(Source)
Congestion pricing has recently gained a massive amount of mainstream attention and heated public policy debate. As major cities worldwide struggle with increasing traffic, air pollution, and declining public transit efficiency, cities such as London, Stockholm, and Singapore have implemented congestion pricing with varying degrees of success. Recently, New York City became the first U.S. city to introduce congestion pricing. However, congestion pricing has raised significant legal, economic, and equity concerns. Critics argue that congestion pricing disproportionately burdens lower-income commuters, negatively impacts businesses reliant on vehicular transport, and raises questions about the allocation and use of generated revenue. Recently, the Trump administration rescinded federal approval for New York City’s congestion pricing program, citing common concerns that it unfairly burdens working-class commuters and small businesses.
What is Congestion Pricing?
The term “congestion pricing” refers to the practice of charging vehicles a fee to enter high-traffic urban areas. Often credited as the “father of congestion pricing,” economist William Vickrey first proposed the idea for New York City’s subway system in 1952 and later extended his proposal to roadways. The theory behind congestion pricing is rooted in what economists refer to as “demand management,” which looks to decrease congestion by using market-style pricing tools. The congestion charge is meant to discourage people from making unnecessary trips, encourage alternative modes of transportation, and allocate road space more efficiently. Congestion pricing also attempts to internalize the externalities of traffic congestion, such as longer travel times, pollution, and infrastructure strain, by reinvesting the revenue generated to maintain and improve transportation infrastructure, including roads, buses, and metro or subway services.
Several cities worldwide have implemented congestion pricing with varying degrees of success. London introduced its congestion charge in 2003, leading to a 30 percent reduction in traffic congestion within the city center. Stockholm implemented a similar system in 2006, which was initially met with public resistance but later accepted after noticeable improvements in air quality and commute times. Singapore has one of the most advanced congestion pricing systems, using real-time dynamic pricing to regulate traffic effectively. The system reduced traffic by 13 percent and increased vehicle speeds by 22 percent. In 2025, New York City became the first U.S. city to implement congestion pricing through the Central Business District Tolling Program (CBDTP). The program charges most vehicles $9 to enter Manhattan south of 60th Street during peak hours and $2.25 during non-peak hours. In its first few weeks, the program has resulted in a 7.5 percent reduction in traffic and 30 to 40 percent faster bridge crossings.
The Economics of Congestion Pricing
In 1982, an estimated 0.8 billion gallons of fuel were wasted in the United States due to traffic congestion, a figure that peaked at 3.6 billion gallons in 2019. In cities like New York, commuters lose 103 hours (~ 4 days) and $1,826 from congestion per year. In total, congestion cost U.S. commuters more than $74 billion in 2024. In addition, a study by the American Transportation Research Institute found that congestion cost trucking companies a record $94.6 billion in 2021. Traffic congestion is a classic example of negative externalities, where individual drivers impose costs on others through longer travel times, increased pollution, and infrastructure wear.
Urban roads, particularly in high-density areas, are a scarce resource that is often treated as a free good. This leads to overcrowding and inefficiency, known as the tragedy of the commons. Expanding road capacity may seem like a solution, but it often backfires by encouraging more driving, a phenomenon called induced demand, which ultimately fails to reduce congestion. Economists argue that a more effective approach is to allocate road access based on willingness to pay, ensuring that road space is used by those who derive the greatest economic benefit from it. Congestion pricing does this by applying a fee that varies based on traffic conditions, time of day, and vehicle type, discouraging discretionary trips and incentivizing alternative travel options.
Another key advantage of congestion pricing is that it can generate substantial revenue, which can be reinvested in transportation infrastructure. In London, for example, net revenues from congestion charges have been allocated primarily to public transit improvements, increasing bus reliability and reducing overall dependency on private vehicles. Similarly, in New York City, the Central Business District Tolling Program (CBDTP) is expected to generate $15 billion in capital funding for subway, bus, and commuter rail enhancements, reinforcing a shift toward public transportation and multimodal travel.
