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Cordon Zone Pricing: An Essential Tool for a Better Transportation Future – Energy Institute at Haas

Summary

New research examines the economics of cordon zones.

Source: Wikimedia

Autumn means different things to different people—for some it’s the changing leaves, for others it’s college football, or decorative gourds, or pumpkin spice. For economists, autumn means job market season, when aspiring new economists place their dissertations on the public altars of the profession, offerings in exchange for employment.

One such offering this year comes from the Energy …….

New research examines the economics of cordon zones.

Source: Wikimedia

Autumn means different things to different people—for some it’s the changing leaves, for others it’s college football, or decorative gourds, or pumpkin spice. For economists, autumn means job market season, when aspiring new economists place their dissertations on the public altars of the profession, offerings in exchange for employment.

One such offering this year comes from the Energy Institute’s own Matthew Tarduno, whose dissertation breaks new ground on the economics of road pricing. Matt’s job market paper, available here as a new Energy Institute working paper, cleverly combines economic models and driving data to describe how to use road pricing to combat congestion and environmental externalities.

Why price roads?

Automobiles account for the lion’s share of petroleum demand, and transportation is now the biggest component of greenhouse gas emissions in the US, surpassing electricity generation. Directly pricing the use of roads is a critical component of greener and better transportation policy—it can directly target congestion externalities; it can correct the biggest inefficiencies of fuel economy standards by counteracting inefficient rebound; and it could be used to nudge transportation network companies to reduce their impact on congestion. Road pricing schemes can also be used to accelerate the retirement of heavy polluters or the adoption of green new ones by giving preferential treatment to certain vehicles.

In spite of all this potential, road pricing schemes have received too little attention among researchers. The dominant mode of road pricing in urban centers are cordon zones, under which vehicles are charged a toll for entering a city center during peak hours. London, Stockholm, Milan and Singapore have cordon zones, and New York, San Francisco and Los Angeles are actively developing their own.

Unfortunately, economists lack answers about fundamental questions around cordon zones, like how they should be priced and how they can be made relatively efficient. This is where Matt’s paper takes a big step forward.

Economists have understood for decades that driving creates externalities. And economists know what to do when they see an externality: slap a price on the activity equal to the social damages it causes.

The social damages from driving vary in real time with traffic conditions and differ across vehicles with different emissions rates, but cordon zones paint with an overly broad brush. They typically vary only with an on/off peak fixed price, only occasionally vary by vehicle class, and leave routes outside of the zone entirely unpriced. (Readers will recognize this as similar to the distinction between real-time, node-specific electricity prices and a utility-wide time of use rate.)

Figure shows San Francisco’s proposed cordon zone, slated to take effect in 2025. Passing into that zone during peak hours would incur fees up to $6.50. Source: Tarduno (2021).</…….

Source: https://energyathaas.wordpress.com/2021/11/15/cordon-zone-pricing-an-essential-tool-for-a-better-transportation-future/

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