Name: Simin Xu
POLICY ANALYSIS OF VEHICLE LICENSE PLATE QUOTAS -Taking Beijing and Shanghai as an Example
SIGNIFICANCE OF THE PROBLEM The Vehicle License Plate Quotas (VLPQ) is one of an importation TDM policy in China. Its purpose is to use government authority to control the private vehicle license plate and limit the car purchase to combat worsening air pollution and congestion. This paper analyze this policy on urban economic perspective, its guiding values, key players, whether it contribute to traffic mobility, environmental equity and efficiency. To figure out how the policy address these problems can inform policy makers and urban planners to improve the policy or use other better alternatives in order to promote more sustainable way of living.
NATURE OF THE PROBLEM 1.
Diseconomies of metropolitan growth and land rent function Cities are in rapid growth during the past decades. Because the agglomeration economies which increase
productivity and wages, the population move to the city to enjoy higher economic and other benefits. As of 2010, more than half of all people live in an urban area in the world.1 Population growth also combined with more rapid real income growth of urban residents, increasing the demand for urban transportation. In the same time, urban land use is influenced by bid rent function that central land were allocated to offices able to afford high land rent and transportation cost in CBD area, but suburban were allocated to residential with more gentle bid rent curve. All these factors have led to high transportation demand and automobile ownership within the metropolitan area, and if it exceeds the extent that the city infrastructure system can accommodate, traffic congestion would happen. Chinese cities cannot escape this fate. Shanghai and Beijing each had about 2 million auto vehicles in 2004, but in 2010 the number of registered cars has exceeded 3 million in Shanghai, more worse, 5 million by the end of 2012 in Beijing.2 The increasing rate is much higher than other international cities like New York and London. Along with
1
“Urban Population Growth,� World Health Organization, http://www.who.int/gho/urban_health/situation_trends/urban_population_growth_text/en/. 2 Beijing Statistics Bureau, Beijing Statistic Yearbook, 2013. & Shanghai Statistics Bureau, Shanghai Statistic Yearbook, 2011.
Name: Simin Xu the increasing vehicles, traffic congestion, high fossil fuel consumption and car emission is now faced by Chinese people. VLPQ was born in this complex environment to solve these problems by government control.
2.
Government intervention in economic activity The economic explanation of government intervention in economic activity lies in market failure. On the one
hand, road is public good, and free market cannot provide adequate supply of road to accommodate increasing automobile. On the other hand, externality happens (congestion externality and environmental externality) when the automobile usage is larger than road capacity, and the social cost larger than the private cost. Because market is imperfect, VLPQ is a way to use government power to internalize the market failure in order to optimize the allocation of resources.
PROBLEM SETTING - TWO SCENARIOS As early as 1986, Shanghai launched VLPQ policy initially to use monthly auctions to limit the vehicle ownership, but it had little influence to the private vehicle market until the market fully opened to public till 2000.3 The now-existing rules came later in 2008 that to use internet or phone bidding rather than living bidding.4 After the new rules implemented, the price of a license plate through auction could be as high as $14000, which exceeds the price of an entry level car in China.5 In contrast, Beijing adopted another way in 2010 by cutting the total vehicle rationing and using monthly lottery to allocate the plate.6 The quota of new license plates have decreased from 2011 of 240 thousands to 2014 of 170 thousands, and the quota of new energy car plate have increased from 20 thousands to 60 thousands.7 After that, other large cities, including Guangzhou, Hangzhou, Guiyang, have implemented the VLPQ policy referring to the former experiences. Because the different methods they used, primarily auction and lottery, their effect on traffic volume control, reducing environmental pollution and carbon emission, promoting equity and justice, and the policy efficiency are quite different, although similar in some part. The following are the comprehensive analysis on these
3
‘‘The History of the Most Expensive Iron Piece’’, updated May 15, 2009, http://sh.sina.com.cn/news/f/2009-0515/1345111553.html. 4 Ibid. 5 “In China, the License Plate Can Cost More Than the Car,” Bloomberg News, adopted on April 25, 2013, http://www.businessweek.com/articles/2013-04-25/in-china-the-license-plates-can-cost-more-than-the-car. 6 Beijing Municipal Government, “The Interim Provisions of Regulating the Number of Passenger Cars in Beijing,” December 23, 2013, http://news.xinhuanet.com/auto/2010-12/23/c_12911737.htm. 7 “Diagrams of Beijing Car Plate Lottery from 2010 to 2013,” http://auto.163.com/13/1112/17/9DGE06EJ000851PI.html.
