Avoiding Traffic: The Economic and Environmental Rationale of Congestion Pricing
- Ethan Brown
- Sep 18
- 5 min read
Written by: Ethan Brown
Edited by: Sophia Eli
To enter midtown and downtown New York City in 2025 with a car, a person has to pay a fee. This policy – called congestion pricing – is normally enacted to achieve a policy goal such as reducing traffic. Does this policy help the environment or the economy? Although it seems to be costly, congestion pricing, if properly implemented, can make a city more fiscally and environmentally sustainable.
Currently, major cities across Canada and the US face intense traffic issues. This is a problem that is particularly acute in the largest cities such as New York and Toronto, with bumper-to-bumper traffic during commuting hours. For instance, the average driver in New York City lost 102 hours in 2024 due to extreme traffic jams (Gorzelany, 2025). The consequence is a negative impact on the economy and the environment.
In economics, the cost of excessive traffic can be modeled by externalities: a third party – the general public of the city – incurs negative social well-being from an individual contributing to traffic by driving their car (Santos et al., 2010). While driving a car increases the social well-being of the driver, there are negative extra effects, or externalities, of driving on the public, including environmental damage, traffic, and more congestion, which is bad for the economy, as traffic delays postpone the transport of goods, services, and people, reducing the economy's productivity. This is problematic because it skews the economy towards the interests of one agent – drivers – over other agents – pedestrians, cyclists, public transit users, etc. Ideally, a government would use public policy tools to make the social costs of driving a car equal to the social benefits. However, currently, the economy in many cities in the US and Canada has the scales tipped to the social benefit of the driver.
In New York City, studies estimate that issues related to traffic cost the economy around 9 billion dollars in 2024. Research also suggests that there is a social value cost to traffic: stress and pollution increase; meanwhile and sitting in traffic could take time away from leisure time.
Public policy, in the form of a driving tax such as congestion pricing, can balance the scales by reducing the negative externalities of traffic. In essence, congestion pricing is a tax on drivers to remedy these economic and social costs. In New York City’s Congestion Pricing program, for example, cars pay a fee of $9 during the day and $2.25 at night. It also acts as a redistribution policy that is meant to collect funds for the Metropolitan Transport Association (MTA) for the public good to be spent on capital improvements to public transit. The MTA has pledged to invest 15 billion dollars in public transit, which will be funded, in part, by the revenue from congestion pricing.
However, there are costs associated with congestion pricing. The MTA spends $507 million worth of infrastructure and technology in accordance with its contract with Transcore (Nessen 2024). There are also concerns that the benefits will be distributed unequally, burdening lower-income drivers. Analysis of these costs reveals more benefits to those worried about congestion pricing.
In terms of energy savings alone, congestion pricing can make a significant impact. Cars consume vast amounts of energy and pollute the air with carbon dioxide. Public transit, particularly rail and metro, uses just a fraction of this energy. For instance, on average, transit rail, also known as metro or subway, has 141.4 passenger miles per gallon (pmpg) of diesel compared with automobiles’ 43.1 pmpg of gasoline (U.S. Department of Energy, n.d.) (Alternative Fuel Data Center). Passenger miles per gallon refers to the distance a person travels to use up one gallon of fuel. Higher pmpg demands less fuel than lower pmpg. In other words, subways and metros are over three times as fuel-efficient as cars, taken as a whole. Thus, promoting public transit while lowering the number of motor vehicles can reduce the carbon footprint of a city.
The case study of New York City’s Congestion Pricing program shows that traffic speeds increased by 15% and travel time decreased by 8% due to congestion pricing (Cook et al., 2025). This suggests that fewer cars are on the road, which means there is both less traffic as well as less pollution. Additionally, lower-income people can utilize discounts and exemptions to alleviate the strain of congestion pricing (Metropolitan Transportation Authority, n.d.). Furthermore, public transit ridership on the subway and the commuter rail of the Long Island Railroad grew in the first quarter of 2025 compared to the same time last year, according to the MTA metrics.
Similarly, data from London suggests that their congestion pricing, which was implemented in 2003, has contributed to a shift away from cars. A study reports that in the first few months of congestion pricing, automobile traffic decreased by 20%, congestion delays decreased by 30%, and bus and subway ridership increased by 13% and 1%, respectively. (Litman, 2005)
Overall, congestion pricing can make a city’s economy more robust, equitable, and environmentally friendly by curtailing the negative externalities of traffic. It also reduces energy consumption and carbon dioxide emissions, so paying a little to drive downtown isn’t so bad after all.
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References:
The Official Website for The City of New York, NYC311. (n.d.) Congestion Pricing Program https://portal.311.nyc.gov/article/?kanumber=KA-03612
Canadian Centre for Economic Analysis CANCEA. (2024, December 9). Impact of Congestion in the GTHA and Ontario: Economic and Social Risks. https://www.cancea.ca/index.php/2024/12/09/impact-of-congestion-in-the-gtha-and-ontario-economic-and-social-risks/
Growth or Gridlock: The Economic Case for Traffic Relief and Transit Improvement for a Greater New York. (n.d.). Partnership for New York City.
Gorzelany, J. (2025, January 6). Here’s Where Drivers Suffer The Nation’s Longest Traffic Jams, Data Shows. Forbes. https://www.forbes.com/sites/jimgorzelany/2025/01/06/heres-where-drivers-suffer-the-nations-longest-traffic-jams-data-shows/
Heaven, P. (2025, January 6). Posthaste: Never mind New York, Canada’s congestion “crisis” is costing billions.Financial Post. https://financialpost.com/news/canada-congestion-crisis-costs-billions
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Lambert, T. A. (2017). Externalities. In How to Regulate: A Guide for PolicyMakers. Cambridge: Cambridge University Press EBooks, 22–59. https://doi.org/10.1017/9781316534885.005
Litman, T. (2011, November 24). London Congestion Pricing: Implications for Other Cities. Victoria Transport Policy Institute. https://vtpi.org/london.pdf
Nessen, S. (2024, February 28). MTA installs futuristic cameras in Manhattan to charge, track cars for congestion pricing. Gothamist. Retrieved from https://gothamist.com/news/mta-congestion-pricing-infrared-cameras
Singichetti, B., Conklin, J. L., Hassmiller Lich, K., et al. (2021). Congestion Pricing Policies and Safety Implications: A Scoping Review. Journal of Urban Health, 98(6), 754–771. https://doi.org/10.1007/s11524-021-00578-3
The Short-Run Effects of Congestion Pricing in New York City. (2025). Stanford Institute for Economic Policy Research (SIEPR). Stanford University. https://siepr.stanford.edu/publications/working-paper/short-run-effects-congestion-pricing-new-york-city
U.S. Department of Energy (n.d.). Public Transportation. Alternative Fuels Data Center. https://afdc.energy.gov/conserve/public-transportation
U.S. Department of Transportation. (2010, January). Public Transportation’s Role in Responding to Climate change..https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/PublicTransportationsRoleInRespondingToClimateChange2010.pdf
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Metropolitan Transportation Authority. (n.d.). Congestion Relief Zone toll: Discounts and exemptions. MTA. Retrieved August 31, 2025, from https://www.mta.info/fares-tolls/tolls/congestion-relief-zone/discounts-exemptions
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