Australia's Federal Government advances road pricing: Part One Heavy Vehicle Charging

Australia has for years been studying road user charging, but in the past year has been committed to what it calls "Heavy Vehicle Road Reform" which is about not just changing how heavy vehicles (both trucks and buses) are charged, but also how those charges are set, how revenue is used and the basis for planning how to spend that revenue.  It recognises that charging by registration fee and fuel tax is inefficient and results in significant infrastructure cost cross subsidies among heavy vehicle road users (the heaviest vehicles travelling the longest distances on secondary roads are subsidised by lighter vehicles operating shorter distances on freeways).  Mass, distance charging (that reflects the ESA impacts of vehicle configurations) provides a much closer link to actual costs that charging based on fuel consumption and static registration charges.  

Minister for Urban Infrastructure, Paul Fletcher announced on 25 November the Australian Government's response to the Infrastructure Australia 15 year infrastructure plan.  Infrastructure Australia is an independent statutory body with "a mandate to prioritise and progress nationally significant infrastructure" which undertakes its own research on the reforms needed to meet the country's infrastructure needs.  It published its report in February 2016, so the response is welcome.

On heavy vehicle charging Fletcher said the Australian Government will:

Progress next steps for heavy vehicle reform with states and territories through the development of a forward looking cost base, and a discussion paper to inform consultation on options for an independent price regulator.

Development of a forward looking cost base is about establishing the long run costs of the infrastructure that is being charged.  This looks at what the costs are to maintain the road network across the lifecycle of all the assets (e.g. pavement, bridges), both fixed costs (due to the effects of sun and rain) and marginal ( due to the effects of traffic volumes, mass and axle configuration), operating costs and then a rational capital renewal and improvement programme.

Independent Price Regulation takes power to set existing and future charges into the hands of an independent body, based on identifying the long run life cycle costs of road maintenance and capital spending programmes that are attributable to heavy vehicles, to establish charge rates.  Those charge rates would be based on forecasts of demand and a distribution of costs based on various factors (e.g. common costs, vehicle road space, equivalent standard axle mass loading).  

Earlier in November the Transport and Infrastructure Council, which brings together Federal and State Governments, released a communique indicating its ongoing commitment to reform(PDF):

The Council agreed to a number of actions to support the next phase of heavy vehicle road reform. The Australian Government will work with states and territories on the next steps to identify options for independent price regulation of heavy vehicle charges and to the trial of elements of heavy vehicle road reform. The Council noted that the current situation where charges related to revenue are disconnected from investment and maintenance decisions needs action. The National Transport Commission will provide technical advice to governments to conduct a review of the heavy vehicle cost base allocators, and develop a working prototype model for a forward looking life cycle cost base for heavy vehicle charges.

These steps are important in advancing heavy vehicle charging, as it sets up how charge setting is approached and the infrastructure cost data used to inform charge setting.

Actual implementation of heavy vehicle charging will require more of course, and a forward looking cost base and independent regulator would both add value to the current system of charging and funding (fuel tax and registration fees).  It will need states willing to pilot heavy vehicle charging, introducing it on a small scale, either geographically or by a small portion of the fleet or as a time limited trial.  

From that a state will have to make the transition (to a "RUC state"), but will need to reduce registration fees it collects and fuel tax collected federally for a new mass/distance charge it would collect.  It will need to take into account out of state heavy vehicles that do not pay a road user charge, without offering vehicles registered in the RUC state an opportunity to game the system.

There is no rush in Australia to have a federally mandated system, or interest in state systems emerging that are incompatible or are not within the overarching goals of heavy vehicle road reform. The question is what states are willing to move ahead and start progressing the steps necessary to introduce heavy vehicle charging.   It surely helps that the Australian Government is committed to the reform agenda, and as will be seen in the next post, is also interested in investigating further the merits of light vehicle charging.

Temporary stoppage

Apologies for the lack of posts, I wont be posting on this blog for the rest of September either, due to the unexpected passing of my Mum.

I will advise on my twitter account @roadpricing when service resumes.

