Building Better Transport Systems Part 3 - Direct Costs, Hidden Costs: The Real Transport Bill
Key Takeaways
- Car-dependent transport systems have a high overall cost with low direct costs but high hidden costs.
- An alternative transport system where driving paid a much greater proportion of the hidden (social) costs it creates would have a much lower overall cost.
- The debate over who pays for transport is built on a myth: driving isn't self-funding, and public transport's need for subsidy isn't really about inefficiency or low demand.
- Driving costs the world an estimated USD 9.3 trillion a year, but drivers themselves cover only USD 2.1 trillion of it directly, and even that figure likely understates the true cost.
- Society pays the remaining USD 7.2 trillion through crashes, pollution, road infrastructure, and parking, funded by higher taxes or cuts to other public spending.
- Public transport subsidies exist largely because driving is subsidised; remove the car subsidy, and ridership (and fare revenue) would rise sharply.
- Whether the current system "works" depends entirely on who you are: committed drivers benefit, while non-drivers, reluctant drivers and often traditional retail businesses lose out.
- Non-drivers, a growing share of the population as it ages, bear many of the system's costs while getting the least benefit from it.
- Freight faces the same trade-off as private travel: subsidised driving lowers direct costs but drives up congestion and taxes.
What Next?
Do you understand the full costs and revenues from your transport system?
Introduction
βDrivers pay their way. Public transport is subsidised." It's one of the most common cliches in public transport debates, but it misses so much.
Continuing my series on building better transport systems, this week I'm looking at what our motor-vehicle-dominant system actually costs, for people, for goods, and for the public purse and comparing it with a more multimodal alternative.
This matters because the debate over who pays for transport is full of misunderstandings on both sides. Drivers believe they're covering their own costs through taxes, tolls and car purchases. Public transport/transit advocates defend subsidies on social grounds: accessibility, equity, the environment, while quietly conceding that public transport "loses money." Both framings miss the bigger picture.
As I'll show, we already pay enormous costs for our transport system; we just pay most of them indirectly, through non-transport taxes, congestion, poor health and reduced opportunity, rather than directly at the point of use.
The Usual Debate
Strip the debate back to its bones, and it usually goes something like this. Drivers pay for themselves: they buy their own cars, their own fuel, and drive themselves around. They also pay fuel taxes, registration and tolls, which, the argument goes, cover the cost of the roads. Public transport, by contrast, is inefficient and needs constant taxpayer top-ups just to stay running.
Public transport advocates rarely dispute the subsidy. Instead, they defend it on social grounds: accessibility for people who can't drive, lower emissions, less congestion, safer streets. It's a trade-off, the argument runs: we pay more so that everyone benefits.
Both sides are arguing from the same flawed premise: that driving is essentially self-funding and public transport is essentially a cost. Neither is true. Drivers are subsidised far more heavily than most people realise, and public transport's need for subsidy is largely a consequence of that.
To understand why, we need to look at what driving actually costs, and who actually pays for it.
The Real Cost of Cars
I've written before about the scale of subsidy built into driving, so I won't repeat it all here. But the headline numbers are worth restating.
Recent research puts the global cost of driving at USD 9.3 trillion. Drivers themselves cover just USD 2.1 trillion of that: car purchases, fuel, taxes, tolls, parking and running costs. The remaining USD 7.2 trillion, more than three-quarters of the total, is picked up by society: through crashes, pollution, road building and maintenance, and parking provision.
And that figure is likely conservative. It doesn't include the cost of congestion, or the long-term health costs of sedentary, car-dependent lifestyles.
These costs translate directly into government and taxpayer costs: emergency services, healthcare, infrastructure spending, and the tax revenue lost when people are killed or seriously injured in crashes and can no longer work. Every dollar spent covering these costs is a dollar governments must either raise through higher taxes or cut elsewhere.
And there's a second, less obvious cost sitting on top of this. The car-dependent system doesn't just cost taxpayers directly; it also drives up the cost of public transport.
