Royal Commission Report on Transport and the Environment--Economic Effects of Recommendations

Abstract

The core of the argument, summarised in I4-4 of the Royal Commission on Environmental Pollution's Report on Transport and the Environment (hereafter the Report), is that the forecast doubling of road traffic by 2025 'would be unacceptable in terms of emissions, noise, resource depletion, declining physical fitness and disruption of community life.... It justifies placing significant constraints on the future evolution of the transport system'. The economic case for intervening in the transport sector must be that 'transport involves large costs, some incurred directly or indirectly by users, and some as a result of its environmental effects. Hitherto, most of the latter costs have fallen on the community rather than on the users or the builders of the transport system. Seriously misleading price signals have resulted, leading to decisions in all areas of transport which have harmed the community'. (Report, I4.5). To an economist, then, the problem is one of market failure the markets are failing to allocate resources efficiently because users face misleading price signals. If these were corrected to reflect external costs, or externalities, and if tihansport users responded efficiently to the corrected price signals, the result should be an efficient -use of transport instead of the present and projected unsatisfactory outcome. This view suggests that the problem is how best to move to a situation in which the marginal social benefit of transport is equated to the marginal social cost, including all the cost currently borne by the rest of the community and the environment. How far can this be achieved by market means, using corrective taxes and proper charges for road use, and how much reliance will need to be placed on non-market controls over the supply of and access to road space? These external costs can be usefully divided into three categories. The first are those primarily experienced by other concurrent road users, but not taken into account by road users in deciding their level of activity. These include congestion and accidents to other road users.' The second group includes environmental effects which harm current and/or future people. This group