What might be the economic implications of autonomous vehicles?

Autonomous vehicles could change our urban spaces and transport systems by altering commuting patterns, improving safety and decreasing congestion and emissions. Rapid advancements in artificial intelligence have the potential to accelerate these trends.

The Automated Vehicles Act, which became law on 20 May 2024, means that self-driving vehicles could be on the UK’s roads by 2026. Their introduction – and expansion – could change how people and goods in the UK get around.

Understanding how this new technology interacts with society will be fundamental to assessing its economic impact. Further, the UK government is seeking to understand the policies required to ensure that connected autonomous vehicles (AVs) can support sustainable economic growth across all regions of the country and support the transition to net-zero carbon emissions.

AVs are those that can operate and navigate without human intervention, such as self-driving cars, lorries, buses, autonomous delivery robots and drones. The level of automation ranges from zero (no automation) to five (full automation). In contrast with traditional cars, AVs rely on sensors, cameras, radar systems and artificial intelligence to drive, make decisions and create a safer environment that improves mobility.

One study for the United States estimates that the economic gains from AVs could reach $936 billion per year due to savings from reduced accidents and increased productivity.

A similar study for the UK estimates that the benefits could reach £51 billion by 2030. These come through consumer savings, such as reduced travel time, lower transport costs, increased telecommunication data traffic, taxation and improved safety.

How might AVs change transport and mobility?

The transport and logistics sectors are likely to be significantly affected by the introduction and growth of AVs.

AVs are expected to change urban mobility – how people get around in cities – with transport and logistics firms likely to be the first adopters due to opportunities to reduce costs and increase efficiency and safety (Fagnant and Kockelman, 2015; Correia and van Arem, 2016).

One key source of savings comes from the elimination of the need for human drivers, which will significantly reduce labour costs. In addition, firms can save on operational costs, as AVs can reduce maintenance costs and lower insurance premiums and optimise fuel consumption (Webb, 2019). Fuel consumption savings apply to AVs that use traditional combustion engines – although there is an overlap between AVs and electric vehicles (EVs), some still using petrol/diesel, some hybrid and some powered by hydrogen fuel cells.

AVs can also operate 24/7, resulting in faster deliveries, thus increasing overall productivity and customer satisfaction. The ability to handle higher volumes of goods at all times could reshape the entire logistic landscape, and help firms to cope with higher demands from e-commerce markets (Rai et al, 2022).

But delivery is not as a simple process as one might think. Last-mile deliveries are known to be one of the greatest challenges for companies and AVs may offer a potential solution. This step – when a parcel is moved from the warehouse to its final destination, usually a residence or retail store – is the most expensive part of the delivery process. To keep up with increasing consumer demand for fast delivery, firms need to make it more efficient.

With their ability to optimise delivery routes and operate faster and more efficiently, firms can explore the integration of AVs and drones into their operations to address last-mile delivery challenges and offer improved customer experience. For example, autonomous drones and robots have the capability to deliver packages to remote or inaccessible locations that lack proper transport infrastructure (Patella et al, 2020).

AVs are also likely to have profound implications for personal mobility. They offer the potential to improve mobility for individuals who are underserved by the current transport system or facing mobility barriers, such as older people, those with disabilities and non-drivers (Sanbonmatsu et al, 2018).

AVs also can reduce transport costs, thereby improving mobility for middle and lower-income groups. This enhanced mobility and increased accessibility should allow socially marginalised people to participate more in society in several ways, including accessing employment opportunities and participating in leisure activities (Faber and Lierop, 2020).

Fleet-based shared automated vehicles – provided by private companies – are expected to offer low-cost, on-demand door-to-door services that could complement traditional public transport. Specifically, they could improve access to first- and last-mile connections or substitute for public transport in areas where provision is limited (Yap et al, 2016).

Further, autonomous public transport systems can provide more equitable access for all community members. Automated public transport, such as metros and bus rapid transport (BRT), can improve punctuality and increase the frequency of the service, using the infrastructure more efficiently (Begg, 2014).

What’s more, automated on-demand public transport provides ride-sharing services without a fixed timetable or routes, and that can serve users, particularly as a first- and last-mile connection to the main transport services (Ainsalu et al, 2018). This inclusivity can foster better economic opportunities and improved wellbeing.