Name: Simin Xu aspects for these two methods. Based on these analysis, the paper proposes in long term land use patterns to realize better outcomes of transportation development.
STAKEHOLDER ANALYSIS Key stakeholders involving in this policy are government, overall vehicle industry including manufacturers and suppliers, and vehicle users. For these stakeholders, the benefit and cost are not evenly distributed. There are winners but are also losers. For government, the high price of auction constitutes a large proportion of revenue. Also, while market cannot prohibit more people from purchasing car, government can use the power to limit the car ownership. Thus, to implement the policy harshly is a way to establish government authority. But if the policy influences the overall vehicle industry, government will lose a proportion of revenue from automobile tariffs, excise duty as well as land rent from car industry. For overall vehicle industry in China, the policy implemented in only several cities may have small effect on them. But if the policy diffused to the whole country, there would be significant burden on them because China still remains the first-time buy market.8 Consequently, the vehicle sales would decrease, and in responses, the local manufacturers and suppliers would reassess their customer capacity and develop oversea market to offset this lose. For vehicle users, which can be further divided into four groups: 1) People who already owned cars before this policy implemented and with no purchasing intention: these people can more or less get benefit because they obtained the car ownership first thus can enjoy convenience first compared to others who subject to the policy. Moreover, if the policy effectively control the traffic volume and environmental pollution, they would benefit from lower congestion cost and better air condition. 2) People who purchased a car after the policy implemented: this group can be further divided into those who got the local vehicle plate and who got foreign plate. The former paid the expensive auction fee or a very long waiting time for winning the lottery, thus, their externality to the congestion or environment were somehow internalized. The latter occupied large amount of public resources but did not pay for their externality therefore gained from the policy. 3) People who still have car purchasing intention but did not get a chance to own vehicle plate because
8
Ernst & Young, “Impact of Beijing’s license quota system on the Chinese automotive industry,� September, 2012, http://www.ey.com/Publication/vwLUAssets/Auto_Beijing/$FILE/Auto_Beijing.pdf.
Name: Simin Xu of the policy: these people are direct policy losers because their transportation demand were inhibited by this policy, as a result, they may transfer to other modes like transit or metro. 4) people who owned zero-vehicles and have no purchasing intention: for these people, their transportation demand are satisfied by public transportation, therefore, they may suffer from the policy because large population from the third group would turn to the mode choice that previously occupied by them, and the population would continuously increasing along with the policy take place. But on the other hand, they will gain from the policy if the government redistribute the benefits by either improving public transportation service or lower public transportation cost.
EFFECTIVE ANALYSIS 1.
Whether it effectively control traffic volume and ease traffic congestion. The total passenger vehicle ownership in both the two cities are effectively limited by the VLPQ policy to some
extent. (See Figure 1) In both Shanghai and Beijing, the annual growth rate of the total passenger vehicle ownership were very high, but Shanghai’s growth rate were moderate from 1999 to 2013, and much smaller than Beijing from 2001 to 2005 and from 2007 to 2010. This may because Shanghai Carried out the policy in 2000 and continued to be effective during the following years.
Figure 1 - Passenger Auto Vehicle Ownership and Growth Rate in Beijing and Shanghai (Data comes from Statistics Yearbook of Beijing & Shanghai from 2000-2013, data of 2013 comes from Beijing & Shanghai Transportation Bureau)
Name: Simin Xu Another evidence is that the growth rate significantly decreased from 2000 to 2001 when Shanghai first implemented VLPQ. For Beijing, the plate lottery also appears to be effective to limit the vehicle ownership because the growth rate significantly decrease from 2010 to 2011 when Beijing adopted it. However, a larger decrease happened in 2004. Among all the factors contributed to this, the most important one may be the intensively built public transportation, especially the metro system - line 13 opened in the end of 2003.9 However, for no matter auction or lottery, it cannot effectively control the traffic volume, either on short-term or long-term. On short-term, the policy only limited the rationing of future new car ownership of the people who already owned cars before this policy implemented, but did not control the current behavior patterns (including route, time and mode choice), which contribute to the key reasons of most of current worse traffic congestion during peak-hour and certain route. But for cities like Beijing and Shanghai, traffic congestion have already exist, and the key reason is not the new demand, but the current transportation use. Thus, even the policy is effective to control vehicle ownership, it can only play a role in the future traffic condition, preventing it from continuously deteriorating but can do nothing to the current traffic congestion. In the long run, for both auction and lottery, the effects to the future traffic condition may be overestimate because it potentially encourage speculation that most people get the vehicle plate from other cities. Also, for lottery, there is another possibility that people who owned zero-vehicles and have no purchasing intention currently would join the group who want to get lottery, and if they are lucky to be the winner, they would not waste the rare chance of winning by either purchasing a car or selling to others. Thus, the VLPQ policy to this point encourages irrational vehicle consumption. From 2011 to 2014, the chance of winning the lottery decreased from 1/11 to 1/145 because overwhelming number of these people participated in, which makes winning lottery for those with true car demand even hard.10
2.
