Thursday, 26 November 2020

How states should respond to critics of Australian state EV tax proposals

You couldn't be blamed for looking at the media coverage of the proposal to introduce distance based road user charging (RUC) on electric vehicles in three Australian states and think it was a crazy idea.  There is far more attention been paid to the utterances of the Electric Vehicle Council and a number of motoring related publications, compared to what has been said by Ministers or the relevant Departments.

There is a pretty clear reason for that.

Neither the Ministers nor the departments responsible for leading the communications on the proposals have done enough to follow the number one lesson in advancing road pricing, road user charging or indeed any proposal to introduce direct user charging on existing roads - dominate the narrative.

This lesson was learned in a different, but related endeavour in this field. London Congestion Charging.  Sure, Australia isn't London, and charging EVs for all road use is not the same as congestion charging in a small inner city area.  It's MUCH harder.

Only 55% of households in London have a car (or access to someone else's car).  In Australia it is 91%.  Yes the number of EVs is very small, but charging for all road distance 24/7 is quite different from charging to use a small area of roads at specific times. Moreover, Ken Livingstone got elected on a manifesto that included congestion charging, none of the State Governments proposed RUC for EVs. That doesn't mean everything a government does needs to be in a manifesto, but it certainly makes it easier, and even though <1% of car trips in London enter the congestion charging zone, it was still a proposal that barely got majority support.  

Charging EVs in Australia is much more difficult if you don't take the lesson from London Congestion Charging - lead the narrative. At the moment the narrative is being led by a lobby that regards the proposal as an attack on its constituency and by populist fear of the unknown, and that's because, with the exception of Victoria, the proposals have been too vague and the purpose poorly construed. That's because the introduction of RUC for EVs is a long-term strategic move to avoid the "sinking ship" of fuel excise revenues over time and for the states to get revenue from EVs that would otherwise be collected by the Commonwealth (if EVs were petrol or diesel powered vehicles). 

Yet unsurprisingly, the lesson time and time again from the experience of US states that have introduced RUC (Oregon, Utah) and those that have trialled it (Hawaii, California, Washington State) is that the public simply doesn't care about government revenues. Most people see incomes tax, GST, local authority rates, stamp duty occasionally and other taxes as just being there and given most aspects of government tend to work from time to time (and government is often reported as having wasted money or mismanaged it), there is a great deal of cynicism about higher taxes or new taxes. Right from the start, the idea that electric vehicles should pay a "tax" is the wrong idea.

A "tax" is just a way of penalising an activity that collects money for government.  It isn't seen as a "user charge" or "fee" for a service given.  As fuel excise is exactly that, and none of the money is hypothecated, it is even more difficult to sell the idea of an EV tax based on distance. So it SHOULD be called a user charge, and although critics would call it a tax, the reason to call it a user charge is to differentiate it, and to show it is a start of a wider reform, designed to benefit road users.

A road user charge could be defined as changing that relationship between road users and road providers, and as a first step towards including hybrid vehicles as well, so that over time decisions on spending on roads within states are more controlled by states (and territories).

The narrative should not be about a revenue problem, but about moving away from a model whereby there is no transparency in money going from road users to the roads, to one that has a closer relationship.  This is already the narrative around supply-side reforms for heavy vehicles in Heavy Vehicle Road Reform at the Commonwealth level. These reforms have widespread support in the heavy vehicle user sector, and there would be considerable advantages in bringing this together with electric and hybrid light vehicles as well, so that rate setting, use of revenues and planning for investment are linked with user preferences.

Moreover, don't let opponents and the less well informed lead the narrative. If you don't fill the gaps in information, they will, and you will lose the argument.  This already looks like what has started to happen in South Australia.

Monday, 23 November 2020

New South Wales and Victoria to follow South Australia in introducing RUC for electric vehicles

Following on from the announcement by the Treasurer of South Australia that the state wished to introduce legislation to charge EVs for road use by distance, two other states have announced intentions to pursue a similar policy,

New South Wales Treasurer Dominic Perrottet announced last week that the state is to consider introducing RUC for electric vehicles, although it was not included in his budget last week.  This had been flagged as being of interest in the state's Federal Financial Relations Review published earlier this year.

Now the Victorian Treasurer Tim Pallas announced on Saturday, in advance of the state budget, that he intended to introduce RUC on EVs. The specifics include a A$0.025 a km charge on zero-emission vehicles (electric and hydrogen) and A$0.02 a km on plug-in hybrid electric vehicles, with the intention that it should be in place in mid-2021. It will raise A$30m over four years, which is much more promising than South Australia which looks like raising less than A$1m per year.  As reported by The Age, the state intends to spend A$45m on electric vehicle charging infrastructure during that period, but the revenue is not to be hypothecated for that purpose (fortunately, because ultimately it would become far too much for that purpose), but rather indicatively to pay for a "share of road maintenance costs".  

All three proposals are very similar, although South Australia's proposal has already generated opposition from the Labor Opposition, it is a Labor Government in Victoria implementing a similar policy.  The Australian Trucking Association is strongly in favour of RUC for electric vehicles, but the loudest opposition has come from the Electric Vehicle Council. 

