A note o the electronic road pricing in Singapore

Road & Transport Research, Jun 2000 by Tay, R

Pricing the road above the optimal congestion tolls nevertheless can be justified by considering the environmental impact of traffic in addition to the congestion. Each additional vehicle on the road would contribute more pollution to the environment, especially air and noise pollution, but when considering the cost and benefit of making a trip, most motorists will ignore this environment cost because it is not borne by them explicitly. Therefore, the environment cost of taking a trip also becomes an external cost that should be internalised by imposing a surcharge of similar amount on the motorists. However, environmental externality is best corrected by imposing a tax on gasoline consumption because this is a better measure of the amount of pollution than the number of trips taken. Since this has already been done, it is difficult to justify keeping the road price above the optimal congestion surcharge.

Finally, another common objective of transport authorities in using road pricing is to raise revenue for road infrastructure development. This is especially true in countries that are experiencing budgetary problems. One common approach is a public-private partnership such as the 'build-operatetransfer' scheme where the authorities licensed a private firm to build a road and charge tolls over a specific time period before transferring the road back to the government (Lall and Tay 1996). Again, this objective does not apply to the Singapore ERP scheme as the government has been experiencing budget surplus and the motor-related revenue raised is far larger than the expenditure spent on road infrastructure development and maintenance (Olszewski and Tay 1996). Nevertheless, if the congestion tolls are set too high, suspicion will arise that the tolls are used more as a means to raise revenue than as a tool to alleviate congestion.

The consumption of motor vehicles in a congested city is also likely to create a negative externality due to its potential adverse impact on traffic and the environment. Although this problem is best tackled by imposing a Pigouvian tax on vehicular travel, it can also be controlled indirectly by imposing an equivalent tax on the vehicles instead. By reducing the number of vehicles allowed on the road, transport authorities hope to reduce the number of trips taken. In Singapore, this is accomplished by the vehicle quota system, which is also reported by Luk (1999). However, like the ERP scheme, although the vehicle quota system has been considered as an effective tool in demand management, its implementation has created various welfare implications that were widely examined by economists (Tay 1994,1996) but seldom heeded by transport authorities or planners.

The main purpose of this note is to emphasise again the need to seriously consider the economic efficiency and welfare implications of any policy intervention in traffic management. Too often, such policies are simply used as demand management tools to achieve some prescribed outcomes that are not associated with the social costs and benefits of trip-makings. As a result, these interventions may inflict more harm than good on the society.