Australian Federal and State Government Ministers reconfirm commitment to heavy vehicle charging reform

Australia has a Federal system of Government, with fuel tax only collected at the Commonwealth (Federal) level, but registration fees collected by the States.  Transport policy between Commonwealth and State level has some co-ordination through the Transport and Infrastructure Council (TIC) which brings together Ministers of Transport/Infrastructure from states and the Commonwealth to decide on matters that need interstate/national co-ordination.  This is already done on registration fees on heavy vehicles.

With the Liberal/National Coalition reelected in July 2016, the latest TIC meeting was important, and  in terms of road user charging, it was notable that the TIC released its communique from that meeting (PDF) mentioning the importance of heavy vehicle road user charging reform for Australia.

The second item from that communique, which is on this specific matter,  is repeated in full below:

The Council noted the growing momentum for road charging and investment reform, including the Council of Australian Governments’ December 2015 directive that Council accelerate Heavy Vehicle Road Reform and investigate the benefits and costs of introducing user charging for all vehicles. A presentation was provided by the Commonwealth outlining pressures on the current model for funding and provision of road services, and the potential benefits of moving to market based provision of these services for all vehicles. Council noted that the immediate priority is further development of the heavy vehicle user charging system. Council will progress next steps, including further, more detailed consideration of potential costs and benefits of reform.

What this means is that there is broad agreement on reforming heavy vehicle charging in Australia, but the emphasis will be on getting a closer indication of the economic impact of such reforms.  Understanding costs means understanding how such a system or systems may work, including the impact different procurement and delivery models may have (e.g. single supplier PPPs vs open system approaches), and how the costs of both in vehicle and on road systems will be recovered.  The benefits of reform need to be calculated and discussed in the context of how they will affect different heavy vehicle user groups, by vehicle type, industry and location.

The existing system has considerable cross-subsidies, and although part of the reform process is going to make these transparent, it is unlikely that those who benefit from those cross-subsidies will support changes that suddenly mean they pay more.  Much more thought needs to be given as to how a transition towards weight/distance/location based charging can be implemented progressively, including the transition away from registration fees (although I'd suggest a portion be retained to recover the administrative costs of registration at least) and fuel tax.

However, the future is positive.  South Australia declared last year that it wants to be the first state to pilot heavy vehicle charging.  Western Australia also announced that as part of its Perth Freight Link project, it wants to introduce a heavy vehicle charge for the route, to help pay for the state's portion of the capital costs and the maintenance costs of the route (rather than a toll).  

The Heavy Vehicle Road Reform programme is well underway (covering much more than charging) going wider than charging, but also towards the use of revenue, the management of roads and how to address improving the productivity of the road freight sector (such as charging to address specific infrastructure deficiencies).  Hopefully, this commitment from TIC is followed by specific commitments at Commonwealth and State levels, and sees action on developing pilots and introducing heavy vehicle charging

Mayor of London proposals on emissions charging resemble expansion of congestion charge

London's new Mayor, Sadiq Khan, was elected on 9 May and although his manifesto showed no interest in changing the congestion charge, he has made one of his top priorities addressing air quality in the city. 

The Transport for London website claims that London breaches EU legal limits on Nitrogen Dioxide (which may not necessarily be a legal matter once the UK leaves the EU, but that doesn't mean there isn't a problem!), and that pollutants "cause" the equivalent of 9,400 deaths in London per annum.  I'm always a little wary of statistical correlations between alleged causes and effects when the actual affects are more likely to be discreet, cumulative and one of multiple factors in accelerating deaths.  It is always a good headline, but there is little sense of the historic state of air quality.  London has come a long way from pea-soup smog (it wasn't fog) due to coal being burnt to heat households, businesses and generate electricity in the 1950s, with gas heating, energy efficiency, the demise of steam locomotives, relocation of port activities to Tilbury and beyond.   Road vehicles are cleaner burning than they have ever have been, although the misguided fiscal encouragement towards purchases of light diesel vehicles in the 2000s (to reduce CO2 emissions) has not helped as low CO2 has come at the price of particulate emissions, which are one of the most serious contributors to respiratory diseases.  

London has severe congestion, which is a contributor to pollution, because the idling times and low traffic speeds mean emissions per vehicle mile are higher than they would be if congestion were lower.