Types of Congestion Pricing
While various forms of congestion pricing exist, the two most common models are cordon pricing and high-occupancy toll (HOT) lanes. Cordon pricing applies a fee to vehicles entering a designated geographic area, usually a central business district or a high-traffic zone. This is the method widely used in cities such as London, Stockholm, Singapore, and now New York City. The fee structure can vary, with some systems implementing a fixed-rate while others adjust pricing based on the time of day or real-time congestion levels.
High-occupancy toll lanes provide a dynamic pricing model on select highway lanes. These lanes allow high-occupancy vehicles (HOVs), such as carpools, buses, and sometimes motorcycles, to travel toll-free while permitting solo drivers to access the lanes for a variable fee. The toll typically fluctuates based on congestion levels, rising during peak travel times to maintain free-flowing traffic. HOT lanes are prevalent in U.S. states such as California, Virginia, and Florida, where express lane projects have been implemented along major highways. Unlike cordon pricing, which affects an entire geographic zone, HOT lanes operate within an existing highway system and serve as an alternative for drivers seeking a faster route. While these lanes offer a flexible solution to congestion, critics argue that they create inequities by prioritizing access for wealthier drivers who can afford to pay, leading to the controversial label of “Lexus Lanes.”
Federal-State Framework in Transportation Policy (& New York City’s Cordon Pricing)
Congestion pricing in the United States operates within a complex regulatory framework, requiring coordination between federal, state, and local authorities. While traffic regulation is primarily a state power under the Tenth Amendment, the federal government retains oversight due to its role in funding highways and enforcing transportation and environmental laws. Federal law allows states to experiment with congestion pricing, notably through programs like the Value Pricing Pilot Program (VPPP), which Congress established in 1998 to support state experimentation with toll-based congestion management initiatives. However, their implementation remains subject to federal statutory and regulatory requirements, including Federal Highway Administration (FHWA) approval when federally funded roads are involved.
New York City’s cordon congestion pricing system, authorized by the 2019 Traffic Mobility Act, exemplifies this federal-state dynamic. After the New York State legislature’s approval, the Metropolitan Transportation Authority (MTA) was tasked with implementing the Central Business District Tolling Program (CBDTP). Since the toll impacts federally funded roadways, the MTA worked closely with the FHWA to conduct a National Environmental Policy Act (NEPA) review, which ultimately led to the approval of the plan in 2023.
However, the Trump administration’s intervention in February 2025 to rescind federal approval has tested the limits of federal authority over state-led congestion pricing. The U.S. Department of Transportation (USDOT), under Secretary Sean Duffy, argued that New York’s plan no longer aligned with the Value Pricing Pilot Program (VPPP)’s objectives, citing two primary reasons: (1) the program lacked a toll-free alternative for drivers, and (2) it prioritized revenue generation over congestion relief. Based on these concerns, USDOT ordered an end to toll collections, claiming that the program deviated from the VPPP’s intent to improve traffic conditions rather than serve as a revenue-raising mechanism.
While federal preemption can override state actions in areas like vehicle emissions (Clean Air Act) and trucking regulations (Federal Aviation Administration Authorization Act), congestion pricing generally falls within state jurisdiction if designed properly. Courts will likely determine whether USDOT’s revocation was lawful or an overreach of executive power. The outcome will set a precedent for federal-state relations in transportation policy, particularly regarding the durability of federal approvals in congestion pricing initiatives.
