ULEZ: MEAN OR GREEN?

With London's skyline as its canvas, the Ultra Low Emission Zone (ULEZ) paints a promising picture of cleaner air and healthier communities, currently standing as the world's largest clean air zone. In essence, cars that enter this designated area have to adhere to tight exhaust emission regulations; otherwise, drivers pay a fee. This policy creates a powerful incentive for vehicle owners to reduce emissions, either by upgrading to cleaner vehicles or finding alternative modes of transportation, thus contributing to the improvement of air quality in the city. Better yet, according to Transport for London (Transport for London, 2023), the government uses all ULEZ proceeds to upgrade London's transport infrastructure.

While the ULEZ has been hailed as a promising model for enhancing public health, air quality, and addressing climate change, there are unintended side effects that have sparked debates with economists and politicians, raising doubts regarding the policy's efficiency. In this blog post, we'll dive deep into the ULEZ policy, shedding a light to its various facets – the green, and the mean.

The Green:

ULEZ aims to solve the issue of negative externalities, which economists define as when one entity imposes costs on another without bearing the consequences (Elridge,2023). In London, ULEZ specifically targets air pollution, noise pollution and the perennial issue of traffic congestion.

But how exactly does ULEZ tackle pollution? It's straightforward: Non-compliant vehicles face a flat fee for entering the designated zones. This cost serves as a deterrent, nudging individuals towards alternative modes of transport. 'Nudge policies' are often used to, as the name suggests, nudge the population in the right direction. The approach seems simple, yet the question remains: Does it deliver results? Over ULEZ’s initial ten months there was a staggering 60% decrease in non-compliant cars (Mayor of London, 2023). Thereby, it contributed to a remarkable 35% reduction in road transport nitrogen oxide (NOx) emissions and a 6% decline in CO2 emissions within the zone.

Economists often use graphs to model real world dynamics. Whilst the graph depicting the impact of ULEZ may look complicated, here are the key takeaways:

• Before the ULEZ fee was put into effect, the harm to society caused by vehicles that didn't comply (known as the marginal social cost, MSC) exceeded the costs borne by individual drivers (referred to as the marginal private cost, MPC).
• This discrepancy stemmed from vehicle pollution, which imposed costs on society such as decreased air quality—a negative externality.
• With the ULEZ fee, the individual cost of transportation is adjusted to match the corresponding social cost (represented by the new price, P2 in the graph).
• As a result, the cost of driving increases, leading to a decrease in non-compliant vehicles and thus reducing emissions (illustrated by the shift from Q1 to Q2 in the graph).

You might wonder, "How does this impact me?" The World Health Organization states, 'Outdoor air pollution is estimated to have caused 4.2 million premature deaths worldwide in 2019' (World Health Organisation, 2022). The improved air quality leads to reduced rates of respiratory and cardiovascular ailments, resulting in fewer hospital visits and enhanced public health.

Furthermore, by nudging commuters towards alternative modes of transport, ULEZ alleviates London's notorious traffic snarls. Anyone who has navigated London's congested streets understands this issue. Moreover, fewer vehicles mean reduced noise pollution—a boon for residents weary of the urban cacophony.

The Mean:

While there's plenty to cheer about regarding the ULEZ, let's not gloss over some key issues. One of the biggies? The disproportionate financial burden on less well off individuals. Transport for London says that petrol cars newer than 2005 and diesel cars newer than 2015 will mostly be exempt from the zone (Transport for London, 2024). It's widely accepted that higher-income individuals can usually afford newer cars, while those with lower incomes prioritize essentials over new vehicles. Consequently, the burden of charges falls disproportionately on the less affluent, leaving high-income earners unaffected.

Figure 1 (Orme, Francis-Devine, 2023)

Figure 1 shows that income inequality has consistently grown from approximately 25% to over 30% since the mid-1970s, which is quite a large increase. Yet, it appears that policy largely neglects this pervasive and escalating concern of income inequality. In a time of escalating income inequality, overlooking such disparities becomes a significant oversight. 

It's also disheartening to encounter these requirements from a student's perspective since many of us aren't financially equipped to purchase a car that meets such standards, which is a common hurdle for numerous young individuals alike.

Moreover, let's talk about how the ULEZ aims to clean up the air in certain areas. Sounds great, right? But here's the thing: there's a risk that all that pollution doesn't just disappear—it might just move somewhere else. Drivers deciding to take detours to dodge the ULEZ zone could mean more traffic and pollution in other parts of the city, further highlighting the shortcomings of the ULEZ policy.

Fair Fare: Bridging the ULEZ Inequality Gap

While acknowledging the inequality issues with ULEZ, it's crucial not to overlook its substantial societal and environmental benefits. As economists often say, no policy is perfect. To improve ULEZ efficiency, alternatives like income-based exemptions or targeted subsidies for low-income individuals to upgrade their vehicles should be considered and adopted.

Addressing the presence of asymmetric information in the market would also be effective. Asymmetric information occurs when one participant in a transaction has more information than another. In this case, the government holds all of the information regarding the negative consequences of air pollution. Suppose this information was presented to the general population. It may be the case that they make the decision themselves to reduce their travel in non-compliant vehicles to try and do their part in the fight against climate change.

Ultimately, as we navigate the intricacies of ULEZ implementation, prioritizing transparency and embracing innovative solutions can lead us toward a more equitable and effective path in promoting sustainable urban living.

Bibliography:

Transport for London (2023). "Why do we have ULEZ?". Available at: https://tfl.gov.uk/modes/driving/ultra-low-emission-zone/why-we-have-ulez (Accessed 11th April 2024)

Eldridge, Stephen. (2023, October 27). Negative Externality. Encyclopedia Britannica. Available at: https://www.britannica.com/topic/negative-externality. (Accessed 14th April 2024)

Mayor of London (2023). “Inner London Ultra Low Emissions Zone- One year report”. Available at: https://www.london.gov.uk/new-report-reveals-transformational-impact-expanded-ultra-low-emission-zone-so-far (Accessed 14th April 2024)

World Health Organisation, (2022). "Ambient (Outdoor) air pollution". Available at: https://www.who.int/news-room/fact-sheets/detail/ambient-(outdoor)-air-quality-and-health (Accessed 11th April 2024)

Transport for London (2024). “ULEZ”. Available at: https://tfl.gov.uk/modes/driving/ultra-low-emission-zone (Accessed 11th April 2024)

Orme, S and Francis-Devine, B (2023). "Income Inequality in the UK". House of Commons Library. Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-7484/ (Accessed 9th April 2024)