Whether it cope with climate change and environmental pollution Not only traffic congestion, another serious consequence of the increasing vehicle ownership is the air pollution
in most large cities. According to Beijing Environmental Protection Bureau, among the observed PM 2.5, the auto vehicle
9
Beijing Subway Website, http://www.bjsubway.com/culture/dtzs/xljs/#. “Diagrams of Beijing Car Plate Lottery from 2010 to 2013,� http://auto.163.com/13/1112/17/9DGE06EJ000851PI.html.
10
Name: Simin Xu emission from more than five million vehicles accounts for 22.2%, which were considered the primary source of pollutants.11 The data report is similar in Shanghai, where 25.8% of air pollutants came from transportation in April 2014.12 Therefore, one of the most important purposes of TDM policy in China is to limit the car emissions to promote sustainable environment. The VLPQ effectively limit the car ownership therefore can more or less control the future car emission. A research estimated the fuel consumptions by passenger vehicles in Beijing and Shanghai in 2010, when Shanghai had already implemented the VLPQ policy by auction while Beijing had not, indicating that under the current policy scenario, Shanghai’s fuel consumption in 2020 will be reduced by 59.4% and in Beijing by 5.7%, which means the limitation of vehicle ownership is effective in control fuel consumption and car emission caused by it.13 Another evidence is that in Singapore, Vehicle Quota System implemented in 1990 has turned out to be effective in control fuel consumption and car emission.14 However, there are no report specifically assessed the direct relationship between VLPQ policy and air condition in China therefore requires future research. But the government at least adopted some method to cope with carbon emission in response with climate change. In no matter Beijing or Shanghai, the proportion of the new-energy vehicle quotas were increased and will still go up in the future, specifically, the proportion will triple from 2014 to 2017 in Beijing.15
3.
Whether it address environmental justice and equity When it comes to environmental justice and equity, there are different views of equity like libertarians, liberals
and collectivists.16 There are also different types of equity by looking at horizontal equity, vertical with respect to income
11
“Beijing Vice Major Speech – 22% of PM 2.5 comes from vehicle emission,” updated in January 2012, http://news.china.com.cn/txt/2012-01/15/content_24409861.htm. 12 “Source of PM 2.5 in Shanghai,” updated December 2013, http://www.shbiz.com.cn/Item/224677.aspx. 13 Han Hao et.al, “Comparison of policies on vehicle ownership and use between Beijing and Shanghai and their impacts on fuel consumption by passenger vehicles,” Energy Policy 39 (2011) 1016–1021. 14 Sun Shen Han, “Managing motorization in sustainable transport planning: the Singapore experience,” Journal of Transport Geography 18 (2010) 314–321. 15 “Diagrams of Beijing Car Plate Lottery from 2010 to 2013,” http://auto.163.com/13/1112/17/9DGE06EJ000851PI.html. 16 Susan Hanson et.al, The Geography of Urban Transportation, third edition, chapter 12: Social and Environmental Justice Issues in Urban Tranportation.
Name: Simin Xu and social class, vertical with respect to need and ability.17 Building on these views, evaluation types, it is reasonable to analyze the VLPQ policy by looking at the following two points:
a)
Whether the policy treated everyone the same? Everyone in the society should have the same right to use and consume the transportation services. The
horizontal equity requires that “equal individuals and groups should receive equal shares of resources, bear equal costs, and in other ways be treated the same.”18 The lottery scenario in Beijing gives everyone the same opportunity to win the lottery, therefore pay some attention to equity. Also, according to the lottery regulation in Beijing, disabled people have the preference to get the plate because their success rate are higher, which means their inconvenience in taking other transportation mode like walking and cycling are offset by this specific policy. However, unlike Beijing, the auction scenario in Shanghai raises fairness concern to low income by giving higher bidders, typically are median or high income, greater chance to win the auction. As a consequence, high income would get the car ownership and have the power to choose transportation mode while low income can only spend more time taking public transportation. If we look at this point, lottery is better than auction. But no matter using which scenario, there are few winners and most losers to get the car plate.