I'll get to that opposition in another post, but what all of this news represents is a giant leap forward in advancing RUC in Australia. It make sense for all three states to adopt RUC on electric vehicles in a similar timescale, given their proximity to one another (a similar point might be made about Queensland).  Of course there is a serious strategic move by all three states in advancing this policy:

  1. Take charge of the narrative around RUC for electric vehicles: Being slow on this policy will mean policy design, technology and interoperability across state boundaries will be led by the first movers. All three states clearly want to be ahead, rather than have to be reactive.  There will inevitably have to be some common standards and policies to cross-border distance travelled.
  2. Build a new stream of revenue:  None of the states get revenue from fuel duty, which is collected by the Commonwealth and is not hypothecated (although the rate of fuel duty (after refunds) paid by heavy vehicles reflects historic spending on the road network attributable to heavy vehicles).  To set up RUC for electric vehicles (which pay no taxes to the Commonwealth for using roads), gives states revenue), provides a long-term strategic opportunity to develop an independent revenue stream from the use of light electric vehicles, which will grow over time as the fleet changes. As the fleet changes, fuel tax revenue will erode (although not so much from heavy vehicles) and states that adopt RUC will be increasingly able to pay for their roads with less Commonwealth funding (and the consequence of this may be less Commonwealth funding over time).
So why does it make sense to introduce RUC for EVs now?
  • Unlike all other vehicles, EVs pay nothing to use the roads now, which sends a signal that EV road use is entirely benign and does not generate any external costs. This isn't true, as not only do they share in contributing to network depreciation, but also contribute to congestion, including the time and emissions costs this imposes on other vehicles.  Roads are a scarce resource, so their use should not come for free.
  • Electric vehicles are small in number, but also do not need to receive credits for fuel duty paid to avoid double charging. This makes introducing RUC on EVs easy and a low risk step towards wider reform.
  • It does not make sense to have two systems for paying for road use in the long-run, but a shift towards road user charging needs to start with the lowest risk part of the fleet. This can evolve to include plug-in hybrids (Victoria already intends to do this, at a lower rate to recognise that plug-in hybrids pay fuel duty already) and conventional hybrids, although ultimately both will need a system that credits fuel excise duty to the RUC account holder - which will need agreement and legislation supporting this by the Commonwealth Government. 
There should be other reforms as well.  Hypothecation of RUC and registration fees for road maintenance and capital spending at the state level should follow, along with independent rate setting reflecting a common approach to cost allocation.  These policy elements parallel what has been considered as part of Heavy Vehicle Road Reform led by the Commonwealth with State and Territory participation.  

What do all states need to consider?
  • Concept of Operations: How will RUC for EVs work?  Will distance be charged after it is travelled or be prepaid in advance? How will off-road and out-of-state distance be treated? Will location identification be mandatory or optional, and what are the consequences for users choosing each model?
  • Delivery model: Will the state collect the money? Will it be provided by a single private contractor or will there be an open market set up to establish accounts and provide customer service? How will private suppliers be paid?
  • Enforcement approach: How will the state verify EVs pay RUC or even have RUC accounts? How will it address fraud?
  • Rate setting: How will rates be set and regularly reviewed (and calibrated against how other light vehicles are charged, or the infrastructure costs attributable to such vehicles)?
  • Revenue management: Will hypothecated roads funds be set up, if so, how will they be managed and how will they have funding allocated from them? How will this use of revenue be used to inform rate setting?
If any or all of these states proceed, they will catalyse the ACT and Queensland at least to progress as well, but they need to address some serious lobbying by the Electric Vehicle Council, which is trying ever so hard to portray RUC for electric vehicles as a special group deserving of others paying for their road use (for up to twenty years)!  This deserves a response, which I will write later this week.  Electric vehicle ownership will not be dented by electric vehicle owners paying to use the roads.

Tuesday, 17 November 2020

Yes the UK should introduce road pricing, but it should learn from the mistakes of the past

Until last year I had lived in the UK for 14 years, and I had worked on congestion pricing and road pricing projects there and in other countries, and the number one lesson that comes away from ANY jurisdiction wanting to introduce direct road user charging on existing roads is that it will succeed or fail on PUBLIC ACCEPTABILITY.

I'm afraid that the media coverage in the UK in the past few days, which looks very much like the Chancellor of the Exchequer floating an idea in the press, shows that there have been few lessons learned from the last large scale attempt to introduce road pricing in the UK - which was the National Road Pricing project under the Blair Government.

That project followed on from the failure of the Lorry Road User Charging project, which had been led by Her Majesty's Revenue and Customs, and for which costs were looking like spiralling out of control.  That project in itself saw pursuit of a truly bizarre procurement process, which had been recommended by one of the Big 4 accountancy firms, and ultimately failed because the costs seemed likely to outweigh net revenues.  In order to spread the costs more widely (and unlock the potential benefits of decongestion), the project became the National Road Pricing project in 2005, but it failed due to enormous public backlash, famously getting over 1.8 million signatures of a petition to Tony Blair to stop the project.


Because neither officials nor politicians really grasped what road pricing is - road pricing makes roads a public utility, and makes road users customers, but politicians and officials treat them as besides the point.

But the public don't trust them to do anything other than take more money, and do nothing about the roads.

Road pricing enables a fundamental change in the relationship between the users of the roads and the providers of the roads, and in the UK that relationship has for far too long had next to no link between what users pay and what they receive in terms of level of service.  It becomes pure chance whether a motorist gets a well sealed road or a potholed one, an uncongested route or a road congested all day long.

Motorists pay Vehicle Excise Duty (VED) (and lorries pay the HGV Road User Levy) which are charges effectively on owning a vehicle, but only this current financial year (2020-2021) is it being hypothecated to pay for Highways England. Yet how many motorists even know this, and what does it mean for vehicle owners who rarely use motorways?  Even if they do know it, what value do they think they get for it?

Then there is fuel excise duty, famously not hypothecated because when it was, it was badly managed, in the 1930s. The UK Treasury has never let this go, because it sees it as a tax so it's general revenue, yet it's a tax mostly paid by road users at £0.5795 a litre.  The £28 billion a year raised from it is far more than is needed to spend on roads, but it represents an unofficial "return on capital" from the UK's road network (that's not just the Strategic Road Network, but local roads and the roads of the devolved Administrations).  Money spent on roads is through a hotchpotch of politically motivated "funds" which do not represent a coherent approach to funding and managing the country's largest transport infrastructure asset. 