The Real Cost of Public Transport
Public transport isn't subsidised primarily because it's run inefficiently, though plenty of systems could certainly be run better, and that's worth tackling in its own right. The primary reason public transport needs subsidy is the subsidy given to cars.
Think about what happens if that car subsidy disappears. Driving becomes more expensive, closer to its true cost, and far more people shift to public transport. With ridership rising, reasonable fares can cover a much larger share of operating costs. On well-run systems, subsidy needs would shrink significantly, and on some, disappear altogether.
That's not the end of the story, though. Lower subsidy costs free up money to reinvest in more services, better frequency, and expanded coverage, which draws in still more riders. It becomes a virtuous cycle rather than the vicious cycle too many systems have now, where poor service and coverage often discourage ridership.
In other words: public transport's dependency on subsidy isn't a standalone flaw in the system. It's a downstream symptom of the much larger subsidy we hand to driving.
Do These Subsidies Deliver Accessibility?
Put it all together, and what we have is an extraordinarily expensive transport system. People pay high taxes to cover its social costs, on top of the direct cost of buying and running a car, often because public transport simply doesn't offer a viable alternative. Meanwhile, we invest so little in walking and cycling infrastructure that those modes remain unappealing even for short trips for many people.
Expense alone wouldn't be such a problem if the system delivered strong returns, particularly in the form of accessibility: how easily people and goods can reach the destinations, services, and opportunities they need.
So does it? The answer depends heavily on who you are. To see why, it's worth breaking the population into four broad segments.
Committed drivers would drive no matter what, either by preference or necessity, such as tradespeople who need their vehicle and tools on multiple job sites each day. The current system works well for them. Yes, they pay higher taxes to cover driving's social costs and to prop up public transport, but they receive a far larger subsidy in return: paying only a fraction of the true costs they impose. Congestion limits their accessibility during peak times, but most still prefer this to the alternative: paying more directly, say through a congestion charge.
Non-drivers, people who are too young, too old, living with a disability, unable to afford a car, or otherwise unable to drive, fare far worse. They typically lack good alternatives: limited public transport, poor footpaths, few safe cycling routes. They still contribute to the costs drivers impose on the system. They pay higher prices in shops, as parking minimums and congestion push up the cost of moving goods. And as land use has become increasingly car-oriented, jobs and amenities have sprawled further away, making them harder to reach without a car. This segment is only growing as populations age.
The "prefer not to drive" would choose another mode for many trips if it were genuinely viable. They also lose out under the current system. They enjoy high accessibility by virtue of owning a car, but not the mode choice they'd actually prefer, since alternatives are poorly catered for. They end up paying for a car they'd rather use less, or give up altogether, while still contributing to the high taxes the car-dependent system demands.
Non-committed drivers would switch to another mode if it worked well enough for them: decent public transport, dedicated cycle lanes, or a nudge from rising fuel prices or a congestion charge. Right now, this group pays the full cost of car ownership and operation, but also benefits from heavy subsidy and relatively strong accessibility. The real question for them is: compared to what? In a system where drivers covered their full costs and alternatives improved, this group would drive far less, pay lower taxes as social costs shifted onto drivers, and see their accessibility improve as congestion eased and viable alternatives opened up.
Of course, the size of each segment varies enormously, inner city versus outer suburb, regional versus national, depending on local land use, economic development, demographics and culture.
But the pattern holds across most contexts: significant numbers of people are made worse off both financially, through higher taxes and driving costs, and in terms of accessibility, by our current car-dependent system, compared with a genuine multimodal alternative.
What About Freight Costs?
We've looked at the cost-accessibility equation for people. What does it look like for goods?
Freight benefits from road subsidies in much the same way private cars do: shifting social costs onto others rather than paying them directly. That keeps direct costs down, but the benefit is offset in several ways.
