. “Congestion pricing”. In: Ison, S. (ed.): Handbook of Transport Economics,
forthcoming, Routledge.

Eliasson J. 2014. “The Stockholm congestion charges: an overview”. Centre for

Transportation Studies Stockholm. CTS Working Paper 2014:7.
http://www.transportportal.se/swopec/CTS2014-7.pdf

Evans A. 1992. “Road Congestion Pricing: When is it a good policy?”. Journal of Transport
Economics and Policy.
http://www.bath.ac.uk/e-journals/jtep/pdf/Volume_XXV1_No_3_213-243.pdf

Leape J. 2006. “The London Congestion Charge”. Journal of Economic Perspectives.

Transport for London, 2008 Impacts Monitoring
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Transport for London, 2016 ​http://content.tfl.gov.uk/cclez-online-factsheet-jul-16.pdf
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Transport for London 2006 Impacts Monitoring
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Transportstyrelsen2:
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Vickrey W. 1992. “Principles of Efficient Congestion Pricing”. Columbia University June 1992.
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