An Urban Road Pricing Scheme Is an Efficient Solution to Traffic-Related Air Pollution

Do driving bans for diesel cars make economic sense? Following a ruling from Germany’s Federal Constitutional Court, cities in Germany can impose bans on diesel vehicles in order to comply with EU-wide limits on nitrogen dioxide levels. The possibility of introducing such a ban is currently being discussed in a number of cities, including Stuttgart, Munich, Hamburg and Düsseldorf. Diesel car owners affected by the ban may also be faced with getting their cars modified and installing new software updates. ZEW environmental economist Dr. Martin Kesternich discusses the most practical measures, from an economic point of view, for reducing air pollution and traffic, and for implementing CO2 avoidance measures in the transport sector in a cost-efficient manner.

Are these diesel bans an efficient means of curbing air pollution levels in German cities?

Driving bans in German cities will probably have a certain impact on the local environment. The social costs brought about by these bans would, however, be disproportionately high and unfairly distributed among drivers. The ban would penalise all diesel car drivers – and only these drivers – without creating any incentive for drivers of non-diesel cars to reduce the number of journeys they make.

What other alternatives are there to reduce the number of cars on inner-city roads and thus improve the overall air quality in cities?

One efficient solution to the problem of air pollution caused by vehicles is an urban road pricing scheme. Road pricing should be strictly tiered according to the level of exhaust emissions the vehicle produces, regardless of the type of fuel or technology it uses. Vehicles with higher emissions would pay a higher tariff. This also means that the road fee increases when traffic levels – and thus pollution levels – are high. The main point, however, is that those affected by the fee would have a choice; they can decide if travelling into the city by car is worth the cost, or if it might be preferable to look for other alternatives. In contrast, by imposing vehicle bans cities are taking this choice away from drivers and creating a fait accompli.

Speaking of alternatives, what about the proposal to make local public transport free?

The current political discussion between the federal government and the potential trial cities for the introduction of free public transport, including Mannheim, suggests that the necessary investment in infrastructure is rated as important. At the same time, cities would lose the revenue from ticket sales, which in the case of Mannheim currently amounts to around 80 million euros a year. Furthermore, we could expect to see potential unwanted substitution effects, such as those seen in Tallinn in Estonia where local public transport has been free since 2013. Here it is mainly people who were already taking the bus or train before or who previously got around by bike or on foot that began using the free public transport more often. This kind of change in behaviour is something we want to avoid. In general, however, it must be said that there are few long-term examples of these measures in practice that have been studied empirically. We believe there is still plenty of research that needs to be done in this area.

What are the macro-economic consequences of these potential diesel bans?

One main consequence is that diesel vehicles will drop in value, including those that are never, or only rarely, driven in cities. In addition, there are also the costs associated with having to refit current diesel vehicles. On the other hand, we will see a certain positive impact on the local environment, though this – as I mentioned above – comes at a high cost. As well as local air pollutants, we should also be looking at carbon dioxide (CO2) emissions in the transport sector, which are also damaging to the environment. Of course, when it comes to tackling global climate change, reductions in CO2 emissions can be made in any industrial sector. Therefore, from an economic perspective, it makes sense to reduce emissions in those industries where it is cheapest to do so. Due to the existing energy taxes on mineral oil, reducing CO2 emissions in the transport sector is relatively costly. Policymakers therefore need to think outside the box. In order to be cost-effective, climate policy should focus more heavily on CO2 abatement in the sectors included in the EU Emissions Trading Scheme (ETS) or have the transport sector integrated into the ETS.