What costs society more: cars or trains?

By Alan Davies

April 27, 2015

Two of the key issues in urban policy are the external (social) costs imposed by cars and the level of public subsidy required to keep public transport running.

Knowledge about these two closely related issues — the former is the key justification for the latter — is so fundamental to urban policy that there should be dozens and dozens of research projects in Australia on this subject. Yet it seems there are hardly any.

I last looked at this topic three years ago (see Should cars be subsidised?). I noted then how astonishingly difficult it was to find reliable, objective and independent studies.

Unfortunately, the landscape doesn’t appear to have improved; like so much in urban studies, the sorts of issues that are directly relevant to policy-formulators and decision-makers seem to be neglected by researchers.

There might be understandable reasons for that disregard but these are critical issues so I think it’s worth revisiting the earlier discussion. At that time I drew on a paper published in 2009 by Dr Garry Glazebrook from Sydney’s University of Technology, Taking the con out of convenience: the true cost of transport modes in Sydney.

“Because they’re not paid in cash and the costs are diffused, it’s hard for both politicians and the public to see the real social costs that cars impose on the community.”

His contention is that the key focus of policy shouldn’t just be on subsidies to public transport. He argues that when environmental and other externalities are considered and not just financial subsidies to operators, “cars are in fact subsidised by society to a similar level to that of public transport”.

Although the data he drew on is now getting dated, Glazebrook’s paper is especially valuable because he distinguishes between the private cost of both cars and public transport on the one hand, and the social cost of these modes on the other.

In relation to cars, his calculation of private costs is made up of purchase plus running costs i.e. fuel, registration, insurance, servicing, tolls and paid parking. His estimate of the social or external costs of cars includes traffic congestion, accidents, emissions, pollution, noise and unpaid parking.

In regard to public transport (trains and buses), he treats fares as a private cost and emissions and traffic congestion as a social cost (he says buses account for 10-15% of traffic congestion in Sydney). The big social costs of public transport, though, come from financial subsidies paid by the State Government to keep fares down.

As the exhibit shows, Glazebrook finds the private cost of car travel is much higher than that for public transport. However, the social cost of cars and public transport — i.e. the sum of subsidies and negative externalities for each mode — is essentially the same at around $0.38 per passenger kilometre.

So his analysis finds cars are subsidised as much as public transport. There’s an important difference though, which explains why one subsidy gets more attention from governments than the other.

The subsidy for public transport is mostly a financial cost — it is funded direct from the current budget. Hence governments worry about it because they have to find the funds in the current term and these necessarily come at the expense of some other expenditure.

The subsidy for cars, however, is mostly an economic cost. The cost of externalities like congestion, pollution and emissions are diffuse and are mostly borne by the community at large e.g. in the form of slower travel times, poorer long-term health, and climate change.

Even where these costs impact the budget — e.g. higher health costs due to pollution-caused sickness — they mostly manifest years down the track and hence are of little interest to the current government.

Private and social costs (cents per passenger-km) for cars and public transport in Sydney, 2005/6 (from Glazebrook, 2009)
Private and social costs (cents per passenger-km) for cars and public transport in Sydney, 2005/6 (from Glazebrook, 2009)

Because they’re not paid in cash and the costs are diffused, it’s hard for both politicians and the public to see the real social costs that cars impose on the community. Governments are accordingly less responsive to demands for action.

Factors like data limitations inevitably mean there are some omissions in an exercise like this. For example, Glazebrook doesn’t account for the taxes and charges drivers currently pay. That’s debatable in the case of the fuel excise because it’s the largest tax paid by motorists (it’s 39 cents per litre at present) and directly influences their perceived cost of travel.

However it only adds around $0.04 per (vehicle) kilometre to his estimate of the private cost of driving so it doesn’t change the overall picture significantly.

He also doesn’t account for the opportunity cost of land devoted to roads. I don’t think that’s a big issue either; roads are necessary for a host of reasons like access to properties, amenity, privacy, emergency services, and buses and trams. It’s instructive that the wide roads of Melbourne’s Hoddle grid were laid down well before cars were invented.

The study is about costs so it understandably doesn’t consider benefits. They’re very important though, because they explain why so many travellers elect to pay extra from their own pockets to drive. Other than in certain circumstances (e.g. congested conditions), cars offer significant speed and convenience benefits relative to the available public transport options in Sydney.

Eliminating the subsidy for car travel would be a political nightmare. The price of petrol would theoretically need to increase by roughly $3.45 per litre to recover the social cost. It wouldn’t need to be that big in practice because motorists would inevitably find ways to adapt — for example by shifting to vastly more fuel-efficient cars — but it would nevertheless be very painful.

Congestion accounts for more than half of the social cost of driving by Glazebrook’s reckoning, so another approach would be to impose congestion charging. Pollution, noise and road casualties could all be addressed, at least up to a point, by improved technology and stronger regulation. Of course these measures would all have their own set of financial costs and they’d be very hard politically too.

If the social costs of driving were fully recovered the demand for public transport would be higher. Further, the case for public subsidy of transit would be weaker and would fall back largely to equity considerations (in which case the sensible approach would be to target the public transport subsidy exclusively at qualifying passengers).

Glazebrook’s paper is a very good and relevant analysis but it’s only one paper so it shouldn’t be taken as the last word. Trouble is, while there should be plenty of high quality academic and government studies on such a key policy issue, it seems no one’s bothered. Hopefully readers can point to (the dozens of?) high quality, independent studies I’ve missed.

Read the original article at The Urbanist.

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Hugo Harmstorf
Hugo Harmstorf
7 years ago

The NSW Independent Pricing and Regulatory Tribunal (IPART) released a technical paper on the external benefits of public transport in December 2014 (http://www.ipart.nsw.gov.au/Home/Industries/Transport/Reviews/External_Benefits_of_Public_Transport/16_Dec_2014_-_Draft_Report/Review_of_external_benefits_of_public_transport_-_December_2014).
Although submissions to this paper are now closed, it will inform the approach to regulating fares for buses, trains and ferries in the Sydney area. An issues paper on these fares is expected by the end of May 2015; this will be followed by a public forum to consider external benefits, the fares issues paper, and how the two processes come together. Further updates will be posted on the IPART website.


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