A Rapid Evidence Assessment of Road Traffic Demand Elasticities in the UK

Background

Economists use elasticity estimates to measure the responsiveness of demand for transport to changes in key factors such as fuel price and income. Understanding the implications of projected changes in economic and demographic trends on future road traffic levels is also important in informing strategic decision making in the transport sector.

Goals

The overall aim of this study was to gain a better understanding of the factors shaping road transport demand in the UK, for both passengers and freight, by reviewing the literature on elasticity of road traffic demand, with a particular focus on key economic and demographic factors: population growth, income growth and changes in fuel costs. The main objective of the review was to identify the elasticity estimates that were available in the literature with respect to these variables and, where evidence exists, to explore how these elasticity values have changed over time, if indeed they have changed at all.

Methodology

A rapid evidence assessment (REA) review aims to be a comprehensive, systematic and critical assessment of the scope and quality of evidence available in the literature. In this study, the REA covered two main strands of literature: articles published in peer-reviewed journals and conference proceedings, and ‘grey’ literature, which generally contains reports that have not been subject to a peer-review process. Further, it focused on studies that used UK evidence and on relevant international studies, particularly those that used UK evidence alongside evidence from other countries. Publications from 1990 or later were included. The review included both passenger and freight demand studies, but non-road modes were excluded.

Key Findings

We found that the range of estimated fuel price elasticity values reported in the studies in this review is quite narrow (-0.1 to -0.5), although a variety of data types and methodologies were used to obtain elasticity estimates. In the long run, fuel efficiency improvements lead to a smaller reduction in demand for a given price rise (the so-called rebound effect) that should result in a lower fuel price elasticity.

For passenger transport, reported income elasticity values are predominantly in the range 0.5 to 1.4. The evidence indicates that car ownership has a strong, positive, indirect effect on the income elasticity of demand. For freight transport, elasticity estimates of economic activity are mainly in the range 0.5 to 1.5 for an aggregate commodity sector but there the evidence suggests a much greater variation between sectors.

The evidence on changes in fuel price elasticities of car demand over time is limited. However, fuel price elasticity is expected to increase with fuel price and decrease with increasing real income, and these impacts could explain the changes observed. There is also limited evidence that income elasticities of car demand have decreased over time; two studies find that elasticity with respect to Gross Domestic Product fell after the year 2000. This could be explained by saturation in car ownership levels. For freight transport, the evidence appears to be mixed.

The study has highlighted a number of important gaps in the evidence base:

Much of the evidence for the UK on car traffic is rather old. This has implications for the use of elasticities in forecasting and strategic planning because of the mixed evidence on changes in these over time. An empirical study using more recent data is therefore recommended.
There is no information on population elasticities per se. However, a few studies include demographic explanatory variables such as urban density, population density, employment and age, from which it is possible to calculate a corresponding elasticity.
There has been little investigation of the factors that may be responsible for the decoupling of freight transport and economic activity seen in the 2000s. Although the share of van use increased significantly over the same period, there appears to be no evidence on the impact of this on demand for freight transport.