The slow road from rhetoric to reform: an analysis of road pricing policy in Australia

Economic Papers (Economic Society of Australia), March, 2004 by Richard Denniss, Clive Hamilton

* Additional travel time costs of commuting caused by traffic congestion are estimated at $7.4 billion (1).

* The costs of noise pollution (due mainly to road and air traffic) are estimated at $2.29 billion.

* The costs of transport accidents (other than those costs reflected in the national accounts) are estimated at $5.26 billion.

* The costs of urban air pollution (due predominantly to transportation) are estimated at $13.22 billion.

* The costs of greenhouse gas emissions are estimated at $29.59 billion. Transport accounts for 16.1 per cent of total emissions, and on this basis account for $4.73 billion of this damage.

Clearly, the external costs associated with transportation are substantial, and this explains why transport has been the principal focus of green tax reform in many European countries.

Similar conclusions were reached by the Victorian EPA which, in a major study of the external costs associated with transportation in that state, concluded as follows.

* 'Despite the uncertainties, transport externalities represent a significant cost to the Victorian community' (Victorian EPA, 1994, p. 1).

* 'Intervention to reduce external costs will not necessarily involve a trade-off with the economic objectives of government. Indeed, the assessment of the strategies for greenhouse gas emissions suggest that significant reductions can be achieved at a net benefit to the community' (Victorian EPA, 1994, p. 1).

Unless the costs of government intervention are very high policy designed to reduce externalities in the transport sector are likely to increase social welfare. Road transport is a particular focus of environmental taxes and charges in the OECD since it generates major externalities, only a portion of which are covered by various excises, taxes and charges. Total external costs of road transport as a percentage of GDP for selected countries in the early 1990s are shown in Table 1. The shares of total costs attributable to various modes of transport are also shown.

In addition to the external costs of road use described above and below, the costs of road construction and maintenance should be captured by user charges along with an adequate return on investment. Abrams et al. (1998) estimate that Australia has over 800,000 km of roads, which are worth in excess of $100 billion. The land on which roads are constructed also has significant opportunity costs, especially in metropolitan and CBD areas, which should generate a commercial rate of return if resources are to be allocated efficiently. It should be noted, however, that valuing the land on which roads are built is particularly problematic as the existence of roads is an important determinant of the value of some land.

Australian governments levy a number of taxes and charges on road transportation. The bulk of the revenue arises from petrol and diesel excises levied by the Commonwealth government. In 2000-01 motor vehicle taxes and charges raised over $13 billion, however such revenue is insufficient to cover the full cost of the provision of road transport.