Congestion pricing

Congestion pricing or congestion charges is a system of charging users of public goods that are subject to congestion through excess demand, such as through higher peak charges for use of bus services, electricity, metros, railways, telephones, and road pricing to reduce traffic congestion; airlines and shipping companies may be charged higher fees for slots at airports and through canals at busy times. This pricing strategy regulates demand, making it possible to manage congestion without increasing supply.

According to the economic theory behind congestion pricing, the objective of this policy is to use the price mechanism to cover the social cost of an activity where users otherwise do not pay for the negative externalities they create (such as driving in a congested area during peak demand). By setting a price on an over-consumed product, congestion pricing encourages the redistribution of the demand in space or in time, leading to more efficient outcomes.

Singapore was the first country to introduce congestion pricing on its urban roads in 1975, and was refined in 1998. Since then, it has been implemented in cities including London, Durham, England, Stockholm, Gothenburg, Milan, and New York City. In the United States, it was also considered in Washington, D.C., San Francisco, and Boston prior to the COVID-19 pandemic. Outside of the United States, congestion pricing programs have been piloted or proposed in Bangkok, Cambridge, Edinburgh, Switzerland, and Hong Kong in the 1980s and since 2018.

Greater awareness of the harms of pollution and emissions of greenhouse gases in the context of climate change has recently created greater interest in congestion pricing. Implementation of congestion pricing has reduced traffic congestion in urban areas, reduced pollution, reduced asthma, and increased home values, but has also sparked criticism and political discontent.