"This is starting to sound a lot like road pricing"
A recent conversation at the
Civic Exchange Electricity Workshop, with a representative of one of the large HK property developers (he is P, I am S):
bq. P: I just can't find a way for solar power to make sense for us from a financial perspective.
bq. S: If the community's peak electricity usage coincides with maximum sun, due to increased use of air-con, solar power can lower peak demand. This means cheaper electricity and, in the long run, fewer plants.
bq. P: Yes, but we still can't make any money on it.
bq. S: One way to address this problem is through real time pricing - prices go up when demand goes up and down when demand goes down. This way, solar panels become cost effective (since they'd produce power when it is most valuable). In addition, large property developers such as yourself could save money on electricity by automatically turning down the air-con and so forth when electricity is at its most expensive.
bq. P: Sounds pretty complex to me. You know, this is starting to sound a lot like road pricing.
bq. S: I'm a big believer in road pricing.
bq. Abrupt end of conversation.
Real time retail pricing in electricity may still be years away (due more to this type of mindset than lack of technology), but road pricing is here today. The latest high profile example is the new charge for driving around central London during the day.
I read an op-ed just before London's new pricing scheme launched (can't find the link now, sorry) that agreed with the concept 'in theory' but predicted failure due to the lack of other options - London's public transport sucks, so people have no choice but to drive around, even if it suddenly costs a lot more. This particular prognosticator, I'm happy to report, was
dead wrong.
It turns out that the ability to drive around a certain area at a certain time has different values for different people. That value may be easily quantifiable, if someone is conducting business, or not, if it's a trip for personal enjoyment. Regardless, when the price increases, a number of people find substitutes - they make the trip at night (when there is no charge), they do business somewhere else (at a different branch or firm), or they cancel the activity altogether. Markets in action.
In terms of public transport, the cheapest form to build and operate is buses, which normally have the disadvantage that they too have to sit in traffic. Once road pricing has cleared up the congestion, bus transport becomes much more attractive.
RPPI just released a related
study on HOT (high occupancy toll) lanes. San Diego has a variably-priced HOT lane that has been working extremely well. RPPI illustrates, with detailed construction and financing plans, how the same system could work in the most congested areas in the US.
Here in Hong Kong, we don't have real road pricing, although we do have multiple tunnels with different pricing, which itself makes a big difference. The old tunnel, with the lowest toll, always has a ton of traffic, while the Eastern and Western tunnels, both of which (particularly the Western) can be used instead, have higher tolls and significantly less traffic. In fact, I can't remember ever getting stuck in traffic in the Western tunnel (not that I don't use the tunnels during rush hour though).
In addition, there are very large excise taxes on private vehicles here, and gasoline is extremely expensive, I think (but don't quote me) around 5x US prices. Excise taxes don't lower use of the car once you buy it, in fact they probably encourage additional use, to "get one's money's worth." Gas taxes affect use but don't have any effect on time-specific congestion.
So what would congestion pricing look like here in Hong Kong? Certain areas such as Central do get quite congested at particular times of day. An easy first step would be to charge all private vehicles (everyone but buses and taxis) who enter some part of Hong Kong Island between 8AM and 10AM and between 5PM and 7PM. However, there's really no reason to treat taxis differently than private vehicles - especially since many cars are driven by drivers who leave the area immediately after dropping off or picking up - except that charging taxis introduces a whole host of additional complexities in terms of how to pass the charge on to the customer.
In fact, there's no particular reason not to charge every vehicle who wants to use the road during peak usage; the more people in the vehicle (such as a bus), the smaller the impact of the toll on each individual. Hong Kong's roads are in fact dominated by buses, mini-buses and taxis, so a congestion sur-charge on all forms of transportation could eventually become a necessity.
Posted by Stephen Bronstein at March 10, 2003 12:17 AM