b)
For whose benefit, at whose cost? Who generate diseconomies, and who bears it? For the auction scenario, drivers who get the plate can enjoy more convenient and comfortable transportation
experience, meanwhile, these benefits as well as their externality on environment and mobility could be offset by the expensive auction fee. Moreover, the auction fee could be redistributed in improving public transportation to mitigate transportation and environmental problems to benefit others. At this point, auction is better than lottery. In addition, for no matter which scenario, new-energy cars are designed to have larger change to get plate which means people who generate small diseconomies also bears lower auction fee or less waiting time.
17
Todd Litman, “Evaluating Transportation Equity Guidance for Incorporating Distributional Impacts in Transportation Planning,” April 24, 2014. 18 Todd Litman, “Evaluating Transportation Equity Guidance for Incorporating Distributional Impacts in Transportation Planning,” April 24, 2014.
Name: Simin Xu
EFFICIENCY ANALYSIS As for the efficiency analysis, former studies focuses on different aspects. A definition accepted by economist is that the allocation of resources to their highest valued use.19 From this aspect, auction is much more efficient than lottery because who get the goods were the ones who value the goods the highest. Also, according to a definition of Arthur O’Sullivan, externality happens when social trip cost is higher than the private trip cost. If there is a way to internalize the externality to achieve the optimum where marginal benefit equals to marginal social cost, that way is efficient.20 The auction scenario to some extent internalize the externality therefore is more efficient than lottery. Another way is to look at the economic cost and benefit of all the stakeholders. If the cost is more than the benefit, the policy can be deemed as inefficient. The following is an empirical analysis of VLPQ by auction method based on the assumption that the total car supply is constant, and the policy would not influence the whole car industry. The demand curve is negatively sloped because the higher price of the car (including the auction price of the plate), the less demand of it. (See Figure 2)21 The equilibrium point is the Figure 2 - Efficiency Analysis of VLPQ (Source: reference 21)
point where demand curve intersect with the supply curve.
Correspondingly, the vehicle quantity at this point is đ?‘„0 and the price per car is đ?‘ƒ0 . The VLPQ policy limit the number of car ownership to đ?‘„1 , which means whose bid price higher than đ?‘ƒ1 gets the car plate. In this auction scenario, the social cost is the area c because consumers who participant in the auction will lose the area b + c, however government will gain the area b. But in lottery scenario, the probability of each consumer getting the plate equals to θ = đ?‘„1 /đ?‘„0 . Thus, if the policy implemented, consumers will lose (1 − θ)(a + b + c) and government gain zero, thus the social cost under
19
Singfat Chu, “Allocation flexibility and price efficiency within Singapore’s Vehicle Quota System,� Transportation Research, Part A 46 (2012) 1541–1550. 20 Arthur O’Sullivan, Urban Economics, Eighth Edition. 21 Ye Liugang, Yin Meng, “An Economic Analysis of Chinese Vehicle Quota System,� Traffic & Transportation, 1671-3400(2013)120133-04.
Name: Simin Xu this scenario is (1 − θ)(a + b + c). Because (1 − θ)(a + b + c) is larger than c, the lottery scenario is less efficient than auction.22 Overall, for these two scenarios, auction is much more efficient. However, even it is auction, there are problems. The policy is efficient for those who drives during peak-hour and congestive routes, however, not efficient for those who drives during off-peak hour or routes without congestion because all the drivers use the same method to get the plate.
Moreover, in order to make the policy more efficient, government should have perfect information about the demand to make the right decision of car plate rationing. If it is not, the society will bear deadweight loss. According to the figure following, the demand for car plate or marginal benefit is represented by DD. And the curve SC represents the marginal cost. The equilibrium is shown by Figure 3 - Loss of Demand Misperceived (Source reference 23)
point A where the marginal benefit equals to marginal cost. But the
true condition is that the demand for car plate has high income elasticity, but the government interpreted it as đ??ˇđ??ˇ ′, which would result a loss of area a.23 Besides what illustrated before, problem of implementation is also exist for both of these two scenarios, e.g., the technology (phone or internet) is not reliable and lacks transparency; public information about the policy is limited; speculation and non-local license are unintended consequences.24 For auction, the actual amount of revenue and its specific uses have not been made known to public.
