Why are tolls and congestion charges examples of addressing transport externalities?

Tolls and congestion charges address transport externalities by internalising the social costs of road usage.

Transport externalities are the indirect costs or benefits that affect an individual or a group of individuals who did not choose to incur that cost or benefit. In the context of road transport, these externalities often include congestion, air pollution, noise, accidents, and wear and tear on infrastructure. These costs are not directly paid by the users of the transport system, but are instead borne by society as a whole.

Tolls and congestion charges are economic instruments used to internalise these external costs. By charging drivers for using certain roads or entering certain areas, these charges make the users of the transport system directly bear the costs of their actions. This is based on the principle of 'the polluter pays', which is a key concept in environmental economics.

Tolls are typically used to recover the costs of building and maintaining roads. They can also be used to manage traffic demand on specific routes, by making it more expensive to use these routes during peak times. This can help to reduce congestion and the associated external costs.

Congestion charges, on the other hand, are specifically designed to reduce traffic congestion in urban areas. By charging drivers for entering congested areas, these charges encourage people to use alternative modes of transport, such as public transport, cycling or walking. This can help to reduce the external costs of congestion, air pollution and noise.

In addition, the revenue generated from tolls and congestion charges can be used to fund improvements in public transport and other sustainable transport options. This can further help to reduce the external costs of road transport.

However, it's important to note that while tolls and congestion charges can be effective in internalising transport externalities, they are often controversial. Critics argue that they are regressive, as they disproportionately affect lower-income individuals who may rely on car travel. Therefore, it's crucial that these charges are implemented in a way that is fair and equitable, and that the revenue is used to improve transport options for all.