It is a de facto user charge on road use, and it is only now that this is rapidly eroding due to the rise of electric and hybrid vehicles (and the announcement of the intention to prohibit sales of internal combustion engine powered vehicles from 2030) that there is interest in replacing it.

So politicians have to make a choice!

If Fuel Excise Duty is just a tax (as some in the Treasury think), and nothing to do with road use (!) then there is no need for road pricing, just hike up other taxes/cut spending/mix of both, to offset it. The residual environmental argument evaporates in a world when road vehicles no longer emit fumes.  

If Fuel Excise Duty is a charge on road users, then part of it should be hypothecated to pay for roads, and that part can then be replaced by road pricing.  Treat it as a fundamental reform of the road sector, not as a reason to do business as usual, because business as usual is a mismash of ad-hoc central planning, wildly varying levels of service and little accountability for poor service, especially from local authorities.  Consider Hammersmith Bridge which is closed to motorists, but the London Borough of Hammersmith and Fulham is not accountable to them, nor for failing to have an adequate asset management system in place to ensure it would be well maintained. It is a Soviet-style approach to managing economic infrastructure that if repeated in energy would result in constant blackouts and failures in service.  In roads, the failure of service is seen in chronic congestion and the wear and tear, damage and accidents caused by poor road maintenance.

The need for clear messaging and boundaries around road pricing for the government is critical, but so far that messaging has been anything but that.  So let me help them out with some ideas:
  1. PILOT FIRST! The Government should pilot road pricing for electric vehicles and any other motorists who want to trial it.  Initially with a mock billing trial, then followed up with actual billing and crediting those motorists who do try it with a 50% refund of fuel excise duty and VED cut to £50 per annum.  DON'T introduce it in a big bang, the successes of states like Oregon and Utah have been through gradualism. Show the public what you want to do first, it makes it much less frightening and builds confidence.
  2. WE'RE CUTTING FUEL DUTY AND VED: Road pricing should mean that those who pay it, will save around 70p/litre on fuel and pay much less in VED.  People should be charged mostly based on USING the roads, not OWNING a car.  Piloting will demonstrate that it isn't a "new tax", but a change in how motorists are charged for using the roads, and it is better because...
  3. ALL REVENUE WILL GO ON THE ROADS. A National Roads Fund from which all central government spending on roads will be allocated, based on need will mean true user-pays.  It will depoliticise decisions on maintenance, and all highway authorities will have to meet standards for road maintenance and operations, as well as addressing the priorities of road users. Yes in built up areas it still involves balancing the needs of different types of road users (cyclists, pedestrians and public transport), but it means road users are now customers and should expect more of highway authorities, not less.
  4. DON'T START WITH LOCATION AND TIME OF DAY SPECIFIC CHARGES: It is hard enough moving from fuel and fixed charges to distance and vehicle type, to also add location and time of day to try to manage congestion from day one. For a start, the whole governance arrangements around roads will need to be reformed to make that work effectively.  So start simply.  Charges vary by vehicle type, by mile.  Vary by location and time of day later, incrementally.  Starting simply means not everyone needs GNSS telematics in their vehicles, but it can be made mandatory for newly registered vehicles so the capability is there.  
  5. DON'T HAVE THE GOVERNMENT DELIVER THE SYSTEM: Develop an open market for road pricing accounts and technologies, avoiding the past mistake of thinking that government should buy everyone a device for their vehicles. Open market systems are working in various European countries (notably Belgium and Hungary) for heavy vehicle road user charging, and in New Zealand and Oregon more widely.  If a company wants to set up an account, supply a system that collects trip data and bills road users, it should be able to be certified to do so, AND provide a means to measure and ensure credits of fuel duty towards the road pricing account.
  6. START WITH PURE ELECTRIC VEHICLES. As they don't pay any fuel duty, it is easy enough to start them paying by distance now, and then transition to hybrid vehicles that do pay some fuel duty.  Develop a sustainable pathway to expand the system, but it is hard to argue that electric vehicle owners shouldn't pay for the roads they use, and it is much easier to start with such vehicles than try to include all in one big bang.
  7. SET PRICES BASED ON COST ALLOCATION: While prices will initially be flat, they should reflect forward looking spending on the road network, over a five year period of maintenance and new capital spending.  Link charges to cost, as in other utilities, so it isn't a political football.
  8. USE PRICES TO INCENTIVISE ENVIRONMENTAL GOALS: Yes electric vehicles may be charged first, but the price for them should be lower than hybrids and lower than pure internal combustion engine powered vehicles, yet it shouldn't be so low that their road costs are subsidised excessively by others.
  9. MAKE IT OPTIONAL EXCEPT FOR NEWLY REGISTERED VEHICLES INITIALLY: All newly registered vehicles (regardless of motive power) should be on a road pricing system, but let existing motorists pay as they do now and incentivise them to shift over several years.  Over time set dates for a transition, so all remaining electric vehicles switch over one year after introduction, then plug-in hybrids a year later followed by ordinary hybrid vehicles.  Then move heavy vehicles off of the HGV Road User levy in two or three tranches, and then finally conventional petrol and diesel light vehicles (provide some exemption system for vintage vehicles).
  10. UNDERSTAND WHAT IT MEANS FOR DIFFERENT USER GROUPS: The fears of rural communities about paying more are unfounded given the experience of other jurisdictions (people in rural areas don't necessarily drive much longer distances on average than people in cities (outside London), but the research should be carried out to identify trip patterns).  The incidence of road pricing should be identified by geography, demographic and vehicle type, so that the effects can be understood.
It can't be just about replacing what is done now, which is a proxy tax on fuel that is used to raise tax revenue for general government spending, it is a fundamental reform, and if that isn't understood it wont go anywhere.  Last time it failed because there was too much vagueness about cutting other taxes or how the money would be used, but a surprising amount of "certainty" around how much everyone would pay per mile (because someone modelled what it could be, so of course the media took the highest price modelled).  Moreover, National Road Pricing was sold as a way of relieving congestion, but few believed it would because nothing had been demonstrated to show it would do that (and the London Congestion Charge had an incremental effect on congestion that was not discernible to most motorists).

