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In the Driver's Seat: Strategies for Managing Land Transport Externalities

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In this Explainer, find out...

  • What are positive and negative externalities?

  • How are externalities present in Singapore's land transport landscape?

  • How effective are policies used to address or amplify said externalities?


Often unnoticed, a hidden world of externalities unfolds beneath the surface of Singapore’s impeccable roads and seamlessly running trains. Beyond the apparent convenience and orderliness lies a complex web of unintended consequences, both positive and negative, that affect the city-state's residents, its environment, and its future. From combating traffic congestion to incentivising cycling, this Policy Explainer will delve into the world of externalities in Singapore's land transport, offering a glimpse into the challenges and innovations of a nation that thrives on its intricate transport infrastructure.

Externalities refer to the unintended side effects or consequences of economic activity that affect individuals or entities not directly involved in that activity. Externalities can be positive (beneficial) or negative (harmful) and occur when the cost or benefit of a decision is not fully borne or enjoyed by the parties involved in the transaction. As the name suggests, externalities have impacts on third parties beyond the context of simple buyer-seller relationships in a given transaction. Singapore's Government plays a significant role in addressing and managing externalities through policies and regulations. They strive to maximise the positive externalities while minimising the negative ones to maintain the overall well-being of the population. This article shall address policies to address externalities in the context of land transport.

Externalities in Land Transport

Negative Externalities: Pollution and Congestion

When individuals drive cars that run on fossil fuels, they emit air pollutants such as carbon monoxide, nitrogen oxides, and particulate matter. Residents who live along major arterial roads, for instance, in Housing & Development Board (HDB) flats, may develop respiratory problems and other health issues due to constant exposure to these pollutants.¹ Yet, the cost of health problems (e.g., medical expenses) is not shouldered by drivers, thus representing a negative externality. In this case, there is also no incentive for drivers to amend their driving patterns, since they are only concerned about the personal benefits (e.g., convenience) and costs (e.g., fuel prices) from driving, and fail to consider its impact on members of society.

Negative externalities may also result from traffic congestion. For instance, congestion will lead to longer travel times for other road users, which translates to fewer hours spent doing productive work. In addition, transport costs may rise for businesses — delivery companies, for example, may need to allocate more resources, including fuel and labour, to complete deliveries in congested areas.

Positive Externalities: Cycling

Cycling is a mode of land transport which can be said to generate positive externalities, namely benefiting the government as well as members of society who are not engaged in cycling.

As an aerobic activity, cycling generates a multitude of health benefits from improved mental well-being to increased cardiovascular fitness. Long-term health benefits reduce the burden placed on healthcare systems, as individuals who engage in regular physical activity like cycling are less likely to suffer from obesity, hypertension, and other lifestyle-related illnesses. Reducing the prevalence of chronic illnesses, in line with the Government’s recent prioritisation of preventive healthcare,² can help moderate rising healthcare costs which are set to increase in the coming years.³ This can also create opportunities to reallocate healthcare resources to those who need it most, thereby keeping the healthcare system sustainable.⁴

Further, choosing to cycle is in effect choosing against other modes of transport, for instance, driving. For every commuter who decides to cycle instead of drive, traffic conditions become increasingly favourable, potentially reducing congestion. This benefits users who drive or take public transport because the time saved travelling can be used productively elsewhere. This also benefits other members of society, regardless of their chosen mode of transport, in terms of environmental benefits. For instance, improved air quality allows one to suffer less from its harmful health consequences.

Mitigating Negative Externalities with the Electronic Road Pricing System

Singapore has pioneered some innovative policies to deal with congestion and pollution arising from excessive usage of cars. The focal point of this section is the Electronic Road Pricing (ERP) System, which was initially introduced in 1998 and has subsequently been adopted internationally.⁵ ⁶

How the ERP System Works

The ERP system in Singapore is a dynamic road pricing mechanism that helps manage traffic congestion during peak hours by charging vehicles for using certain roads at specific times.

The mechanisms of the ERP system are as follows:⁷

  • ERP Gantries: Throughout Singapore, there are designated points called ERP gantries installed on roads and expressways. These gantries are equipped with various sensors, cameras, and a toll collection system.

  • Variable Pricing: The ERP system uses variable pricing, meaning the toll charges change based on the time of day and the level of traffic congestion on a particular road. Prices are typically higher during peak hours and lower during off-peak times.⁸

  • In-Vehicle Units (IU): Vehicle owners in Singapore are required to have an In-Vehicle Unit (IU) installed in their vehicles. The IU is a device that links with the ERP gantries and deducts the appropriate toll amount from the driver's cash card or prepaid card linked to the IU.

  • Real-Time Monitoring: The ERP system constantly monitors traffic conditions in real-time through the sensors and cameras at the gantries. If traffic congestion exceeds a certain threshold, the ERP system automatically raises the toll charges for that specific road segment.⁹

  • Communication with Drivers: The ERP gantries display the current toll charges on electronic signs well in advance of the toll point, allowing drivers to make informed decisions about whether to use the road or find an alternative route.

