(Bloomberg Opinion) -- This month, the government of Luxembourg said it will make all public transportation in the nation of 600,000 people free by 2020 – becoming the first nation in the world to do so.
The measure makes sense for Luxembourg, but it’s not a solution that will work everywhere. If you're trying to unlock gridlocked roads, the problem isn’t so much that public transport is over-priced; it's that driving one’s own car is under-priced.
Luxembourg's capital is plagued by congestion: while the city only has a population of about 110,000, another 400,000 people commute in daily, many from neighboring countries.
By cutting the price of a ride to zero, the government is trying to create a shock that goes beyond any demand elasticity calculations. The country hopes to reverse the split in the way journeys are made, or modal mix, from 83 percent private cars and 17 percent public transport to 75 percent public and 25 percent private transport.
There’s an encouraging example in France. In September, the city of Dunkirk made local buses free for the 200,000 people who live in the area and saw a major, immediate increase in ridership. While there are no data on any effect on congestion yet, the positive shock theory appears to be working in Dunkirk.
It doesn’t appear to work everywhere, though. To date, the only city that has provided solid quantitative data on the effect of making public transportation free is Tallinn, the capital of Estonia. The city of 425,000 made the move in 2013. In a recent study, Oded Cats, Triin Reimal, and Yusak Susilo of the Royal Institute of Technology in Stockholm did the math and found that passenger demand only increased by 3 percent since the switch.
At the same time, the length of the average trip dropped, indicating that the free buses were inducing people to walk and bike less rather than drive less. And ridership increased most substantially in the poorer part of Tallinn – a good sign for social inclusion, but not necessarily for congestion, which is concentrated in the wealthy city center.
Even with its free system, Tallinn is only slightly less congested than Luxembourg. According to the TomTom Traffic Index, a service of the eponymous mapping and navigation company which measures congestion worldwide, Tallinn is Europe’s 37th most congested city out of the 215 in the index. Luxembourg ranks 32nd.
One reason free transportation didn’t dramatically increase ridership is that Tallinn already had a high share of public transport in its modal mix – some 40 percent at the time discussions about making buses free began – and fares were already low: 1 euro ($1.13) for a one-way ticket and 20 euros per month.
While Luxembourg has some way to go on the modal mix, it does have low fares – 2 euros for a ticket valid for two hours, and buses and trains are already free for everyone under the age of 20. That’s likely to damp the effect of free rides.
The question is whether the wow-effect from the measure is worth the cost. Dunkirk funds free public transportation with a special tax on businesses, Tallinn from its share of residents’ income taxes. That model doesn’t work everywhere: In 2014, the Belgian city of Hasselt abolished free bus rides after 16 years because it could no longer afford the growing costs.
Earlier this year, Paris Mayor Anne Hidalgo commissioned a study into making public transportation free in Paris – but the commission came back in late September with a recommendation not to go ahead. While abolishing turnstiles and ticket inspectors would cut 250 million euros of costs a year, it would also eliminate 3.3 billion euros of annual revenue.
In Luxembourg, fares only cover 30 million euros of the public transport system's 1 billion euros of annual operating costs, so they are barely a consideration for the wealthy nation.
A better way to look at cutting fares to zero is as a way of advertising improvements in services. And it is these investments – in things like bigger park-and-ride lots, bus lanes and service extensions – that make the bigger difference to ridership. According to the Cats study, abolishing fares only accounted for a 1.2 percent rise in passenger demand in Tallinn; the rest of the total ridership increase of 3 percent can be attributed to service improvements.
As both researchers such as Cats and the Pris commission have pointed out, altering the cost of public transportation isn’t the most effective way to reduce congestion. More people will switch to buses and trains from driving if the cost of using a car goes up. But policies to that effect are understandably unpopular and easier to pursue in undemocratic countries; Moscow, Europe’s third most congested city according to TomTom, has just raised parking fees in some areas from about $1.2 to almost $6 an hour.
The Luxembourg government, which has a one-vote majority in parliament, can’t afford such a move. It will have to settle for more benign measures.
To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Leonid Bershidsky is a Bloomberg Opinion columnist covering European politics and business. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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