Beyond these points there are other matters that should be clearly communicated:

  1. No road user will be charged twice.  Under the National Road Pricing proposal, politicians said road pricing would partially replace current taxes, but few believed them.  Unless the public is convinced that they wont be double-charged, it wont gain support.
  2. Decisions on spending of net revenues should be taken out of politics: As tempting as it is for central and local government politicians, shifting roads to a utility means that decisions on spending on maintenance and upgrades shouldn't be about buying votes ahead of an election or triumphalism over getting funding for an inefficient road project (or stopping an efficient one).  Road should be regulated utilities, with the spending of money prioritised on maintenance (especially the huge backlog of deferred maintenance) and then large and small scale projects that generate net economic benefits, AND reflect the stated preferences of road users.  
  3. Management of roads should be placed in the hands of utility organisations:  Highways England has been an excellent first step, as far as the Strategic Road Network is concerned, but local authorities should be required to cluster their road networks into regional road companies, operating at arms length with funding based on the revenue generated from road users in their region.  An independent regulator could oversee level of service expectations, the companies would set up corridor plans to develop short to long term plans to maintain and upgrade roads, and buy land and plan for any improvements, such as new intersections, widening, tunnelling or new corridors (and sell surplus land).
  4. Over time, road pricing can replace congestion charging, tolls and low emission zones as well:   Only when most vehicles are on the system can these other charging systems be switched off, but they should be as they wont be necessary.  Congestion WILL NOT BE SOLVED QUICKLY when a whole vehicle fleet needs to be equipped with the right technology, but this isn't about congestion is it? It's about how roads are paid for.  The ability to do congestion pricing will be a bonus, but it shouldn't be the focus for now, because to do that will confuse messaging even further. 
Most of all Chancellor of the Exchequer, Rishi Sunak is a smart man, he ought to look at what has been done in Oregon and Utah, not just the European states so many officials (and consultants in the UK) think are appropriate comparisons to the UK.  He ought to look not just as US experience in piloting road user charging, but also the experience in New Zealand and more recently trialling heavy vehicle charging in Australia.  He ought to talk to those who obtained political approval to advance these programmes, such as Jim Whitty from Oregon and be wary of Treasury's motivation around "just raising more money", but also the motivation of some on the more hardline environmentalist side to use road pricing to "punish road use and raise money for public transport", because NOWHERE in the world has this ever been done for such reasons successfully on a scale remotely similar to the UK. 

He should NOT be swayed by well meaning lobbyists like the Social Market Foundation which want all vehicles equipped with GNSS based road pricing technology, when even Singapore has found this challenging for its much smaller (and very long established and sophisticated Electronic Road Pricing system).  The idea that people should get a "free allowance" of distance to travel just incentivises richer people to have more cars, and moves away from a pricing approach to a permit approach, it is based on the misnomer that the people who drive the most are the wealthiest, forgetting that it is in London where the highest incomes are observed and the lowest rate of car ownership and usage. Forget using road pricing to engage in redistributive activities, if people in the UK own a car, and are poor, they almost certainly don't own an electric one, so replacing fuel duty with a distance charge should be positive for them.

No doubt many lobbyists will complain how unfair it is to embark on the principle of user pays, but it is done in energy and telecommunications, it is time that road pricing was advanced, as part of a wider package of reform of the highways sector in the UK.

UPDATE:  Of course the narrative everyone hears is that they will pay more than they do now. Why can't the UK learn from its past failures and the experiences of others?

Thursday, 12 November 2020

Will South Australia pioneer light vehicle road user charging in Australia?

 The South Australian Treasurer announced with his budget that:

The government is intending to introduce a road user charge for plug-in -electric and zero emissions vehicles. The charge will include a fixed component (similar to current registration charging) and a variable charge based on distance travelled. Electric vehicles do not attract fuel excess and therefore make a lower contribution to the cost of maintaining our road networks. The proposed road user charge will ensure road maintenance funding is sustainable into the future. The government is consulting with other jurisdictions about the details of the proposed road user charge. Current estimates are that less than about$1 million per year will be collected by the charge.

Note that the South Australian Government doesn't collect fuel excise duty, the Commonwealth Government does, and fuel excise isn't hypothecated, and you'll see that this is a clever means by which an Australian state is seeking to plan for a long term future whereby it grows effectively a new revenue source, whilst an existing revenue source for the Commonwealth Government is slowly eroded by changes in the vehicle fleet.

There is considerable wisdom in moving early on this, not least because the sheer number of electric vehicles in South Australia (I heard an estimate of 800, but I might be wrong), would mean that it is not going to be costly to implement or politically difficult when so few would face paying it.  If any jurisdiction waits till 10% or more of the fleet is electric, it will be harder administratively and politically to implement.  

To date three jurisdictions globally have light vehicle RUC based on distance.  New Zealand (which has all diesel vehicles under 3.5 tonnes paying RUC and will expand this to include electric vehicles from the end of 2021), Oregon (which has a pilot for alternatively fuelled vehicles to pay RUC) and Utah.  Wyoming has announced that it wishes to follow, and multiple US states are piloting it.  South Australia would heed well to learn from all of those systems.