  • Billing and Enforcement: The toll charges collected from drivers are automatically deducted from their prepaid cards linked to the IU. Drivers who do not have sufficient funds on their cards or refuse to pay the toll receive fines, and enforcement agencies use the gantry's cameras to identify and fine non-compliant drivers.

The ERP system is a demand management tool that encourages drivers to consider alternative routes, modes of transportation, or travel during off-peak hours. It helps reduce traffic congestion and the associated negative externalities, such as longer travel times, increased fuel consumption, and air pollution.

Evaluating ERP’s Impact

Drivers may also opt to take longer routes to avoid ERPs, increasing pollution caused by drivers. ERP measures can also be argued to be a temporary ‘keyhole’ solution. It does not address the growing demand for cars,¹⁰ which ultimately increases negative externalities. The environmental impact of car usage may thus not be addressed adequately by ERPs.

Nonetheless, it is important to note that while there are downsides and criticisms associated with Singapore's ERP system, it has been effective in reducing congestion and improving traffic flow.

Alternative to the ERP

Singapore has also opted to use a range of other policy measures to deal with negative externalities in land transport.

There have been subsidies rolled out to encourage the adoption of Electric Vehicles which produce lower emissions than Internal Combustion Engine Vehicles. Mixed-use estates are also developed to reduce the usage of cars for inter-town travel, as residential, commercial, and recreational amenities are nearby.¹¹ Public transport in Singapore has also been upgraded constantly to serve as a viable alternative to car usage, with sustained efforts to increase the connectivity of the Mass Rapid Transit (MRT) system and improve the quality of rides.¹²

Alongside the ERP, these measures form a robust set of incentives and disincentives to prevent negative externalities from imposing large-scale costs to society.

Reaping Positive Externalities with Active Mobility Police

At the heart of policies which promote cycling is the need to develop effective incentives to attract more cyclists. From widening cycling paths to improving end-of-trip amenities, these policies aim to enhance the accessibility, appeal and convenience of cycling.

Two such policies include the Islandwide Cycling Network and the Walking and Cycling Plan.

1. Islandwide Cycling Network

Announced in 2020, the Islandwide Cycling Network Programme (ICN), is an active mobility plan pushed out by the Land Transport Authority (LTA). The 10-year programme aims to facilitate the construction of cycling path networks.¹³ By 2030, the nation’s cycling path network is set to be expanded to 1,320 km, more than double the 525 km available now.¹⁴ The policy seeks to increase connectivity within HDB towns, aiming to ensure that by 2026, eight in ten HDB residents will live no further than 250 metres from their nearest cycling path network.¹⁵ With more extensive intra-town cycling paths, commuters should experience significant improvements in connectivity from their homes to major transport hubs such as MRT stations and bus interchanges.

Furthermore, robust connectivity to key amenities like community centres, food centres, shopping malls and schools reduces travel time, further heightening the appeal of cycling. For several towns with limited connectivity (e.g. Queenstown, Marine Parade, Serangoon etc.), LTA has also started projects to widen existing footpaths to accommodate multimodal uses.¹⁶

These infrastructural upgrades holistically aim to improve the connectivity and permeability of Singapore’s transport network, rendering cycling an increasingly attractive mode of transport for commuters. With greater tangible private benefits experienced in terms of time and money saved, greater uptake of cycling will ensure the realisation of positive externalities.

2. Walking and Cycling Plan

Rolled out by LTA and the Urban Redevelopment Authority (URA), the Walking and Cycling Plan (WCP) was first introduced in 2016, with new changes made effective from February 2019.¹⁷ The policy states that new developments — within 400 metres of major transport nodes, situated in gazetted car-lite areas, or are retail, office or mixed-use developments — are required to submit a WCP together with their new development application.¹⁸ Developments affected include residential, retail, medical, commercial, recreational and educational ones.¹⁹

Under the WCP submission, developers are required to consider and incorporate elements which:²⁰

  • Facilitate convenient cyclist and pedestrian access from neighbouring transport facilities;

  • Minimise conflict between pedestrians, cyclists and drivers;

  • Provide sufficient and accessible end-of-trip (EOT) facilities;

  • Consider the needs of children, elderly and those who are mobility-challenged.

To assist developers, a comprehensive WCP guide was produced by LTA and URA in conjunction with other agencies such as JTC Corporation (JTC) and National Parks Board (NParks).²¹ The guide, published in 2018, provides a common set of design guidelines for implementing effective transport networks, ranging from roadside design elements to crossing features.

The WCP is a framework anticipating the needs of cyclists as well as strategically incorporating active mobility infrastructure into urban design. They help create a seamless and more comfortable commute, making cycling a more enjoyable and fuss-free activity, in turn allowing the positive externalities of cycling to be reaped.

Evaluating Active Mobility Policies

While the relevant government agencies have put considerable thought into their policy and infrastructural designs, these strategies may take a long time to materialise. For the many Singaporeans reliant on other familiar modes of transport already offering significant convenience, overcoming the inertia of switching to cycling may not be a simple feat.