22
Ibid. Anthony Chin, “Automobile Ownership and Government Policy: The Economics of Singapore’s Vehicle Quota System,� Transportation Research, Part A: 31 (1997) 129-140. 24 Xiaojie Chen, Jinhua Zhao, “Bidding to drive: Car license auction policy in Shanghai and its public acceptance,� Transportation Policy, 27 (2013) 39–52. 23
Name: Simin Xu
ALTERNATIVE APPROACHES Unavoidably, the VLPQ along cannot effectively solve traffic congestion and environmental pollution. For lottery method, policy efficiency is also problematic. Hence, to cope with congestion, pollution and climate change, many other alternatives have been addressed concerning supply side and demand side. On the supply side, the most common one is improving road infrastructure. On the demand side, many other fiscal measures are combined with VLPQ. An approaches focus on both side is promoting public transportation.
1.
Supply side: improving road infrastructure This approach uses some methods like building more roads, expanding the existing roads, improving highway
maintenance, upgrading existing city streets to increase the supply of road capacity. However, these methods turned out to be futile in many real cases because along with the infrastructure expanding and improving, the metropolitan population and demand is also growing rapidly, thus the newly build capacity cannot quickly accommodate the newly increasing demand. Also, doing this is inefficient because many newly improved infrastructure will not be used all time.
2.
Demand side: integrating other fiscal measures In contrary, another approach is to manage the transportation demand (TDM) by limiting the number of persons
or vehicles traveling in some specific time and space. Many other fiscal measures including congestion tax, gasoline tax and road pricing etc. focus on this side. a)
Congestion tax is an efficient way to internalize the externality. For this method, the winner’s benefit exceed the
losers’ costs. But there are also problems of estimation and implementation, e.g., difficult to estimate congestion taxes for peak and off-peak period, and some collection method decrease efficiency. b)
Gasoline tax makes travel more expensive in order to lower traffic volume. However, it applies to all automobile
travel and location choice, but does not affect travel time and travel route. Also, it could be inefficient if increases offpeak travel gasoline tax. c)
Roads pricing charges peak-hour tolls or tolls to enter some lanes in order to mitigate traffic volume. However,
this method is only useful in dense areas with highly developed public transit. Because only in these area, people may
Name: Simin Xu transfer to other mode, if it is not, the inclusion of toll would affect routes selection, divert the traffic volume to other roads and makes traffic condition in other area worse. Moreover, how much to charge is also difficult to measure.
3.
Approach focus on both side: Encouraging public transportation Encouraging public transportation focus on both demand and supply side because on the one hand, it controls
the demand for SOV, and on the other hand, it provides better public transportation services. It is essential to encourage large capacity public transportation like Metro system for improving mobility, energy-saving, transportation expense saving and social equity. However, the real problem is the policy itself can only deals with part of traffic because the population and income increase may even faster, and some people still prefer travel though SOV.
PREFERRED ALTERNATIVE AND EXPECTED OUTCOME All these approach alone cannot effectively or efficiently cope with traffic congestion and environmental pollution induced from it. Thus, many cities including Beijing and Shanghai chooses a way to combine all these methods together, by both proving more supply and limiting current demand to change the traffic mode, traffic time and traffic route. But the result is far from satisfactory. In the long term, a better alternative should focus on land use patterns on planning perspective because the source of traffic is the current land use pattern that separating house and job as well as high development intensity within metropolitan centers and sub-centers. Therefore, measures are in the follows: •
Relocate commercial from dense city centers to less dense suburbs.
•
Decrease free parking lot within high density city centers and sub-centers.
•
Encourage Transit Oriented Development to integrate mixed land uses around transit station. However, the truth is that traffic congestion will never be solved because triple diversion (mode, time and route)
will inevitably lead to triple convergence in the light of Anthony Downs’ theory.25 Congestion is a worldwide urban phenomenon, an inherent part of any region’s process of modernization and growth.26 Thus, future concern should be divert from relieving traffic congestion to improving the ease of reaching destination, from mobility which focus on
25 26
Anthony Downs, Still Stuck in Traffic – Coping with Peak-Hour Traffic Congestion, Chapter 6, 2004. Anthony Downs, Still Stuck in Traffic – Coping with Peak-Hour Traffic Congestion, Chapter 18, 2004.
Name: Simin Xu transportation itself to accessibility pay more attention to land use patterns to encourage more livable and sustainable outcome of land use and transportation. If everyone could easily reach destination, who would complain congestion?