Infrastructure Partnerships Australia (IPA) has been actively pushing for this sort of reform, with its report in November 2019 proposing it.  It advanced three options, from Federal leadership, to State collaboration, to State unilateralism. It looks like this is the first part of the second option (and frankly the third option is difficult to sustain for states with considerable cross border traffic).  This advocacy is to be welcomed, and needs to be supported by a comprehensive programme that ensures that South Australia's proposals succeed

There are some key issues South Australia needs to address in this process, none of which is clear from the news coverage to date:

  1. Get the communications right:  The number one failure of ALL programmes to introduce direct user charging on roads is not clearly addressing concerns from motorists and not clearly communicating the policy purpose, what will be done with the revenue, how the rate will be set and reviewed, and what users will need to do. From the media coverage seen so far, South Australia has not done this as well as it could. Take this article which is so full of flaws it's not funny. 
  2. Clarify how little impact road user charging (RUC) will have on electric vehicle takeup.  New Zealand has an exemption for electric vehicles paying RUC until the end of 2021, but when they eventually do pay, they'll pay around A$0.07 per kilometre. So for the average vehicle that may travel 12,465km a year that is A$872.55 a year. Noting that in NZ, fuel duty and the RUC rate are meant to be equivalent. Fuel duty in NZ is equal to about A$0.663 per litre, whereas in Australia it is A$0.423, so RUC might be assumed to be proportionately similar, say around A$0.045 per kilometre - that's around A$561 per annum for an electric vehicle owner, which is not going to be a great disincentive compared to the savings on fuel and operating costs which are much more than that. US states are not concerned about RUC affecting electric vehicle takeup, as Oregon and Utah have already implemented RUC for such vehicles, and multiple other states are piloting or have piloted RUC for such vehicles (see Hawaii, California, Washington State, Colorado).
  3. Be clear on what is to be done with net revenues:  Fuel excise duty in Australia is not hypothecated, but the lesson from every other jurisdiction, from New Zealand to the USA to Europe, is that hypothecating RUC revenue is critical to public acceptability and also accountability for moving from a taxation model to a user pays model. I know Treasuries are loathe to want to treat any taxation as hypothecated, which harks bark to the failures of hypothecation in the UK in the 1930s, but there are plenty of models of hypothecation working well (New Zealand has done an excellent job having evolved towards hypothecation in the 1980s and 1990s). Yes, it will be very little money from the start, but dedicating net revenues towards the State's road maintenance budget would be a good start.  There will obviously have to be longer term discussions about what happens to the money received from the Commonwealth when fuel excise duty revenues really do erode.
  4. Establish a process for setting and reviewing RUC rates that is transparent and linked to what other vehicles pay and cost allocation:  As long as fuel duty is dominant, RUC will be linked to it, but in principle, RUC rates should be based on recovery of fixed and marginal costs of road infrastructure use.  Motorists fear that a new charge will be set based on political desire to raise as much revenue as possible.  For now, it should be linked to fuel excise duty, but not determined by it, after all it is South Australia's RUC, not the Commonwealth's.
  5. Develop policies on distance travelled by location: Even if the approach taken is to use odometer readings as the basis for charging, South Australia cannot avoid having to not charge for distance travelled off public roads (as this is not subject to fuel excise duty now, albeit through a refund process) and out of state.  This obviously means it must be co-ordinated with Victoria and New South Wales in the first instance (very few electric vehicles are likely to venture into Western Australia or the Northern Territory), but electric vehicle owners ought to be able to have technology choices so they can choose an option that includes location - so they are not charged for out of state and offroad travel.  If they don't choose a location based option, then a manual refund process for out of state travel might be developed.  In New Zealand there is a manual option, but commercial vehicle operators using GNSS based telematics service providers do so, in part, to automate the offroad refunds process.  A bigger issue is what to do with out-of-state electric vehicles, which will be difficult to enforce charges against without a multi-state approach.
  6. Decide if charges are prepay or postpaid: The IPA paper is silent on this, but it has considerable impacts on enforcement vs. flexibility. If distance is invoiced after the event, it is much harder to enforce and pursue for payment, than if it is prepaid distance, particularly using a manual method of distance measurement (odometers). Postpayment is suitable for those using automated means of distance reporting (e.g. in vehicle telematics systems), as it can be related to a prepaid account easily, but if you are dependent on motorists reporting distance manually, then there can be issues with managing this at scale.
  7. Develop a scaleable enforcement system:  On a small scale, this wont be difficult because it is easy to chase small numbers of vehicle owners, but it becomes tricker when the numbers enter the tens of thousands of vehicles. Consider what parts of enforcement are around recovering charges vs. charge evasion and fraud, and how each are treated.  Legislation needs to be flexible enough to respond to what behaviour looks like when lots of people are paying RUC and especially when it involves vehicles paying at least some fuel excise duty.
  8. Decide on a delivery model:  On a tiny scale, it can be done within the State Government, but over time this is unlikely to be a suitable model from the points of view of efficiency, user choice and innovation.  Enabling an open market in RUC service delivery is the model pursued in the United States and now in New Zealand, as well as parts of Europe.  This allows for new technology options to be developed, but more critically for the more complicated task of incorporating hybrid vehicles over time, which will need fuel duty refunds in parallel with RUC collection.

It is hugely challenging for South Australia to introduce RUC in around seven months, because the legislation needed will have to be able to adapt to a rapidly changing future. It would be a huge mistake to be confined to one single model for measuring and reporting distance, or to fail to apply the lessons of other jurisdictions, but with such a small scale of electric vehicles, it is effectively a pilot that is smaller than the programmes of other jurisdictions (e.g. Hawaii is currently piloting RUC with up to 2000 volunteers).

All I can say for now is get the policy right and communicate it well.  The world of RUC is strewn with failures from those who didn't do either. South Australia has a great chance to lead Australia on light RUC policy, but if it goes wrong, it will take years before it can try again. Ask the UK, it announced a policy to replace registration fees and part of fuel duty with a national road pricing system in 2006, and has never been able to seriously entertain it since over a million people signed an online petition against it in the subsequent two years.

Friday, 18 September 2020

So will Wyoming really implement road user charging for all vehicles?

Quietly, Wyoming has been investigating whether road user charging could replace its fuel tax.  On Monday 21st September, the Transportation, Highways & Military Affairs of the State Legislature will be discussing a draft Bill (PDF) to implement a "road usage charge" for the state.