Moreover, cycling is generally viewed as a leisure activity rather than a mode of transport, with only 1 - 2% of commuters using it as a principal mode of transport.²² Tapping into the positive externalities thus requires policies to shape commuters’ perception of the benefits of cycling beyond leisure. This necessitates an extensive understanding of commuters’ mindsets and targeted infrastructural improvements, which the ICN and WCP aim to provide. However, given the enormity of the task, it seems that a significant amount of time and effort is needed for tangible shifts in lifestyle to be observed.

When considering transport planning, Singapore also experiences a unique set of countervailing forces. In light of the notoriously humid climate, Singaporeans may be averse to adopting cycling as a form of daily commute.²³ Even with EOT facilities which help alleviate the discomfort of riding in unfavourable weather, commuters may rather avoid the hassle, choosing other transport options instead. Seen this way, policies intended to enhance the private benefits of cycling may be limited in their effectiveness.

Furthermore, conflicts between cyclists, pedestrians and drivers as a result of shared paths and roads give rise to challenges which may deter cycling. For instance, when it comes to road sharing, the friction between drivers and cyclists is a perennial problem exacerbated by increasing antagonism and impatience towards cyclists.²⁴


Singapore's approach to dealing with externalities in land transport illustrates her commitment to creating a sustainable, efficient, and environmentally responsible transportation system. By implementing a multifaceted strategy that addresses both the positive and negative consequences of land transport, Singapore has set a global benchmark in urban mobility management.²⁵

Improved cycling routes, the ERP system and end-of-trip facilities all go hand-in-hand in tackling the issue of externalities in land transport. Constant refinement of such policies is necessary to ensure externalities are properly dealt with.

MAJU PE_2023_29_Land Transport Externalities
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This Policy Explainer was written by members of MAJU. MAJU is an independent, youth-led organisation that focuses on engaging Singaporean youths in a long-term research process to guide them in jointly formulating policy ideas of their own.

By sharing our unique youth perspectives, MAJU hopes to contribute to the policymaking discourse and future of Singapore.

¹ Denchak, Melissa. 2022. “Fossil Fuels: The Dirty Facts.” NRDC.
² Ministry of Health. 2022. “The White Paper on Healthier SG.” Healthier SG.
³ Khalik, Salma. 2022. “Greater focus on preventive care to rein in soaring healthcare costs in S'pore: Ong Ye Kung.” The Straits Times, February 12, 2022.
⁴ Ministry of Health. 2022. “The White Paper on Healthier SG.”.
⁵ Jeffery, Simon, and Sarah Philips. 2007. “Q&A: The congestion charge.” The Guardian, February 19, 2007.
⁶ Kassirer, Jay, and Sharon Boddy. 2014. “Stockholm Congestion Pricing.” Tools of Change.
⁷ Land Transport Authority. 2022. ‘’Electronic Road Pricing’’.
⁸ Phang, Sock-Yong and Toh, Rex S.. Road Congestion Pricing in Singapore: 1975-2003. (2004). Transportation Journal. 43, (2), 16-25.
⁹ Land Transport Authority. n.d. “What is ERP?” Accessed October 23, 2023.
¹⁰ Tjoe, Lee N. 2023. “COE premiums continue rising; higher Nov-Jan quota unlikely to cool car demand, say dealers.” The Straits Times.
¹¹ Tan, Christopher. 2021. “Are electric vehicles really greener? - Singapore.” The Straits Times, June 18, 2021.
¹² Andres, Gabrielle. 2023. “Singapore's MRT network: How has it evolved and what will it look like by 2030?” CNA.
¹³ Ministry of Transport. 2020. “Factsheet: Islandwide Cycling Network (ICN) Programme to Improve Safety and Connectivity for all Path Users.” LTA.
¹⁴ Ministry of Transport. n.d. “Cycling - Singapore.” Land Transport Authority (LTA). Accessed October 19, 2023.
¹⁵ Lam, Pin Min. 2020. “Building a more connected city.” People's Action Party, March 13, 2020.
¹⁶ CNA. 2023. “New cycling paths to be built in 7 towns in Singapore.” CNA, January 12, 2023.
¹⁷ Urban Redevelopment Authority. 2018. “Expansion of the Walking and Cycling Plan Submission.” URA.
¹⁹ Ibid.
²⁰ Urban Redevelopment Authority. 2016. “Submission of Walking and Cycling Plan for Selected Commercial, Retail, Business Park and School Developments.” URA.
²² Rajas López, Maria Cecilia, and Yiik Diew Wong. 2017. “Attitudes towards active mobility in Singapore: A qualitative study.” Case Studies on Transport Policy 4, no. 5 (December): 662-670.
²³ Chng, Samuel. 2022. “Commentary: We need more than bike lanes for cycling to gear up in Singapore.” CNA, January 1, 2022.
²⁴ Ong, Justin. 2021. “The Big Read: Road wars — will the conflict between drivers and cyclists ever end?” Today Online, January 9, 2021.
²⁵ Jeffery, Simon, and Sarah Philips. 2007. “Q&A: The congestion charge.” and Kassirer, Jay, and Sharon Boddy. 2014. “Stockholm Congestion Pricing.”

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