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 aren’t.

I last looked at this topic three years ago. 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 University of Technology, Sydney, “Taking the con out of convenience: the true cost of transport modes in Sydney“.

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% to 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 below 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.

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 — e.g. 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 Dr Glazebrook’s reckoning, so another approach would be to impose congestion charging. Pollution, noise and road casualties can 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, but the case for public subsidy would be weaker and would largely rely on equity considerations (in which case the sensible approach would be to target the subsidy exclusively at qualifying passengers).

Peter Fray

Get your first 12 weeks of Crikey for $12.

Without subscribers, Crikey can’t do what it does. Fortunately, our support base is growing.

Every day, Crikey aims to bring new and challenging insights into politics, business, national affairs, media and society. We lift up the rocks that other news media largely ignore. Without your support, more of those rocks – and the secrets beneath them — will remain lodged in the dirt.

Join today and get your first 12 weeks of Crikey for just $12.


Peter Fray
Editor-in-chief of Crikey