Restricting cars in cities: a cost-benefit analysis of Low Emission Zones

Faced with unmanageable traffic and health-threatening air quality, hundreds of cities across Europe are adopting measures to reduce the number of vehicles clogging their streets, with the aim of lowering air pollution levels and improving the quality of life for people who live and work there. Most are doing this by introducing Low Emission Zones (LEZs) in their city centres.

Prominent schemes include those in Berlin, London, Milan and Stockholm, though their approaches vary – some cities are restricting the types of vehicles allowed to circulate, while others allow staggered access based on criteria such as license plate number, or require drivers to pay “congestion charges” to enter some parts of the city.

By analysing the Madrid Central LEZ, our research aims to look past political controversies to understand the private costs and social benefits of these measures. The studies were jointly conducted by myself, José Enrique Galdón-Sánchez at Spain’s Universidad Pública de Navarra, Felix Holub at Goethe University, and Guillermo Uriz-Uharte at Mancomunidad de la Comarca de Pamplona.

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LEZs: political and logistical roadblocks

After years of being fined for failing European pollution standards, Madrid eventually took an extremely restrictive approach, creating LEZs that effectively ban most vehicles from certain areas of the Spanish capital as of 30 November, 2018.

The move hasn’t been without controversy, and the Supreme Court of Justice of Madrid annulled the low-emission zones in mid-September, arguing that the city hadn’t conducted thorough economic impact reports before implementing the ban. The ruling is being appealed.

LEZs have met with firm resistance elsewhere, especially in London, where expansions to the city’s Ultra Low Emission Zone (ULEZ) became the focus of protests earlier this year.

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Measuring the impact of LEZs can be tricky, since traffic restrictions have wide-ranging impacts on both the people who live in cities and the people who commute into them for work. Much previous research has looked at social and health aspects such as traffic congestion, air quality and health outcomes. While these aspects are crucial, international research has shown that drivers are ingenious when it comes to skirting traffic restrictions, which often mutes their impact.

There are also costs, often indirect, associated with this type of measure. These can range from lower sales for local businesses, to higher commuting costs and fewer hours worked. We have to consider the economic costs of environmental measures, not only to get a clear picture of their overall impact, but also to ensure long-term public support for them. Most people want greener cities, but they also want thriving businesses.

Benefits in Madrid Central: less pollution, fewer cars

Our research showed that Madrid Central has various social benefits. We began by analysing data on the concentration of nitrogen dioxide (NO₂), with corrections for weather effects, national holidays and other factors, in the months just after the Madrid LEZ was introduced. We found that Madrid Central successfully reduced pollution by nearly 19 %.

While there was concern that the low-emission zone would just displace pollution from central Madrid to areas outside the city, this was not the case. People seemed to change their behaviour to comply with the new restrictions, actually driving less rather than changing their route.

There was also a decline in congestion. By looking at data from more than 4,000 traffic monitors, measuring traffic at 15-minute intervals, we found that congestion within the LEZs was down by 16 %.

Costs: falling retail sales by non-residents

So far, so good. But what were the impacts on businesses that operate inside LEZs?

To answer this question, we used detailed credit and debit card data to analyse transactions in both brick-and-mortar and online businesses for specific postcodes within Madrid. We wanted to understand the purchasing patterns within Madrid Central among consumers who live in other parts of the city. These are the people who would no longer be able to drive into the city centre to shop.

Comparing consumer spending before and after the LEZ was implemented, we found a nearly 21 % decrease in brick-and-mortar spending within the LEZ among people who lived outside it. There was partially offset by a 12 % increase in online spending in Madrid Central by buyers living outside it, suggesting that some buyers were willing to make their purchases online instead of driving into the city centre.

This means that traditional retail and commerce within the LEZ did indeed pay a higher price for clean air. While some of that was compensated by online sales, many of these online sales go to different types of sellers, and therefore smaller businesses may be shouldering much of the loss.

This does not mean that cities should not restrict traffic – indeed, they should. But as LEZs gain popularity throughout Europe and beyond, policymakers need to think about how to combine these policies with initiatives to protect retail businesses and small and medium-sized enterprises, as well as more effective public transportation options, in order to mitigate the costs for individuals.