First, freight gets caught in the same congestion that driving subsidies create, reducing accessibility and pushing up costs. Second, businesses pay higher taxes than they otherwise would, to help fund the wider transport system. Third, it reshapes business models: the boom in home delivery is itself underwritten by subsidies to driving. If you've wondered why so much town-centre retail is struggling, this is a big part of the answer.. Remove the subsidy, and delivery demand would fall as prices rose to reflect real costs. Fourth, the savings households would gain from driving less and paying lower taxes wouldn't simply sit unspent; much of it would flow into buying more, and more expensive, goods and services.
So would business come out ahead or behind? It depends. Transport costs would rise, even accounting for reduced congestion, given the scale of social costs that need to be recovered. But that would be, at least partially, offset by lower business taxes. Supply chains wouldn't just absorb the higher costs; they'd adapt, shifting more freight onto rail. Delivery-dependent businesses would likely be worse off. But traditional bricks-and-mortar retail, along with coffee shops, entertainment venues and other places people physically visit, could benefit significantly as foot traffic returns.
In short, we'd be trading a low-direct-cost, high-indirect-cost system for a high-direct-cost, low-indirect-cost one, the same shift we've seen play out for people, now playing out for goods.
Where Does This Leave Us?
Right now, we have a low-direct-cost, high-indirect-cost system. So what happens if we shift that balance?
Raising direct costs lowers indirect costs, but not on a simple 1:1 basis. A dollar increase in direct charges should reduce indirect costs by more than a dollar as people reduce the amount they drive: less congestion, fewer roads needed, fewer crashes, better public health, less parking to provide, and shrinking public transport subsidies as ridership and fare revenue rise.
We'd also expect better economic outcomes. People currently locked out of jobs by car dependency and inadequate public transport would gain access to work, entering the workforce or finding roles that better match their skills, making them, and the economy, more productive. Businesses would likely benefit too, as taxes fall and households have more disposable income to spend, although sectors that lean heavily on the current subsidy, home delivery and e-commerce, for instance, may find themselves worse off.
For our four segments, that shift plays out differently:
- Committed drivers β higher direct charges, only partly offset by lower taxes and less congestion. Net financial losers.
- Non-drivers β better accessibility through improved non-car modes, plus lower taxes. Net financial winners.
- Prefer not to drive β better accessibility, the option to give up a car (or a second car), and lower taxes. Net financial winners.
- Non-committed drivers β higher direct driving costs, offset by switching to cheaper modes and lower taxes. Modest net financial winners.
From government's side, the picture is simpler: overall spending falls, giving policymakers a genuine choice: cut taxes, reinvest in other priorities, or some mix of both.
Of course, whether any of this actually happens is a different question entirely. People are fiercely protective of subsidies they receive at others' expense, and vocal when those subsidies are threatened, whether in transport or anywhere else. Given that committed drivers make up a substantial share of the population in most places, it's little surprise that few jurisdictions have made serious moves to wean people off driving subsidies. I'll take on that political conundrum in a future post.
Conclusion
The debate over who pays for transport is usually framed as a simple binary: drivers pay their way, public transport doesn't. But once you look at the real numbers, a different picture emerges. Driving imposes high social costs that dwarf what drivers pay, and these subsidies force governments to subsidise public transport for it to continue to exist.
Shifting from a low-direct-cost, high-indirect-cost system to a high-direct-cost, low-indirect-cost one shrinks the total bill. Less driving means less congestion, fewer roads to build and maintain, fewer crashes, better health outcomes and lower public transport subsidies.
It's also not a story where everyone wins equally. Committed drivers lose out financially, even as their day-to-day driving experience improves. Non-drivers and those who'd prefer not to drive come out ahead on both accessibility and cost. Non-committed drivers land somewhere in the middle, modest net winners. Governments, meanwhile, can lower taxes, reinvest elsewhere, or both.
None of this makes reform straightforward. The people who benefit most from the current system's subsidies are often its most vocal defenders. That's a political problem, and I'll turn to it later in this series, but next week we'll consider another lens for building better transport systems.