Roads in Australia's major cities are becoming increasingly congested. The latest ABS data shows that between 2001 and 2005, the number of registered motor vehicles grew by 17 per cent in Queensland, 12 per cent in New South Wales and 10 per cent in Victoria. This growth in motor vehicles in starting to cost us, with a report by the Centre for International Economics showing that in Sydney, reliance on motor cars is costing $18 billion per year in congestion, accidents and air pollution.

Realising that our cities cannot sustain such constant increases in car usage, the debate about transportation options has focused on ways of relieving congestion burdens by examining the relationship between public transport quality and car usage. Public transport advocates have called for increased investment in public transportation to improve service quality, frequency and so encourage car users to catch trains, trams or buses. However whilst such indirect strategies for controlling car usage have been given significant attention, direct strategies have been largely ignored. One such direct strategy is a tradable car permit scheme.

Thanks to Scratch.

A tradable car permits scheme would be similar in many ways to carbon emission trading schemes already being implemented around the world as a way of tackling industrial pollution. Essentially it is a means of assigning property rights in car usage as a mechanism to control the increasing number of cars on our cities' roads. Under the scheme, the owner of every car currently registered in a particular state is given a permit. These permits are tradable, meaning they can be bought and sold just like other forms of property. Each permit gives the owner the right to use one car for the duration of their ownership of that permit.

To illustrate how the scheme works, take the example of an average suburban family with two parents and one child. As each adult in the household currently owns a car, they would each receive a usage permit. In effect there is no change to their right to use their cars provided they hold onto the permits. When their child ages and wants to buy his or her own car, they must obtain a permit allowing them to use this car. Perhaps a grandparent has recently sold their car and therefore has a spare permit which they are willing to give to their grandchild, or they may need to look further afield and purchase the permit at the market price.

Such a scheme has three main advantages. Firstly, it limits car numbers to their current levels. This will lessen the pressure put on our roads in the future. Secondly, it imposes an additional cost on car users which then encourages them to shift to using public transport. Thirdly if car permits replace registration charges, the cost of purchasing a permit is more efficient that the cost of paying registration charges. This is because the cost of a permit is dependent on the demand and supply of such permits and is therefore flexible, unlike registration charges which are generally set by the government and therefore largely unresponsive to changing levels of demand for cars. The government could tax the sale of permits to make up for any loss of any government revenue caused by the abolition of registration charges.

Whilst a tradable car permits scheme won't solve all the challenges facing our cities' transport systems, it would provide an effective way of limiting the number of cars in our cities. Of course, to ensure that city residents have sustainable transport options available to them we will still need to continue to improve public transport systems. Whilst we are in the middle of the debate as to how to do that, we also need to make progress on the debate about how to limit car use. Considering a tradable car permits scheme is a step in the right direction.