Finland's path to road pricing raises some big questions

I wrote on 27 March that the a Finnish Government Working Group had recommended that the country move away from fixed taxation of motor vehicles towards a distance based approach.  I've now had a chance to read the full report (in English) of the Working Group and to digest its analysis and approach, and it demonstrates the one rule of thumb I've often seen in road pricing studies across the world - every country has considerably different contexts, but many common issues.

To read the report yourself, it is available here as a pdf.   

For those who don't want to dive into the detail, I'll summarise my key thoughts and views first, and then put down some more detailed reflections afterwards.  It's particularly pertinent given the upcoming ITS Europe Congress in June, being held in Helsinki.

Finland, most of the population is along the southern coast

On 3 February 2012 a working group was established to explore how Finland could move towards "fairer and smarter transport systems and study long term strategies to introduce road pricing systems, with a specific mandate to assess the feasibility of GPS road pricing".   The focus was on looking at global experience, what objectives road pricing could serve, what technical solutions could be viable, what impacts would arise and how and over what timescale it could be introduced.  The working group was also to look at privacy and whether any other services could be provided using the GPS platform.

This follows previous investigations into congestion pricing for Helsinki alone, which came to the conclusion that the best approach would be some form of distance based charging that varies by time and place.

Summary

The key points from the study are as follows:

- Existing fixed taxes for cars should be replaced with a distance based tax.  Those taxes include car tax (paid on first registration of vehicles in Finland) and annual vehicle tax and vehicle motive force tax.

- The tax considered for the purposes of the study would be €0.033/km (US$0.074/mile) on all cars with another €0.02/km (US$0.045/mile) for non-petrol cars to offset the lower diesel tax.   Some variants on this were tested based on a regional differentiation.

- The distance tax would not replace fuel tax.  Finland's fuel tax rates are €0.6729/l (US$3.52/gallon) for petrol and €0.4966/l (US$2.60/gallon) for diesel, compared to the EU legal minimum rates of €0.359/l for petrol (about US$1.89/gallon) and €0.33 (US$1.72/gallon) for diesel.  (note these are US Gallons for the sake of comparison, not imperial).

- Motoring taxes in Finland already recover more than five times the state spending on road maintenance, with none of the money hypothecated for roads, so the argument for distance tax was not based on revenue generation or protection,  but rather dynamic improvements in economic and environmental outcomes.  By law, such a charge can currently only be a tax in Finland.

- Shifting from fixed taxes to fuel taxes was considered, but ruled out because it would not offer the potential to target congestion and environmental impacts by location and time of day.

-  The distance tax would not apply to buses and coaches because no fixed taxes apply to them.

-  The distance tax would also not apply to HGVs because the fixed taxes that apply to them could not be reduced sufficiently to make the tax work, as the rates are not far above EU minimum rates.

- The net impact of a shift to distance tax by 2025 is estimated as being a 30 million reduction in annual car trips, with a 4% drop in CO2 emissions from cars and around the same proportionate drop in serious car accidents.

Change in passenger km estimated in 2025 from introducing distance charging in Finland

- Most car users would pay less, with commuters in cities and high usage rural users paying more.  The net effect is to reduce barriers to car ownership, but encourage car usage when and where alternatives are not available.

- The estimated capital costs for such a system, for 3.5 million cars, were €89m-133m (US$123m-US$183m) (which I believe to be far too low), but operating costs were estimated at between €116m-133m (US$161m-US$183m) per annum.  The report indicated more scrutiny is needed over these costs.

- However, these higher costs compared to the current tax system would be recovered by the reduced costs to the economy of fewer accidents and emissions.  The savings from reduced congestion were not calculated, but given evidence from previous studies ought to deliver substantially higher economic gains, even if charges did not vary by time of day or location.

- It was considered that the primary benefit from the change would be to allow for charging by specific road and time of day, so congestion charging could be introduced equitably, targeting congestion and locations where there are reasonable public transport alternatives.

- It was strongly recommended that any distance tax have strong privacy protection, so that all data on specific trips be kept with the on board unit and in the possession of the vehicle owner, with only charging data released.  Other data could only be accessed if the owner wished to query the tax calculation or if there is suspicion of systematic fraud.

- There could be industry development potential in allowing such a system, as it would encourage local business to develop complementary systems and potential applications to use alongside the distance tax.

So, Finland is considering a car only based distance tax to replace taxes on owning cars.  That's interesting and revolutionary, but I also think it is missing some key points, which I come to below.  These are:

- Fuel tax ought to be included down to EU minimum rates;

- By including fuel tax, all other vehicles should be taxed by distance and mass;

- The rates of distance tax should reflect, at a minimum, infrastructure costs;

- By shifting to distance tax Finland cannot evade a strong case for partial hypothecation of revenues, in which case it may be wise to consider part of the charge not being a tax, legally speaking;

- The capital and operating costs need far closer scrutiny;

-  The benefits of shifting to distance based charging may be overstated around accidents, due to technology around automation, but understated by excluding the deadweight costs of existing taxes.

