Major capital investment in highways, public transportation systems, waterways, and airports are currently funded, in part, through various taxes and fees on users, such as fuel taxes or sales taxes; landing fees and docking fees; and tolls on certain roads, tunnels, and bridges. However, these revenue-raising instruments do not always provide strong incentives for efficient use of transportation infrastructure. For example, the tax rates on gasoline, which are the same regardless of whether vehicles are traveling during congested or uncongested periods, provide no incentive for travelers to use the infrastructure more efficiently. Similarly, landing fees at airports that are based on aircraft weight help create incentives for airlines to shift to smaller, lighter aircraft providing more frequent service, which results in increased demand for runways at peak times and therefore increased congestion. Due in part to increasing volumes of traffic, as well as these built-in disincentives to the efficient use of the transportation infrastructure, congestion on our nation’s highways, airways, and waterways remains a national problem. On already crowded roadways, passenger vehicle travel is expected to grow by almost 25 percent this decade, and freight movement by trucks may grow by a similar amount. In the nation’s air transportation system, before the terrorist attacks on September 11, 2001, an unprecedented number of delays in commercial airline flights occurred—a substantial part of which were due to airport and airspace congestion, particularly during peak morning and evening hours. At 31 of the nation’s busiest airports, 28 percent of the domestic flights arrived late in 2000. While flight congestion declined significantly with reduced traffic after the attacks, a more robust economy and less public apprehension about flying will likely lead to renewed demands on the air transport system. At locks on our inland waterways and at major seaports, congestion has also been growing. For example, the U.S. Army Corps of Engineers estimated that 15 key locks would exceed 80 percent of their capacity by 2020 as a result of the expected growth in freight travel, as compared to 4 locks that reached that level in 1999, resulting in significantly increased delay. Numerous methods can be used to address congestion, including building new infrastructure, improving maintenance and operation of infrastructure, and using the existing infrastructure more efficiently through demand management strategies, including pricing mechanisms. Experts with whom we talked said that consideration of a full range of these methods is likely necessary to ease our nation’s transportation congestion. In theory, congestion pricing, as one of these methods, is useful for mitigating the delay costs of congestion. If highway, aviation, and waterway users were charged extra for peak-hour use, some would shift to less busy times, or make other adjustments, thereby alleviating delay at the peak periods. Many other areas of the economy frequently use peak-period pricing mechanisms when demand varies considerably by time of day or season. Electricity providers, for example, often charge higher prices at peak periods and lower prices when demand is reduced. Other industries with common peak-pricing practices include telecommunications, airlines, and hotels and resorts. In addition, Amtrak and some transit systems use peak- period pricing. In theory, using congestion pricing has the potential to enhance economic efficiency, as well as provide other benefits, such as providing market signals that can guide capital investment decisions, and generating revenue to help fund such investment directly from users of the system. There are several approaches to implementing congestion pricing on roads and at airports. However, incorporating pricing into our transportation systems involves overcoming several implementation challenges, such as current restrictions on using congestion pricing on our highways and on runways, and equity and fairness concerns. Economists generally believe that charging automobile, truck, vessel, and aircraft operators surcharges or tolls during congested periods can enhance economic efficiency by making them take into account the external costs they impose on others in deciding when, where, and how to travel. In congested situations, external costs are substantial and include increased travel time, pollution, and noise. The goal of efficient pricing on public roads, for example, would be to set tolls for travel during congested periods that would make the price (including the toll) that a driver pays for such a trip equal or close to the total cost of that trip, including external costs. In theory, these surcharges could help reduce congestion and the demand for road space at peak periods by providing incentives for travelers to share rides, use transit, and travel at less congested (generally off-peak) times or on less congested routes. Peak-period pricing may have applicability to other modes as well. For example, congestion pricing for using locks on our nation’s inland waterways might be a way to reduce delays experienced by barge operators. Similarly, congestion pricing at commercial airports—that is, charging higher landing fees during congested periods—would cause aircraft operators, both airlines and general aviation operators, to consider external costs in making their decisions. As a result, there