Free public transportation isn't for everyone

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 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 per cent private cars and 17 per cent public transport to 75 per cent public and 25 per cent 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 found that passenger demand increased by only 3 per cent 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 centre. 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.

Benefits and costs

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 per cent at the time discussions about making buses free began - and fares were already low: 1 euro (S$1.55) 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 found that 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 cover only 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.

According to the Swedish study, abolishing fares accounted for only a 1.2 per cent rise in passenger demand in Tallinn; the rest of the total ridership increase of 3 per cent can be attributed to service improvements.

The thing is, 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 unpopular and easier to pursue in undemocratic countries: Moscow, Europe's third most congested city according to TomTom, has raised parking fees in some areas from about US$1.20 to almost US$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. BLOOMBERG