Fair tolling for New York? Not perfect, but a step in the right direction

Let's start out by not painting a picture of utopia.

Congestion in New York City is not going to be solved by tolling a few of the East River Bridges or putting a cordon to the north of 60th Street.

Move NY fair tolling plan

There are going to be some distortions in economic activity because of the placement of the cordon on 60th Street, and by the adding of tolls on some crossings.

Roads aren't going to be better managed, nor is public transit going to be better managed just because New York City gets some more money from motorists.  There are more fundamental governance, incentive and management issues with all of that infrastructure.

However, on balance the plan by Move NY called "Fair Tolling" will make a positive difference.  It will reduce congestion, it will encourage more use of public transit, walking and cycling, it will improve mobility to those locations to the east with higher tolls, and will improve air quality.

No other single policy measure can have such a positive difference on New York transport and the environment, whilst also having positive impacts on the economy.  It wont be sufficient, but it will be a very positive change indeed.  There will be less car use around downtown Manhatten, and possibly a little more on the periphery where tolls will reduce.  There will be more efficient use of crossings, as some motorists don't divert to avoid tolls.  Buses, trucks and taxis should have much easier trips, and there will be more public transit usage.  There may even be more cycling if the infrastructure is up to it.

There will, of course, be more money to spend on transport infrastructure, but it will take some convincing for enough people to be willing to pay for something they don't pay for now.  That's what needs to happen in the coming years.  Years I say, because it takes patience and time, and for it to be known that this isn't going to go away.  There may be one or two more failed attempts politically at pursuing similar reforms, but the logic about doing so is difficult to undermine completely.  At best opponents don't like it because they don't believe they can convince voters to like it.

So let's go through some of the key issues.

Germany expands road pricing: Part 2 light vehicle vignettes

As I reported around a week ago, Germany is taking two significant steps forward in expanding charging of road vehicles, on both motorways and major federal highways.   I wrote previously about the changes to the truck toll system, this article is not as long as much less detail is available, but this time it focuses on the introduction of a new time-based charge for light vehicles, otherwise known as a vignette that will

 predominantly apply to cars.   The term for that in German is PKW-Maut (effectively "passenger car toll").  However, it is not a toll, either in conventional parlance nor under European law (which counts it as a "road user charge" although it applies regardless of how frequently you use the charged road during the period of te vignette).

What vehicles?

Germany expands road pricing: Part 1 distance based truck tolling

As I reported around a week ago, Germany is taking two significant steps forward in expanding charging of road vehicles, on both motorways and major federal highways.  

1.  Expansion of scope of the LKW Maut truck toll to cover trucks from 7.5-12 tonnes, and to toll over 1,000km more of previously untolled Federal Highways.

2. Introduction of a vignette (pre-paid time based charge) for light vehicles across the autobahn network

It follows from nearly 10 years of operation of the ground-breaking, and initially fraught ridden LKW Maut truck toll system.  This is the first of a two part post about the major changes happening to road charging in Germany, and covers the expansion of the scope of the existing truck toll system.

Terminology in this sector is often troublesome, so let me very clear about the dimensions of the LKW Maut.

South Africa's controversial toll system goes live - but faces serious non-compliance

To be fair, for personal reasons, I have neglected the issue of the Gauteng Freeway Improvement Project in South Africa, which undoubtedly has been the most controversial road pricing issue in Africa in the past year. It involves introducing free flow tolling on a 201km network of mostly upgraded and some new highways in South Africa.

Map of entire Gauteng Freeway Improvement Project including all toll gantries

I've written a few articles about this project in the past three years, including noting the risks of non-compliance, when tracing vehicle owners and fining them hasn't been fully developed.

Unfortunately, those risks weren't properly heeded.  I wish I hadn't been right, but I was, there are some serious problems - not with the technology, but with the business processes and preparation for the toll system's introduction.  

You'll find almost all of my articles about South Africa are about this project, by looking at this page and the older articles here (unfortunately I used links to SANRAL - the government's highway company - website for images which are no longer valid).

Tolling was launched on 3 December 2013 and whilst Kapsch, the well-known equipment and system supplier for the scheme, reported that the launch had been a success, there are other stories indicating some nuances to this.   It should, of course, have been technically successful, given the launch date was put back nearly a year.  Given it uses what is now (EU) standard DSRC 5.8GHz technology with ANPR cameras, it would have been a surprise had there been a major failure. 

