We should support the govt’s cross-harbor traffic reshuffle

Since my last article on this subject (Jan 8, 2019), the public debate on the subject of cross-harbor tunnel traffic reshuffle continued to heat up. Among supporters are legislator Fernando Cheung Chiu-hung and University of Hong Kong transport expert Timothy Hau. In a co-authored article with Professor S.C. Wong, chair professor of Transportation Engineering of HKU, Dr Hau made the case that the proposed tolls are reasonable and will translate into a gain of HK$2.8 billion over the period from January 2020 to July 2023 inclusive. In their view, “any arbitrary reduction in the proposed fares” will only encourage more driving and increase traffic congestion. Another supporter of the scheme, Professor Hung Wing-tat of the Hong Kong Polytechnic University, had the same view, and strongly criticized any suggestions of the toll on the central Cross-Harbour Tunnel being raised to HK$30 instead of HK$40.

While I agree with the general direction of the proposed changes, i.e., reducing the tolls on the Western Harbour Crossing while raising the tolls on the eastern and the central crossings, and using the revenue raised from the higher tolls on the other crossings to compensate for the losses caused by cutting the tolls on the western crossing, I would argue that the proposition that fixing the tolls on the eastern and central crossings at HK$40 and that on the western crossing at HK$50 is the first best remains unproven, and that even if this pricing configuration is indeed the first best, fixing the tolls on the eastern and central crossings at HK$30 or HK$35 is still definitely better than keeping the tolls on these two crossings at more or less the same level as they are now, namely at HK$20 and HK$25 respectively, with possible sharp reduction on the western crossing toll.

The government says that the proposed tolls (HK$50 for the western crossing, HK$40 for the others) cannot be changed. One possible reason is that this is the result of long negotiation involving the Western Harbour Tunnel Co Ltd. Reopening the negotiation is just not possible. Another reason is that the proposed tolls represent the optimal tolls produced by the simulation model. Any departure from the optimal tolls will be suboptimal.

Regarding the first reason, one can counter that the HK$50 toll which has been accepted by the western tunnel company need not change. The company’s main concern is just its bottom line. It is unlikely that the public would object to a larger compensation when it is demonstrated that lowering the tolls on the central and eastern crossings leads to less traffic and hence less revenue on the western crossing. The government has already indicated that its support for the new tolls is not predicated on revenue considerations. So we can assume that changing the proposed tolls without affecting the western tunnel company’s bottom line should not be objectionable to the company.

Regarding the second reason, I would like to raise four considerations.

First, simulation models require behavioral assumptions. Behavioral assumptions are generally based on stylized facts that are based on observed past behavior. These assumptions may not be correct, as past behavior based on past The author is the dean of business at the Chu Hai College of Higher Education. parameters cannot directly translate to future behavior which will be based on currently unobserved future parameters.

Second, raising the tolls on central and eastern crossings to HK$30 does not preclude the possibility of raising them further to HK$35 or even HK$40 later. Actually this could be a less risky move, because there is now a HK$50 gap between current toll on western crossing and that on the central crossing, and HK$30-HK$50 already represents a dramatic decline of this gap to only HK$20. Narrowing the gap from HK$50 to HK$20 instead of HK$10 will be less dramatic, and may actually ease concerns that the western crossing suddenly becomes too congested.

Third, if the government objects to HK$30, HK$30, HK$50 and insists that HK$40, HK$40, HK$50 is far better, then it certainly should object to HK$20, HK$25, HK$70 which is the current tolls. The government may argue that HK$30, HK$30, HK$50 will end up stimulating too much cross-harbor driving even relative to HK$20, HK$25, HK$70. But this is rather unlikely, as the average toll is still higher, and the western crossing has relatively lighter traffic and should carry a lower weight. In any case, the government can always raise the annual car license fees to discourage car ownership.

Finally, I would like to point out that the western crossing is highly complementary to the CentralWan Chai Bypass, which was just recently completed. Allowing the tolls on the western crossing to command a premium over the other tolls will ensure that it is free from traffic congestion and serve as an another route between our international airport and most parts of Hong Kong Island.

I think it will be a pity if we fail to reorganize our tolls which is easy to do and which will immediately improve efficiency. I have little doubt that the government’s proposal represents a big improvement over the status quo, even though it may not necessarily be the best.