Despite the potential benefits, AVs are expected to disrupt employment and sectors such as public transport, taxi and delivery services, potentially resulting in job losses for workers in these industries. As automated systems replace human drivers, there will be a need for retraining programmes to help displaced workers make the transition to new employment opportunities.

This shift may exacerbate existing inequalities, as workers with lower education levels and fewer transferable skills may find it more challenging to adapt to new roles in the labour market. To deal with this disruption, policy-makers should focus on education, training and re-skilling opportunities.

How can AVs drive economic growth and boost productivity?

At the regional level, AVs could improve accessibility by reducing transport costs. It is anticipated that the widespread adoption of AVs will alleviate congestion and significantly decrease travel times.

This is due to the ability of AVs to communicate and optimise traffic flow, reduce human errors and maintain constant speeds. AVs can use real-time data for optimal route planning, drive closely together safely (what is known as platooning) and integrate with smart traffic management systems. This enhanced efficiency, and reduced incidents, would lead to faster travel experiences.

As transport becomes more efficient and its opportunity cost decreases, individuals may choose to live further from urban centres, potentially increasing the value of properties located away from the city centre and contributing to urban sprawl (Glaeser and Kahn, 2004). Early research suggests that congestion improvements are more pronounced on motorways, where AVs could increase the existing capacity (van den Berg and Verhoef, 2016).

These developments in transport have an impact on economic activity and the spatial distribution of firms and individuals, as better connections between an economic centre and its periphery can lead to job and population relocations (Teulings et al, 2018).

In this way, a more cost-effective and efficient transport system allows firms and individuals to interact across locations and benefit from the spatial concentration of agglomeration economies, such as increased access to labour markets, knowledge exchange and scale economies (Laird and Venables, 2017; Graham and Gibbons, 2019). Improved transport enhances firms' productivity by reducing travel costs, providing better access to infrastructure and facilitating gains in production efficiency.

At a broader economic level, one study investigating the impact of AVs on accessibility finds that in an optimistic scenario, AVs are equivalent to 15 years of infrastructure investments, and that well-connected rural areas are more likely to experience the largest connectivity gains, while the effect in city centres is less strong (Meyer et al, 2017). It has become evident that this trend leads to increased urban sprawl (Glaeser and Khan, 2003).

Further, research focused on the United States shows that AVs could increase GDP by $214 billion, create 2.4 million new jobs and boost labour income by $90 billion (Winston and Karpilow, 2020).

What else do we need to know?

Additional potential contributions of AVs are fuel optimisation and carbon emission reduction. By leveraging algorithms to determine the most efficient routes and speeds, AVs could minimise fuel consumption and promote a more sustainable transport system. Integrating electric and hybrid vehicles into the autonomous fleet can further reduce greenhouse gas emissions and air pollution (Kova?i? et al, 2022).

As electric vehicle technologies continue to expand, the adoption of AVs could be crucial in mitigating climate change and reducing the environmental impact of transport, helping to meet climate targets.

Nevertheless, the mainstream adoption of AVs also presents some challenges that must be addressed. Establishing public trust and acceptance is a critical factor in the adoption of AVs, as concerns about safety and reliability can hinder progress. To deploy this technology successfully, companies and governments must invest in transparent communication and public education about the benefits of AVs.

In addition, AVs are susceptible to software glitches, sensor inaccuracies and cybersecurity threats, such as hacking and malicious activities. AVs will record everything that happens in and around them, raising privacy concerns. Again, collaborative efforts between firms and governments will be necessary to establish robust security measures and protect the integrity of AVs, including encryption and sharing best practices (Seetharaman et al, 2020).

Governments are actively working on developing rigorous regulations and comprehensive legislation for AVs to ensure safety guidelines for manufacturers and consumers. In the UK, the government has launched a plan that could put the country at the forefront of self-driving technology regulation.

The AV Act lays the foundation for the future deployment of AVs on public roads by introducing clear objectives to improve road safety and clarify the legal liability associated with this new technology.

Further, AV adoption requires modifications to current infrastructure and urban planning, particularly to digital infrastructure, including designated lanes, intelligent traffic systems and charging structures. Earlier in 2024, the UK government commissioned a new study on connected AVs to provide recommendations about the infrastructure and policies required to support economic growth across UK regions.

Addressing these challenges is crucial for realising the potential benefits of AVs, including safer roads, reduced congestion, improved accessibility, environmental sustainability and economic opportunities. These advances present a good opportunity to reshape intra- and inter-urban mobility towards a smarter and more connected future.