The Bill proposes that all Wyoming registered vehicles be subject to RUC, with six categories of vehicles and per mile rates as follows :

  • Motorcycles (US$0.013);
  • Private cars (US$0.0215);
  • Pickup trucks and vans (US$0.0287);
  • Buses and rigid trucks (US$0.065);
  • Single trailer trucks (US$0.1032); and
  • Seven of more multi-axle trailer trucks (US$0.1435).
It includes provision to charge vehicles from other states by any means available to Wyoming residents, but also mileage permits (prepaid distance) or time permits.  It also proposes that any (state) fuel taxes paid be credited to any RUC account.

The draft Bill requires that there be at least one manual method of distance measurement and one means to prepay for "unlimited" distance in a given time period.

On the face of it, this is revolutionary, if it received political approval it would make Wyoming the first jurisdiction not only in the United States, but globally, to mandate RUC for all vehicles registered on its territory.  

Wyoming has been investigating RUC for several months, so this is a very bold step, and it raises a lot of issues, not least being the time and effort required to set up systems for the vehicles of the entire state to switch to RUC, AND require vehicles from neighbouring states to pay RUC (noting that three Interstate Highways pass through the state and it has borders with six states, Montana, South Dakota, Nebraska, Colorado, Utah and Idaho). Although Wyoming's population is less than 600,000 and the motor vehicle fleet is less than 300,000, it is still an ambitious and courageous endeavour, and one that shouldn't be taken lightly, because there are two big lessons from the implementation of road user charging/road pricing:
  1. Get the public to accept the case for road user charging. Without public acceptability, the policy is dead.
  2. If you fail with your first attempt, you can't try a second time for at least ten years, because the public, stakeholders (and the media) will remember why it failed the first time.
Wyoming needs to bring the public on board, on grounds of fairness and necessity AND it needs to progress a programme that will not only be acceptable to the public, but will work in terms of minimising administrative costs to government, minimising compliance costs to users and be readly enforcement.

Earlier work indicated that there is a funding gap of US$135 million per annum to maintain the network at its current standard (which is already not ideal), so it is designed to address that,

So to implement this, there will need to be accounts for all owners of vehicles in Wyoming, and then permits (or accounts) for all out of state vehicles transiting Wyoming.  That may be done with a mix of private account managers and the state, and for some vehicles it will mean in vehicle equipment, but for others it will mean recording odometer images (and for heavy vehicles it may mean hubodometers).

Now the proposal appears to have been, in part, informed by Wyoming's advisors, engineering consultancy WSP, and the draft bill raises a whole series of questions, so I thought I'd quickly give a few thoughts:
  • Six categories of vehicles is curious. It's curious to include motorcycles (which no other RUC system anywhere has included - no, Singapore's ERP is NOT a RUC system), that I can't imagine the transaction costs involved in including them (let alone enforcing RUC against out of state motorcycles).  There are so few categories for heavy vehicles it is extraordinary, as this provides next to no opportunity to vary rates by mass (as categories) or configuration (to reward more road-friendly configurations).  Other full network heavy vehicle RUC systems (Oregon, New Zealand and Switzerland) have much wider categories by mass and configuration, that this over-simplification will mean the heaviest vehicles will subsidise lighter ones, and there are no incentives to have additional axles and tyres to reduce road wear.  Category 3 is odd indeed, either make it similar to passenger cars or make them light trucks. 
  • There are variations between commercial account managers and state provision. The state can be the RUC provider and can subcontract retail outlets to open accounts on its behalf. This is exactly what happens with prepaid distance permits in New Zealand, which can be bought at some gas stations, post offices and some other outlets.
  • Rate adjustments according to inflation are all very well, but in both Oregon and New Zealand, this is not the main source of information about rate setting.  Both jurisdictions (and in fact European ones) use cost-allocation models to help inform what rates should apply to different types of vehicles based on what vehicles generate costs on the road network (informed by spending). It's a sophisticated process, but it minimises cross-subsidies between groups of road users.
  • Having a process to credit fuel taxes paid means having a system parallel with the RUC system, which can be tricky especially for private automobile users. If payment isn't automated, there needs to be a verifiable system to identify gas tax collections and credit it to the RUC account. There are a lot of ways of doing this, but they need to take into account those who pay cash for fuel, and those who have their own fleet filling stations.
  • Minimise exemptions, they can cost a lot of money and provide opportunities for fraud, but ensure you make vehicles that spend very little distance on public roads, such as some farm equipment, exempt (not tractors that can drive many miles on public roads or farm trucks). Consider that if a type of vehicle typically spends only a few miles on public roads a year (e.g. by going from one part of a farm to another) then there is no point collecting revenue on a per mile basis from them.
I thoroughly encourage Wyoming to be ambitious, but bring the public with you and make sure you do it right first time.  There are plenty of jurisdictions that have tried to implement road pricing/road user charging programs and failed (see Edinburgh and Manchester in the UK, Copenhagen, Finland, the Netherlands, Vancouver congestion pricing), you don't want to be the first in the USA to fail because you sought to do too much too soon.  The UK tried moving to RUC for all vehicles around 15 years ago, but it resulted in a massive public backlash that killed the idea off completely, and is only NOW being gently explored. Meanwhile, UK fuel tax revenue has not been able to be inflation adjusted since 2010.

What should be done instead?

Start with a smaller group.  Electric vehicles, plug-in electric vehicles and hybrids are a small group, but raise enough issues to start off with, and they are part of the core problem.  Sure, Utah and Oregon have kind of followed this, but you can do this within 18 months with the right direction and experience applied.

Another group would be heavy vehicles, which have their own complications, but would generate more in state transit revenue and once done, it is easier to roll out to light vehicles.

Don't rush, do it right.