The Mayor of London has decided to consult on using charging as part of a programme to reduce emissions.  

London's existing Low Emission Zone

London already has a Low Emission Zone (LEZ), which was introduced in 2008.   It applies to all roads in London, excluding the motorways (which of course only serve destinations that are on local roads).  It requires the following vehicle standards:

- All trucks, buses and coaches must meet at least the Euro IV standard for emissions;

- All larger vans and minibuses must meet at least the Euro III standard for emissions.

All of Greater London is the area of the Low Emission Zone

The LEZ does not apply to smaller vehicles.  Vehicles that do not meet those standards either must be retrofitted to do so, or be subject to a daily charge for driving in London of £100 or £200.  It is intended to ensure commercial vehicles in London meet fairly average emission standards.  Euro 3 came into force in 2000 and Euro 4 in 2005, so it is not a significant burden to expect most such vehicles to meet those standards.  It wouldn't be unreasonable to uplift that to Euro 4 for light commercial and Euro 5 for heavy vehicles by 2020.  

Yet there is no evidence that the LEZ has had any measurable impact.   According to Citylab, a study from two years ago indicates the LEZ has had NO impact.  There are some guesses made as to why, such as how newer vehicles may be reducing NOx by less than forecast (and one may also surmise that if there has been extensive fraud in emissions testing by manufacturers, that they are somewhat to blame.  Another is that the growth in the number of diesel cars has offset the improvements in heavy vehicles.  Of course the LEZ has no impact on that, and the UK Government has only reformed Vehicle Excise Duty (annual registration fees) to remove the advantage low CO2 (diesel) vehicles get from that tax. 

Mayor's proposals

What the Mayor is proposing is as follows:

• bring the implementation of the central London Ultra Low Emission Zone (ULEZ) forward by one year to 2019;
• expanding the ULEZ beyond central London in 2020;
• introducing a new Emissions Surcharge from 2017 for the most polluting vehicles entering central London;
• giving TfL the go-ahead to start looking at a diesel scrappage scheme as part of a wider national scheme run by the government;
• keeping Londoners better informed and alerted when pollution is at its worst;
• making sure TfL leads by example by cleaning up its bus fleet and buying only hybrid or zero emission double-decker buses from 2018.

The fourth, fifth and sixth proposals are nothing to do with road charging, but the other three are, and could have quite a significant impact on the cost of driving in London for vehicles that are not eligible.

Connecticut a public relations nightmare on exploring road user charging

As I wrote last week, the FAST Act is providing Federal funding for states in the USA to pursue road user charging pilots. Connecticut is one of four states in the I-95 Coalition (which comprises the states through which Interstate 95 passes) bidding for such funds, but in the state this has stirred up plenty of opposition to the idea of even studying road user charging.  So much so that I'd say that even if the pilot proceeds, the "cause" of better road charging in Connecticut may have been set back years.

Both Republican and Democrat Senate Leaders oppose it, with opposition both to the state spending money studying a mileage tax (because the state cannot afford to “waste money” on investigating a way to raise revenue). 

A Google search of media in Connecticut about the proposed pilot reveals the following:

- No free ride

- GOP says 'no way' to mileage tax

- New tax proposals: 'if you drive a car, I'll tax your street'

- Legislators say 'no' to mileage tax

- Fear a double tax on driving

- Barbara Richardson Crouch: Mileage tax study perpetuates 'fiscal train wreck'

- Senate Majority Leader "mileage tax" is a non-starter 

 - Mileage Tax: Why Spend Money on Something Nobody Wants? And Why Didn’t the DOT Tell Us?  by Rep. Gail Lavielle includes this quote

I don’t believe there is a mileage tax in Connecticut’s near future, if for no other reason than that it’s a complicated and controversial undertaking, and, fortunately, no one seems to be even close to figuring out how to implement it.

Controversial it may be, but complicated and "no one seems to be even close to figuring out how to implement it"?

This is demonstrably untrue

The list of countries/states charging at least some vehicles by distance on at least main highways is as follows:

- Austria;

- Belgium;

- Czechia; 

- Germany;

- Hungary;

- Iceland;

- New Zealand;

- Poland;

- Russia;

- Slovakia;

- Switzerland.