However, the Times (South Africa) reports that there is a shortfall in revenue of just under R500m (US$48m) from recovery of overdue tolls.   Bills of around R543m have been sent but less than 10% have been paid.  It had cost R50m in debt recovery costs (around US$4.8m), of which R32.8 is postage and invoicing costs (US$3.1m) and the remainder in processing the invoice (from detection to identifying the vehicle owner).  

Therefore, in my view, whilst the on-road systems are working, the customer management function has been disastrous, not because those undertaking it are incompetent, or that the technology is wrong, but because adequate provision was not made for handling the human factors. So, motorists are by and large driving and ignoring bills, and the longer this goes on, the more they are going to do it.

Taiwan moves to fully electronic tolling

ITS International reported in November 2013 that all 900km of Taiwan's toll highway network were to be converted to fully electronic operation by March 2014.  It actually happened on 2 January 2014.  It said:

The roads, which include three north-south routes with 22 toll points, carry out around 1.7 million transactions a day, generating some US$700 million of annual toll revenue.

Far Eastern Electronic Toll Collection is the company commissioned with operating the system.  According to the report, FEETC choose ISO 18000 6C sticker tags to be implemented, on cost grounds, and had achieved 85% takeup by November 2013.  The system is meant to be backed up by ANPR cameras to identify and charge vehicles without tag accounts.  Given Taiwan is an island, there is no issue of cross border traffic.  I had reported over three years ago that tolling tags were to be compulsory from 2012, but it appears the island has moved away from that for the implementation of fully electronic tolling.

Taiwan's tolled "freeway" network

Taiwan's toll system is based on distance, so vehicles are charged based on entrance and exit points onto the system.   The first 20km any vehicle travels every day is untolled, beyond that cars are charged at a rate of NT$1.2 (US$0.04) per km up to 200km, followed by NT$0.9 (US$0.03) per km for any after that on a calendar day.   Accounts are prepaid and need to remain topped up, otherwise bills are sent by mail to registered vehicle owners at a higher cost.  

Strictly speaking, Taiwan isn't a country (I wont fill this blog with the history of the Republic of China), so I wont say this is the first country in the world to have a fully electronic tolling network for all vehicles on its major highways.  However, that's the only reason why I wont say it.

Getting up to date information on how the Taiwanese system is going is difficult in English, so if anyone has reliable information about the Taiwanese system and reactions to it, they would be welcome.

Russia's new nationwide GLONASS based truck road user charge taking shape

Russia is proceeding with what looks like being the largest network road pricing system in the world, in terms of network distance.  That system is to charge all trucks 12 tonnes and over on Federal Highways by weight and distance.  I wrote about this in 2012, and Russia is in the midst of a procurement process for the system.

Russian Federal Highway network will have the world's largest road pricing system in place

Kapsch put out a press release in November 2013 that a consortium of two of its companies and Russian company JSC (NIS) had prequalified in the tender process.   The winner was meant to have been notified on 17 March 2014, but whether that has happened or whether it remains confidential whilst concession contracts are negotiated is unclear.

However, I've managed to patch together more information through Russian language sources, given the paucity of any mention of it in English elsewhere.   A key source being the Federal Road Agency, Rosavtodor.

April Fools it was, UK is not getting rational road pricing soon

I may have tweeted this yesterday...

Scott Wilson ‏@roadpricing  

"UK Labour Party to announce plan to scrap VED and halve fuel duty in exchange for pay-as-you-go road pricing based on weight and emissions"

but no, I wont expand on that tiny April Fools joke.

Whilst the Liberal Democrats did include in their manifesto an interest in road pricing (and in ending spending on upgrading roads), for either major political party in the UK to bite the bullet on this issue would require both the policy foresight and PR skills to pull off convincing voters that existing taxes would be reduced or abolished in exchanged for paying for road use directly.

It isn't going to happen soon.

Why?

Congestion charging in Mumbai? More mundane reforms needed first

DNA India reports on growing congestion in Mumbai and how congestion charging has been raised as a possible solution.  The city has faced a 7% increase in vehicles in each of the past seven years and has been mulling various demand management options including a 200% tax on a second family car.  Whilst it is clear Mumbai can't sustain every increasing growth in vehicle usage and ownership, the point is that it will stop eventually, and having blanket taxes on home ownership will open ample opportunities for evasion.  The obvious one will be to register vehicles at addresses of family members without cars.

The article does talk about congestion charging elsewhere, not representing the examples it uses well (Singapore has moved well beyond the Area Licensing Scheme and "value pricing" in the US is HOT lanes, which offers little in this context).

Certainly there is wider interest at the central government level in India about congestion charging, but it is a local matter and as such it seems unlikely that this will be implemented in advance of other measures, and in fact I wouldn't do it before the other measures given how important they will be in helping address the problem.