Equity Impacts – Criticism of Congestion Pricing
One of the primary concerns is that road tolls may act as a regressive tax, affecting individuals with lower incomes who have fewer transportation alternatives. Since wealthier individuals are more likely to own cars and can absorb additional commuting costs more easily, some view congestion tolls as unfairly penalizing those who rely on personal vehicles for work but cannot afford the extra expense. Additionally, business owners, particularly small businesses, have expressed concerns that congestion pricing could deter customers from driving into commercial areas, potentially reducing foot traffic and harming local economies. In the context of geographic disparities, individuals living in transit-poor neighborhoods may face higher transportation costs due to congestion pricing while lacking viable public transit alternatives. Without adequate mitigation measures, congestion pricing has the potential to deepen existing inequities by disproportionately impacting communities already facing limited transportation options.
Equity Impacts – The Benefits of Congestion Pricing
Despite the concerns, proponents argue that congestion pricing can be structured in a way that promotes transportation equity, particularly when the revenue is reinvested in public transit improvements. Studies indicate that lower-income individuals are far more likely to rely on buses and subways than private vehicles. By directing congestion pricing revenue toward transit enhancements, cities can improve transportation services for a larger share of the population, particularly those who do not own cars. In New York City, revenue from the Central Business District Tolling Program is projected to generate $15 billion, with funds earmarked for subway, bus, and commuter rail improvements. These investments are intended to create more frequent, reliable, and accessible transit services, ultimately benefiting those who are most dependent on public transportation. Reduced congestion may also improve bus service efficiency, as buses can move faster through less crowded streets, directly benefiting low-income transit riders who rely on these services the most.
Concerns about business impacts are not entirely straightforward. While some individuals fear reduced customer traffic, congestion pricing could have positive economic effects by making commercial areas more attractive and encouraging pedestrian-friendly environments. Delivery trucks, rideshare drivers, and service vehicles may also benefit from reduced gridlock, allowing for faster and more reliable operations. Studies from cities like London, where congestion pricing has been implemented, suggest that reducing congestion can actually lead to increased retail activity as consumers and businesses experience improved mobility. The MTA reported an almost billion-dollar boost in just the first month of congestion pricing’s existence in New York City.
Recognizing the potential burden on vulnerable populations, congestion pricing systems often include exemptions and discounts to address equity concerns. In New York, the Metropolitan Transportation Authority (MTA) has introduced several mitigation measures, including discounts for low-income drivers through targeted rebate programs, exemptions for disabled drivers and those with medical needs, and reduced tolls for certain commercial and essential service vehicles such as emergency responders and paratransit services.
By incorporating progressive revenue redistribution, targeted exemptions, and investments in public transit, congestion pricing can be designed to minimize inequities while ensuring a more efficient and accessible urban transportation system. Ultimately, the success of such policies depends on how revenue is allocated and whether transit improvements provide meaningful alternatives for those most affected by new tolls. If implemented effectively, congestion pricing has the potential to reduce traffic congestion, improve public transportation, and create a more equitable urban mobility landscape.
Conclusion
The debate surrounding congestion pricing highlights the ongoing tension between managing transportation demand and ensuring fairness for all road users. The outcome of New York City’s legal dispute will likely have far-reaching implications for other U.S. cities considering similar programs. If the courts uphold the federal government’s decision to revoke approval, it could set a precedent that allows future administrations to block or dismantle congestion pricing initiatives, potentially undermining state and local self-determination in managing urban congestion.
Despite these controversies, congestion pricing offers a significant opportunity to reshape urban transportation systems. When designed thoughtfully with equitable revenue redistribution, exemptions for vulnerable populations, and targeted investments in public transit, it has the potential to create more sustainable, efficient, and accessible cities. As urban centers continue to struggle with rising traffic congestion and environmental concerns, congestion pricing will remain at the forefront of policy discussions. Governments will need to find a way to balance economic efficiency with social equity in the pursuit of more livable and resilient cities.
Suggested Citation: Petar Djekic, All Eyes on Tolls: Congestion Pricing in Urban Centers, Cornell J.L. & Pub. Pol’y, The Issue Spotter, (Mar. 26, 2025), https://jlpp.org/all-eyes-on-tolls-congestion-pricing-in-urban-centers/.