Monday, 24 August 2020

London congestion charge changes are more about raising money than congestion

London's congestion charge was pioneering, not because it was the first, or even the best congestion pricing scheme in the world (Singapore won that and still does), but because it demonstrated that congestion pricing could be introduced in a country and city with a very different political and policy culture.  It has evolved a little since then, but remains an area charge with a flat charge for access all day on weekdays.

It was a success, it achieved its original aims, as charged traffic dropped dramatically, allowing for road capacity to be taken from cars, vans and trucks, to be dedicated to buses, taxis, bicycles and in some cases pedestrian space.  However, its simplicity and its scale has proven its limitations.  These are:
  • Vehicles entering or driving within the zone pay once for a full day's access.  This encourages drivers to drive frequently once they pay, mostly discouraging occasional trips;
  • A significant proportion of vehicles driving in the congestion charging zone either do not pay or are heavily discounted.  Estimated at around half;
  • All vehicles subject to the charge pay the same. So a small car pays the same as an articulated truck (which takes up the space of three vehicles).
The Covid19 crisis has resulted in the UK taking drastic measures to establish social distancing in public, including addressing the risks of crowding on public transport in London.  Of course, the safest mode in social distancing is driving, but in London this is not physically possible for most trips towards inner London.  There simply isn't the road space to accommodate them.

Transport for London announced in June 2020 changes that are described as "temporary" purportedly to ensure car traffic "does not double", but the changes in scope go far beyond what is reasonable to do this (and in some cases don't do enough, because the congestion charging zone only covers 1% of the land area of Greater London.

Recent changes to the congestion charge mean it isn't really what it is called anymore.  Sure it is a "Road User Charge" according to Section 295 of the Greater London Authority Act 1999 but although it may resemble a scheme to manage congestion, the scope of operation is much wider.

Instead of simply operating 0700-1800 weekdays (excluding public holidays), its operating hours have been extended as follows:
  • Operating hours are now 0700-2200, leaving only nine hours a day which are not subject to the charge;
  • Operating days are now seven days a week, including all public holidays except Christmas Day.
Further changes are:
  • New applications for the Residents' Discount have been closed since 1 August;
  • The daily price has increased to £15 (US$19.70);
  • A new reimbursement scheme for relevant NHS and care home staff and patients;
  • The charge can now be paid up to three days after travel, at the higher rate of £17.50 (before it was two days).
Yes there is congestion during the day on Saturdays and to a lesser extent on Sundays, and early evenings it can also be congested (and later on a Friday night). However, by no reasonable measure can it be said that at 0700 on a Sunday that there is any congestion issue in central London, nor at 0800, or 0900 or 2100. 

The press release notes that the removal of the Residents' Discount is to deter car ownership for those living in central London, albeit that it seems reasonable that those living in central London pay to use the roads the same as everyone else. The price increase and some altering of operating hours would be justified, certainly to 1900 weekdays or beyond, and indeed Saturdays 1100-1800 and even Sundays 1200-1800 can be justified in parts of the central zone.  However, it seems that this is really about money as much as anything.  TfL faces a financial crisis due to the collapse in fares revenue due to Covid19 and the previous end of central government grants for operating subsidies.  

It's notable that TfL reports that only 0.5% of cars entering the charging zone do so daily (like a regular commuter), indicating that car trips that are taken tend to be occasional and are for very specific purposes (e.g. I twice drove into central London to pick up a friend after medical appointments).  Just over half only enter the zone once every six months, indicating that car trips to central London are much more deliberate than habitual, and so aren't necessarily able to be readily replaced by other modes.  

This is the point, virtually NOBODY drives to work in central London.  It is far too slow, and parking is too expensive. So the changes that have been made essentially capture leisure and shopping trips, but most importantly for TfL will generate new income. 

It isn't just about cars either, trucks and delivery vans are all captured, so deliveries and freight will now be charged more frequently. Private Hire Vehicles (minicabs) are also captured, but this will make little difference to them except at weekends, as vehicles are only ever charged for one trip, so extended operating hours on weekdays will not mean they are charged more.

London's problem is that the charging scheme as it stands is too inflexible to adapt to changing patterns and can't be extended easily under the current area charge model.  Although there is often talk about a GNSS supported distance based charge, this would require vehicles to be equipped with new on-board equipment.  A quicker approach would be to lay out multiple cordons (not area charges) with vehicles charged for entering and crossing different zones, similar to how some Italian cities have licensed permit zones for vehicles.

The biggest risk with TfL expanding the congestion charge's scope so bluntly is that it makes the idea that it is about managing congestion difficult for motorists to believe, and so trust in any other measures to expand charging will be low. There is little evidence that the Mayor of London regards reducing traffic congestion to be an important policy objective, whereas to gain the consent of motorists and more importantly, to deliver economic value from road pricing, the act of charging for road use should be in exchange for a better level of service.  

As was noted four years ago by the London Assembly, the current London congestion charge is not fit for purpose.  It needs to be transformed, but it's not clear that there is the political will, on either side of politics, to make a quantum leap in the performance of London's road network through a combination of pricing and investment in the network.

Friday, 7 August 2020

Australia : Requests for Expressions of Interests: National Heavy Vehicle Charging Pilot (UPDATED)


The Australian Commonwealth Government Department of Infrastructure, Transport, Regional Development and Communications (DITRDC) has published on the Austenders website three Requests for Expressions of Interest in supplying services to support the Large Scale On-Road Trial which is part of the National Heavy Vehicle Charging Pilot.

The closing date is 17 August 2020 at 1400 (Australian Eastern Standard Time).

There are three Requests for Expressions of Interest, namely:

You need an Austenders account (free to set up) to access the documents.  If you have one, they are available through the links for each of them as listed above.

There was a question and answer process following industry briefings for the trials, for which the answer document is here (PDF).

As can be seen by the titles, these are requests for expressions of interest to supply the services and equipment needed to deliver the Large Scale On-Road Trial, which is expected to have around 100 participant operators with around 1000 vehicles.  It will be a mock-billing trial, with participants receiving mock invoices (or purchasing mock permits) to simulate distance-based road user charging for heavy vehicles.

