Overview of The Economic and Social Issues Associated with Congestion in Australia

The aim of this report it to show the effects of what will happen on the supply and demand curves when three different types of policies are introduced, the three types of policies in the report that will be discussed are; congestion charge or tax, improving substitutes and building more roads for use. Currently, the Brisbane city council is committed to reducing congestion across the city road network taking different approaches to reduce the overall effect of road congestion, the way they are reducing road congestion is by investing in bikeways, share pathway upgrades, investment in public transport and encouraging other ways to travel.

The time to travel to different places in Australia has increased dramatically, an article produced by Phil Manners says that the time to travel between destinations on peak hour traffic and non-peak hour traffic is three times longer (Manners). Even a small amount of reduction in congestion can have a massive impact on the traffic speeds, a 5% decrease in traffic congestion could lead to speed increases of up to 50% (Martin & Thornton). The graph below shows the annual amount of travel per year since 1945 the amount of people traveling by car has increased by almost ten-fold (Cosgrove, Traffic and congestion cost trends for Australian capital cities). Just imagine the amount of pollution, rubber from tires, amount of time wasted in peak hour traffic and fuel usage based on the number of people using motorized passenger travel. The total avoidable social costs graph shows the amount of avoidable social costs per year, the Australian government put an estimated avoidable cost of congestion at about $16.5 billion dollars while it is increasing to $30 billion dollars by 2030.

Economic model and explanation

The economic model shown in figure 1 shows the effect the that a negative externality in production will have on a supply and demand model, when the market is at its most efficient it will be at Q1 efficient and P1 efficient, when accounting for the negative externalities the supply curve will shift to the left, quantity will move downwards towards Q2 market while the price will increase from P1 efficient to P2 market. The goal of this model is to reduce the amount of deadweight loss which is shown by the line crossed out between the private marginal cost and social marginal costs.

Congestion Tax

The model in figure 2 shows the effect of introducing a congestion tax, from figure 2 it will shift to the left away from the efficient price and quantity labeled by Q1 market and P1 market towards Q2 efficient and P2 efficient. The difference between the two supply curves will be the amount of tax that will be charged. When a congestion tax is introduced it has its benefits such as reduction in the number of cars on the road which leads to reductions in CO2 and other greenhouse emissions, increased amounts of traffic safety and new revenues for government and shorter travel times, but it has disadvantages such as decreased revenue from fuel (GST) and operational costs of supporting the new system. There was a trial in Stockholm which was conducted between 3rd January and 31st July 2006, it consisted of charging a tax when driving into Stockholm depending on the time of the day you entered it varied the price that was required to pay. With the introduction of the congestion, the time to travel had been reduced by between 0%-35% depending on the location that was being travelled to. With the reduction in the number of cars going into Stockholm, there was a reduction in greenhouse emissions by 2.7% (42.5k tons) and other emissions were estimated to drop by between 1.4% and 2.8%. Alongside the reduce emissions it also came with a 3.6% reduction in the number of traffic accidents, the expected number of people or severely injured is expected to reduce by 15% and lastly, the amount of people expected to be slightly injured is expected to reduce by 50%. Lastly, the revenues received from the congestion tax was approximately 763 million SEK while 220 million SEK was used for operating costs, they also received an increased public transport revenue of 184 million SEK but lost 53 million SEK in fuel taxes they were able to collect.

The evidence suggests that with an introduction of congestion tax it will reduce the congestion and other social effects in the long run. N10185399 5 Increasing the amount of public transport options The model below shows in figure three when more public transport options come out it will shift the supply curve out to the right moving away from the equilibrium increasing the amount of public transport available and decreasing the price, while in figure four the demand for driving a car will be reduced as there is a substitute so the demand curve will shift to the left decreasing the quantity demanded and reducing the price. When increasing the amount of public transport available, it will have benefits and disadvantages; the benefits include increased revenue for the government, lower greenhouse emissions, more cost-effective methods of travel but it could lead reduce revenue from GST on fuel, purchase of new cars and the increasing cost of operating more services. Currently, the Brisbane city council is investing in alternative travel methods towards the city an analysis done by the Queensland government suggested that the number of people using private vehicles to travel reduce by 317,000 between 2007 and 2009. The study also found that age plays an important role in deciding whether people use public transport, in south-east Queensland people over the ages of 65 prefer to either walk or drive to the location they are going, currently the population of the people over the age of 65 takes up 14.7% of the total population in Queensland.

Finally, the department of infrastructure and regional development estimated with the increased amount of supply of public transport it only increased 394 gigagrams of c02 equivalent between 1990 and the forecasted year of 2020, while for cars it increased by 14,579 gigagrams of c02 between 1990 and the forecasted year of 2020. When increasing a substitute, the effect it has on congestion seems significant it is another viable option instead of a congestion tax, although doesn’t reduce other social costs as much.

Building more roads

The model below shows in figure 5 when more roads are built the supply curve will shift to the right moving away from the equilibrium increasing the supply and reducing the costs incurred by congestion. When increasing the supply of roads, it will reduce the congestion in the short run but in the long run, it will increase congestion due to the phenomenon of lowering traffic will attract a larger number of cars. When increasing a two-lane road to a three-lane road it showed that not only did it increase the amount of traffic being able to get through but it also showed that lowering speeds when increasing to a three-lane road would increase traffic flow, the article suggests that with a two-lane road it took 10 minutes to travel on an expressway at 65.5 mph but when increased to three lanes at 60.4mph it increased the amount of vehicle capacity by 1976 cars and decreased the time taken to travel by 0.8 minutes. The last option is increasing the supply of roads this option seems the less effective as it will increase the congestion in the long run.

Conclusion

In this report, there was there has been a discussion of ways to reduce the congestion, congestion tax, increasing supply of substitutes and increasing supply of roads. All have benefits and disadvantages for them.