Can Congestion Pricing Help Solve Urban Traffic Problems?

The Issue:

Since December 2024, cars and other private vehicles entering lower Manhattan have been charged a user fee for driving on city streets. Now, the Trump administration has moved to reverse regulatory approval for the policy. The primary motivation for the congestion pricing initiative is to ease traffic flows and raise funds to improve public transportation. This congestion pricing scheme was the first in the United States but it follows in the footsteps of similar efforts in a number of other major cities including Singapore, London, and Stockholm. What lessons can be drawn from the experience of other cities?

Evaluations have generally found that congestion pricing has been successful in improving traffic flows as part of broader urban transport strategies.

The Facts:

• The streets in major cities around the world including New York have become increasingly clogged with traffic. Even with a respite from increasing work from home following the COVID pandemic, average traffic speed in New York’s central business district (Manhattan south of 60th Street) was only 6.8 miles per hour in 2024 – a 25% reduction from the average speed in 2010 as measured using taxi GPS data (see chart). Within this area there is an even more heavily traveled section in mid-town Manhattan where average speed was only 4.6 miles per hour in 2024, almost 30 percent slower than in 2010. Heavy traffic contributes to multiple problems: large and variable delays in traveling around the city (including by bus, taxi, or rideshare, as well as personal car), more time spent commuting, greater fuel consumption, excessive pollution, and health and safety hazards for pedestrians trying to dodge the traffic.
• Congestion charging provides a means to unclog city streets by setting a price for car drivers who are using a scarce resource – the roads in urban areas. Each car driving on a crowded city street adds to congestion and slows traffic for all other vehicles. But individual drivers do not bear the full cost of their car contributing to slowing traffic – in economic terms, this is an externality. Charging drivers for their contribution to congestion makes them take into account the cost that they impose on others when making driving decisions. This is similar to the logic of an emissions tax: polluters do not bear the full cost of their contribution to environmental degradation; by charging them for the pollution they generate, they have an incentive to reduce emissions and their actions will more closely align with the common interest. Taxes on externalities can generate government revenue. This revenue can be specifically dedicated towards goals like improving public transportation or added to general government revenues.
• New York’s new congestion charging system involves point-of-entry charging of cars passing under a system of gantries to enter  Manhattan below 60th Street. The gantries are overhead structures that hold electronic monitoring devices, like those increasingly used on US highways to charge tolls. The plan was initially approved by state legislators in 2019 but did not go into effect until December 2024. It applies a daily charge covering multiple entry, which varies depending on whether the entry is in peak hours and by type of vehicle. The funds raised are to be used to back bonds to pay for much-needed capital improvements in subway, train and bus infrastructure. The scheme has faced considerable opposition from people living outside the zone, concerned about the charges that they would need to pay to commute into Manhattan and that traffic would be diverted into areas around the charging zone. President Trump moved to withdraw regulatory approval for the scheme, citing the cost to working class motorists and the use of revenue from the tolls for transit upgrades rather than improving roads.
• While New York is the first city in the U.S. to implement this type of scheme, a number of major cities around the world have had urban congestion charging schemes in place for many years. By definition all such schemes apply a charge for use of city streets. Some charge for each passage past a tolling station while others like New York provide a daily license for passing a cordon of monitoring points around the city center and allow for multiple entry. These schemes are tailored to each city’s circumstances and can differ in terms of goals, pricing scheme adopted, and technology used.
• Singapore was the first major urban area to operate a comprehensive congestion charging scheme, and shows how the evolving use of technology in congestion pricing can lower  implementation costs and allow for charging that varies more flexibly with traffic. The initial step was to introduce an “area licensing scheme” in 1975, which required payment of a daily fee to drive in central Singapore, using a “pay-and-display”, paper-based system. This was replaced in 1988 by an Electronic Road Pricing scheme, based on a network of  gantries constructed along central Singapore roads and highways to charge for use of the main thoroughfares. Rather than a single daily fee, this system was easier to use and allowed charging drivers for how much they used the city’s main streets, taking account of  the time-of-day, location and traffic conditions. Since 2023, Singapore has introduced a global navigation satellite system that eliminates gantries and provides a cheaper and even more flexible virtual system for monitoring and charging for trips past the set of monitoring points. From the start, congestion pricing was seen as one component of a broader effort that included other elements such as the long-standing vehicle quota system that requires ownership of an auctioned license to own a car and greater investment in public transport.
