Policies also include further investment in public services, introducing two new public holidays and legalising recreational use of cannabis. Luxembourg city has some of the world's worst traffic congestion, according to the Guardian.
Most people working in the city commute from the neigbouring countries and are set to benefit from the free public transport system.
A study suggested drivers in the capital spent an average of 33 hours in traffic jams in 2016.
Traffic congestion is a major problem in Luxembourg, which receives approximately 170,000 cross-border commuters from neighboring France, Belgium and Germany on a daily basis.
The move is in keeping with Luxembourg's new transport initiatives.
Currently, fares are capped at €2 ($AUD3.15) for up to two hours of travel, which in the small European nation covers nearly any journey.
The policy is yet to be fully thought through, however.
As the paper noted, however, some of the finer points of the plan have yet to be ironed out, including whether trains will still have first and second class compartments and if so, if riders will be charged in those cases.
Bettel only just scraped back into government in the recent election.
The Christian Social People's Party (CSV) - which was led for 19 years by European Union chief executive Jean-Claude Juncker - remained the largest party in parliament, but lost seats, as did the LSAP and the Democratic Party.
However, because the Greens gained, the three parties in government have 31 seats in the 60-seat chamber.