(Disclaimer: Milestone Pacific is technical advisor to the Department of Infrastructure, Transport, Regional Development and Communications on this project)

Introducing Milestone Solutions

Hi everyone, I just want to note that D'Artagnan Consulting LLP (and its Australian subsidiary D'Artagnan Pacific Pty Limited) have changed names to Milestone Solutions LLP (and Milestone Pacific Pty Limited).  

Nothing else has changed. It is easier to say, easier for others to understand, and we are still the world's specialists in road user charging.  Our new corporate website is here.

Wednesday, 29 April 2020

Australia: Industry briefing of National Heavy Vehicle Charging Pilot Large Scale On-Road Trial Procurement

The Australian (Federal) Government's Department of Infrastructure, Transport, Regional Development and Communications has published a Notification of Industry Briefing, for its National Heavy Vehicle Charging Pilot.  The industry briefing will be held THIS FRIDAY 1 May from 0815-1030 Australian Eastern Standard Time (2215-0030 UTC/GMT 30 April-1 May) and then 1715-1930 the same day (0715-0930 UTC/GMT 1 May).  The first session is timed for Australian, New Zealand and North/South American interest, and the second one for Asian, European/African interest.

The text below is a verbatim extract directly from the notice:

The purpose of this industry brief is to provide information to, and obtain information from, potential tenderers for three planned solutions procurements for the National Heavy Vehicle Charging Pilot’s Large Scale On-Road Trial.

    Provision of telematics devices and services
    Provision of third-party invoicing services
    Provision of manual collection devices and reporting services

This briefing is not a procurement and does not form part of any Commonwealth procurement process. The Commonwealth will not select or exclude (from future participation in above procurements) any companies based on their attendance or non-attendance at the Industry Brief.

Following the Industry Briefing sessions, there will be a period in which the department will accept feedback submissions from industry on the proposed technical approaches to gathering data and generating invoices and mock permits.

The National Heavy Vehicle Charging Pilot (National Pilot) is an innovative industry partnership testing potential direct road user charging options for heavy vehicles. The Large Scale On-Road trial is anticipated to involve up to 100 participants providing more than 1000 vehicles across diverse industries and fleet sizes.  

Trial Participants will test several operational models for collecting and reporting distance travelled. Existing and charging-specific telematics systems will be tested, as well as non-telematics distance measurement technology (hubodometers).

No money will be collected from trial participants. Instead, the data collected will be used to generate mock invoices. The mock invoice will be used to calculate and compare alternate mass-distance and location-based charges with an estimation of annual registration and fuel-based road user charges (current PAYGO model) collected for each participant. 


Further details on the National Heavy Vehicle Charging Pilot are found on the Department's website

Disclaimer: D'Artagnan Pacific is technical advisor to the Department of Infrastructure, Transport, Regional Development and Communications

Monday, 4 November 2019

Israel tests reverse congestion pricing, but rejects actual congestion pricing

In 2013, Israel tested a form of reverse congestion pricing, which had parallels to the Spitsvrij and Spitscoren schemes trialled in the Netherlands.  According to CTech:

Back then, 400 out of 1,200 participants decreased their rush-hour travels by 16.4% on average, netting a few thousand shekels in the process. 

In essence it involve regular users of a road being paid money to reduce their road use, which in turn reduces congestion by incentivising them to drive less at peak times, choosing to change travel time, mode or frequency of travel.  The same report indicates that the new reverse congestion pricing pilot scheme will see participants granted a travel budget of ILS4500 (US$1276) which will be drawn down by peak time driving, but topped up by carpooling.  The idea being that at the end of the pilot, participants will be able to receive the remainder of their budget if they have saved it (with a cap of ILS2000).

It is being led by Ayalon Highways Company, a state road company, with assistance from two suppliers (Pointer Telocation and Pango Pay & Go).  The system will necessarily involve GNSS devices to identify where, when and how far participants drive.

Three stage pilot

The first step will see 500 participants recruited from the previous 2013 trial, mainly for a testing phase of three months.  This will be followed by a much wider recruitment effort, with another 4,500 participants to be recruited from the general public.

If successful, the report indicated that it may see up to 100,000 recruited, in 5,000 participant groups every few months.  If this is the case, it will be quite some budget for that many participants.  Think of 100,000 x ILS4500 = ILS450m (US$128m) to pay people to not drive.  

Actual congestion pricing

Paying people to not drive proves the effectiveness of financial incentives to change behaviour, but it is expensive and can raise questions about how fair it is for taxpayers' money to be spent on the most frequent drivers NOT driving (when those who don't drive at peak times at all wont get rewarded for not congesting traffic).

Real congestion pricing is more sustainable and likely to be just as effective, but Times of Israel reported that a cordon charge had implicitly been considered for Tel Aviv but with no details, noting that the toll lane instituted on Highway 1 had made little difference.

Israeli business publication Globes reported the view of the Minister of Transport Bezalel Smotrich:

There is no reason to impose a congestion fee at this time, because a congestion fee penalizes the public in order to persuade people to travel on public transportation - but people have no alternative. You don't levy fines when people have no alternative. The time is not ripe to impose a congestion feel on the public, despite the temptation to do it in order to reduce the budget deficit.

Unfortunately, the oft-repeated view that congestion pricing needs public transport as an alternative for all users continues to be spread.  There are other alternatives, as a well designed congestion pricing scheme would encourage changing the time of trips, and also note that at peak times some trips should be discouraged (e.g. social, recreational), with the alternative being to not travel or travel at another time.  Furthermore, congestion pricing could help offset other taxes or charges on motorists as well.

Hopefully the expansion of reverse congestion pricing might generate further innovative thinking to help encourage some application of actual congestion pricing in Israel.