Subsidies Examples: Investment in Public Transportation

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Transport subsidies are significant in global economic terms. In the mid-1990s, transport subsidies amounted to approximately 0.85% of the global GDP. Depending on their design, transport subsidies may either increase or decrease GHG emissions: Subsidies on fossil fuels increase GHG emissions by reducing the cost of modes of transport that rely on fossil fuels, while subsidies on public transportation can decrease GHG emissions. Public transportation is the most heavily subsidized form of transportation. Suburban and regional passenger rail services are especially heavily subsidized: Fares cover only 25% of the cost in the United States and 50% of the operating cost in Europe.

 

Public transportation subsidies decrease the price of public transportation and result in the use of transport above its equilibrium value. The net effect of public transportation subsidies has not been quantified; increased use leads to increased GHG emissions from public transportation, but increased use may also lead to decreased GHG emissions from other modes of transportation.

 

Utilization of a single policy measure tends to have a modest effect on GHG emissions from transportation. Subsidies are most effective when used as part of a combination of market and regulatory policies to improve transit service. Investment in public transport facilities is particularly effective for developing countries that are building up their transportation systems.