Tomorrow's Economy

The economics of autonomous driving: making the benefits count for everyone

30 November 2016

Politicians must organise a positive and honest public discourse on the potential benefits of autonomous cars to ensure these are widely spread

Martin Adler

Over the next three decades automated vehicles will alter our lives permanently; a transformation every bit as fundamental as that brought forth by the advent of the railways in the 19th century or airplanes in the 20th. Indeed that comparison may well prove an understatement, as car automation will affect the everyday life of everyone, everywhere in Europe – not just those who currently hold a driver’s licence.

By the year 2050, the majority of vehicles on European roads will be fully automated – that is to say ‘driverless’ – clearly this will have substantial ramifications for the transportation sector and the greater economy. Autonomous vehicles will start adding 0.15 per cent Europe’s annual growth rate in the decades to come. As a result, the European (EU-28) gross domestic product will, cumulatively, be 5.3 per cent larger in the year 2050 than currently, by which time autonomous vehicles will have contributed a total of €17tn to GDP.

According to industry experts it is reasonable to assume that by 2022 autonomous vehicle sales will start substantially increasing. By 2038, 80 per cent of the vehicles on Europe’s roads will be fully autonomous, after which adaptation slows towards 2050.

Source: Freeing the Road: Shaping the future for autonomous vehicles

On the road the demand-side effects are likely to outweigh the supply-side effect. In other words, the travel cost reduction from autonomous vehicle will increase demand for travel more than it will improve efficient use of road infrastructure. Demand-side effects are mostly direct consequences of autonomous vehicle use to the consumer, whereas supply-side benefits are indirect benefits to overall productivity that are shared by society as a whole. The supply side is more relevant for productivity implications and this should be a ‘wake-up call’ to policymakers that need make AD count for everyone.

Autonomous vehicle technology will affect the entire population and thereby its consequences will be felt at all levels of government: from the mayor to the ministry. Government at all levels needs to be aware of the, ultimately positive but significant and potentially temporarily destabilising, economic consequences of so significant an economic revolution. Strong policy positions will be needed to adequately prepare and ensure Europe takes full advantage of the opportunities opening up and minimises the level of disruption, especially to the labour market where up to five per cent of the population will be directly affected.

Municipal and city officials are, perhaps, the most directly involved governmental actors. No matter where autonomous vehicles emerge first, they will offer the greatest advantages to cities with high population density – but perhaps also bring with them the greatest challenges. Urban centres are the cores of economic productivity, but simultaneously the areas most hampered by road congestion, available land and environmental constraints.

Autonomous vehicles have the potential to be a remedy to all three of these limitations, but will require decisive and consistent policy action to do so. On highways, more efficient use of road supply through road-trains can increase traffic throughput. In inner cities this benefit is limited and so efficiency gains are likely to be lower. However, for citizens in towns that have already accepted road pricing, such as London and Stockholm, it should be possible to get rid of road congestion once and for all with substantial cost saving to drivers and large additional improvements to other road users. How? Autonomous vehicle congestion pricing allows for a more direct form of pricing than current congestion zones. Prices would be calculated in real-time according to the travel distance and the current traffic situation and then transparently communicated to the user before using the vehicle. In this way, travel costs are fairer and more efficient than current ‘one-size-fits-all’ congestion zone prices. If such pricing is implemented correctly, more people can travel faster than currently as road use becomes more efficient and greater social equality could be achieved by using the additional revenue raised to improve infrastructure and public (automated) transport.

In cities especially, land is a scarce and costly resource. Autonomous vehicles can reduce on-street parking space and, in the long term, private car ownership. Municipalities should start now to take into account in their city planning the space that will become available in central locations, so as to utilise this space productively in the future. There is a large body of evidence that suggests that tax revenues can be maximised through the creation of green areas, public space and low-impact commercial use.

To make AD work for everyone, politicians need to organise a positive and honest public discourse on the benefits and pitfalls that involve the citizen, manufacturers and academia.

Photo credit: chombosan / Shutterstock.com