Chronic road congestion is taking a toll on the mobility of goods, services and people in New Zealand’s major urban centres, costing us over a billion dollars every year on wasted hours idling in traffic.

That means lower productivity growth (i.e. lower wages), increased carbon emissions and lesser social interaction.

Without suitable policy action, road overcrowding at peak times is all but certain to intensify. Government forecasts show that New Zealand’s total vehicle kilometres travelled might increase by as much as 66 percent by 2040.

With these concerns in mind, The New Zealand Initiative launched this week a new report showing congestion pricing, which charges drivers a user fee at peak times in overcrowded routes, can solve New Zealand’s congestion woes.

In The Price is Right: The road to a better transport system, we find congestion pricing is not a new concept, with close to 100 years of academic research and plenty of international case studies validating it.

Although building more and better roads is a welcome initiative to increase average throughput volume, it is not the best strategy to reduce unpriced congestion. That means to build roads targeting peak capacity is simply not the best use of budget resources, particularly when road space on increasingly high-value public land will be underused most of the time.

Put simply, congestion pricing is the single most effective way to deal with chronic traffic bottlenecks while providing incentives to increase public transport use.

Variable peak and off-peak rates are already part of our daily lives, from electricity bills and cinema tickets to hotel rates and public transport fares. The same logic should apply to roads.

By letting drivers face the costs of adding a vehicle to clogged roads, congestion charges can encourage commuters to find trip alternatives, such as other travel times, routes and transport modes. That would reduce the overuse of road services at peak times.

But there is an important caveat to any successful implementation of congestion charging.

To avoid congestion charges becoming “just another tax”, commuters should expect the government to commit in return to a revenue-neutral system – where every net dollar raised through congestion charges would be offset by, say, a dollar less through property rate collection or lower fuel prices.

With those caveats in place, the report concludes New Zealand is well-suited to implement a comprehensive, world-class road pricing system based on decades of international experience and research.

But only if the price is right.