• A number of cities have introduced congestion charging schemes with an additional emphasis on reducing the environmental impact of car traffic. Congestion charging in central London was introduced in 2003, with the goal of raising funds directly for public transport, reducing emissions, and limiting car traffic. It is based on a cordon of gantries using electronic monitoring to apply a daily charge for cars entering the charging zone during certain hours. The daily charge allows for multiple entry and exempts electric vehicles. Unlike Singapore, where tolls just contributed to general revenue, the funds raised in London were explicitly dedicated to improving public transportation and particularly bus service. Subsequently, the central London zone has been supplemented by a separate scheme covering a much broader area to reinforce the environmental benefits of moderating traffic growth. The ultra-low emissions zone uses automatic number-plate recognition cameras to apply a daily charge for use to cars that do not meet emissions standards. Milan’s scheme introduced in 2008 initially exempted low-emitting vehicles, while Oslo’s scheme introduced in 1990 now excludes electric vehicles (EVs) from paying congestion fees. Such EV exclusions prioritize environmental goals but may dilute the impact of congestion charging on traffic conditions as EV use becomes more ubiquitous.
• The introduction of congestion pricing schemes often faces resistance from affected parties. For instance, an extension of the charging zone to western London in 2007 had to be rolled back because of public opposition from drivers who would be affected. Stockholm offers an interesting example of how initial public opposition can be overcome. The city introduced congestion charging in 2007 as a trial followed by a referendum. Before the trial only about 40% of citizens reported that they would vote in favor of congestion pricing (see here). The trial period helped to overcome substantial political resistance by demonstrating that the scheme would be effective in cutting traffic significantly and that it could be operated smoothly. The subsequent referendum on congestion pricing was easily approved. 
• Evaluations of existing congestion pricing schemes have generally found that they have been successful in improving traffic flows on a sustained basis as part of broader urban transport strategies. Traffic volumes came down in the first year or two after introduction in all cases, with a variety of benefits: improving average speeds, reducing variability of journey times, freeing space for bus and bike lanes, moderating emissions, and improving road safety, without impacting commercial activity in the city center. Car trips into central Singapore came down 10-15 % in the two years after introduction of the Electronic Road Pricing scheme. Singapore has largely been able to maintain progress towards sustaining average traffic speeds, through use of peak-load pricing and periodic price revisions. Car traffic in London was reduced by 15 percent in 2003 and has remained stable since then, although traffic speeds have slowed again after an initial improvement, partly as road space was dedicated to other purposes (e.g. more bus and bike lanes), and partly as other road traffic (particularly ride-share and other app-based services) has increased. In Stockholm traffic volumes dropped by about 20%, and the drop in traffic has been broadly maintained.  In New York, early data suggest that travel times have declined in lower Manhattan by 5-8 percent, but increased in other boroughs as traffic has been diverted outside the charging zone perimeter.
• Other cities have chosen alternative approaches to traffic management. Reluctance to adopt congestion pricing in these cities reflects a combination of factors including concerns about implementation costs, the lack of alternative forms of public transportation, political resistance from those who are concerned by the costs of the charges that they would need to pay and the threat of increased congestion outside the charging  perimeter. An alternative cruder approach to congestion control that requires less infrastructure investment and does not involve charging has been to allow cars to drive only on certain days of the week determined by their license plate numbers (e.g. Bogota, Mexico City, Medellin, Sao Paulo)—although such an approach clearly benefits people who can afford more than one car. Some urban areas (e.g. Northern Virginia ) have adopted more limited congestion charging schemes, charging “dynamic” tolls on use of bridges, tunnels and urban highways that vary depending on traffic conditions as in Singapore. More generally, cities seek to manage car traffic using techniques such as one-way routing and control of available parking, as well as investment in public transport.