would be incentives to shift some operations to off-peak hours or secondary airports or to provide the same carrying capacity by operating fewer but larger aircraft. In addition to increasing the efficiency with which current transportation infrastructure is used, congestion charges may be helpful in guiding capital investment decisions for new facilities. As congestion increases, the delay cost that an additional user of the system causes for other users also increases. If congestion charges are set such that they reflect external costs, then as congestion increases, congestion surcharges will increase. Rising surcharges provide signals of increased demand for specific increases in physical capacity, indicating where capital investment decisions to increase capacity would be most valuable. At the same time, congestion charges will provide a ready source of revenue for local, state, and federal governments and transportation facility operators to fund these investments in new capacity that, in turn, can reduce delays. In some cases and over a longer period, in places where external costs are substantial, and congestion surcharges are relatively high, this form of pricing might influence land-use plans and the prevalence of telecommuting and flexible workplaces. Congestion pricing could be applied to transportation systems in a variety of ways, and there are several possible approaches related to which facilities are priced, how the price is set, and how the toll is collected. In one possible form of congestion pricing for public roads, tolls would be set on an entire roadway or road segment during periods of peak use. In another form, sometimes known as value pricing, peak-period tolls would be set on only some lanes of a roadway, allowing drivers to choose between faster tolled lanes and slower non-tolled lanes. High-occupancy toll (HOT) lanes, under which drivers of single-occupancy vehicles are given the option of paying a toll to use lanes that are otherwise restricted to high-occupancy vehicles, are an example of value pricing. Fast and Intertwined Regular (FAIR) lanes is a recent proposal that is another variation of value pricing. Under the FAIR lanes approach, revenues generated from travelers using electronically tolled lanes would be transferred to travelers using adjacent non-tolled lanes on the same roadway. These transfers would be done through electronic transponders in the vehicles using the toll lanes, as well as the non-tolled lanes. Those in the non-tolled lanes would receive a credit equal to 25 to 50 percent of the current effective toll, which could then be used toward public transportation fares or toward the use of the toll lanes on another day. In this way, drivers in the non-tolled lanes would receive compensation for the additional congestion that may result from increased use of those lanes once tolls are placed on other lanes. In a third form of congestion pricing for public roads, known as cordon-based pricing, drivers would be charged a fee for entering a specific area of a city, such as a central business district, at peak hours. Two commonly mentioned methods of applying the concept of congestion pricing at airports are differential pricing and auctions. Under differential pricing, airports would set landing fees higher at times when demand for takeoff and landing slots exceeded their availability, and lower at other times, in effect applying a surcharge for using the system at peak-demand periods. An auction approach would allow airports to periodically auction a fixed number of takeoff and landing slots—equal to the airport’s capacity—to the highest bidders. For example, an airport, in conjunction with the Federal Aviation Administration, could determine its per-quarter- hour takeoff and landing capacity, and a competitive bidding process among carriers could determine fees during each period, which would also result in surcharges for using the system at peak-demand periods. Congestion pricing tolls could be levied using either a predetermined or variable approach. Under the predetermined approach, drivers would pay tolls that are preset and fixed according to the time of day they travel. In contrast, under the variable approach, drivers would pay tolls that vary according to the level of congestion on an affected roadway. For either approach, the amount of the toll to be levied would likely be set by state or local officials, or other toll facility operators, based on information from roadway usage and traveler surveys. The toll structure may also be influenced by the judgment of the toll facility operators. These tolls could then be adjusted upward or downward based on the use of the toll facility in relation to the optimal flow of traffic on the facility. Electronic methods of collection from users of public roads offer vast increases in efficiency compared to traditional tollbooths, which are labor intensive and relatively expensive to operate, and create congestion as drivers line up to pay their tolls. And, over the past decade, electronic road pricing technology has become more reliable and, as a result, more widely adopted on many toll facilities. According to a report issued by the Transportation Research Board, technologies that are currently used at some toll facilities to automatically charge users could also be used to electronically collect congestion surcharges without establishing additional tollbooths that would cause delays.