With Bulgaria to come

Even in the USA, four states have weight/distance charges/taxes for trucks and of course Oregon has a voluntary distance charge for cars (which enables a refund in fuel tax for participants):

- Oregon;

- New Mexico (trucks);

- New York (trucks);

- Kentucky (trucks).

Meanwhile, California is embarking on a pilot.  However, media quick for headlines quickly enters into echo-chamber mode.

I understand concern from some about not being aware of the pilot, but the knee-jerk reaction to it is unfortunately ignorant. It's cheap political point scoring by people who are uninterested in detail and substance, fearful that supporting a new form of charging will look like a tax rise.

The Governor has indicated that he supports investigating options for the future, because of the decline in revenues from gas tax.   Quite what's wrong with a study and a pilot is difficult to understand, because it looks like gathering information is a negative?

To achieve a balanced debate about road charging, it is critical that agencies communicate the advantages and disadvantages of various road-charging options with politicians and the public, including addressing the following messages:

1. Charging by mile would replace fuel tax, not be an additional tax;

2. Charging by mile need not be administratively expensive and complicated, when costs of collection as low as 5% of revenues have been seen in established systems;

3. Charging by mile does not necessarily means the state tracking everyone’s movements, as charging can be done by competing private companies which can offer distance charging options that need not include location.

4. Charging by mile is not unfair on people travelling longer distances, as they pay more now by using more gas, unless they have an electric or hybrid vehicle and so pay much less even though they benefit from money spent on roads.  

5. The basis for charging should be have some link with a fair allocation of the costs of maintaining and upgrading roads, that means allocating fixed costs across all road users equitably, and allocating marginal costs according to the costs imposed by different road users.  That means moving beyond politics into economics.

Sadly the road charging debate in Connecticut has nothing to do with economics, with only the Governor showing any sign of courage and interest in even investigating reform.  The big lesson is that decisions on studying and pursuing a demonstration need to be made transparently and those in charge need to have a clear communications strategy to beat down the opposition.  

The messages should have been clear about:

- Declining yields from fuel tax will make it unsustainable and increasingly unfair;

- Charging by mile could replace fuel tax;

- Charging by mile is feasible, is done elsewhere, but the state needs to understand a lot more about it and how people would react to it, before considering it further;

- Any money from such charges would be dedicated to road maintenance and upgrades.

That hasn't happened

Australian toll road lawsuit successful

Some time ago I wrote about the Clem 7 toll road in Brisbane, Australia.  It provides a north-south tunnelled bypass of the Story Bridge and other roads approaching downtown Brisbane from the south and east.

It is a PPP toll road that went bankrupt as the demand for the road was little more than half that forecast.  In December 2013, the road was taken over by Queensland Motorways, which at the time was a company owned by the Queensland State Government, but has since been privatised and is now owned by Transurban. 

The road was acquired by Queensland Motorways for A$618 million (US$472 million), but cost A$3.2 billion (US$2.4 billion) to build.

Transurban's latest traffic data reports AADT of 27,000 on the road, which is notable when you consider the forecast was that up to 100,000 a day would be using it.   

However, what was significant about this case was that around 1000 investors who bought shares in the project engaged in a class action lawsuit (PDF detailed) against the demand/revenue forecasting consultants - AECOM - and the original Rivercity Motorway company.   The Sydney Morning Herald reports that they have won a settlement gaining a payout of A$121 million (US$92 million).   The allegation was that AECOM had made traffic forecasts without reasonable grounds, and specific information had been excluded from the product disclosure (prospectus) document for investors.  

FAST Act funding assisting US states to develop road charging pilots

It has been remiss of me not to explain to those outside the USA what is the most groundbreaking initiative on road pricing at the Federal level that I am aware of.

Perhaps the most interesting transport policy development at the Federal level in the United States under the Obama Administration has been the FAST (Fixing America’s Surface Transportation) Act, which besides a great deal of taxpayers' money for road, railroad, public transit and other modes, has made special provision to support states that want to demonstrate what it calls “user-based alternative revenue mechanisms”.

Section 6020 of the new law provides US$95 million over five years (hidden in to help states interesting in progressing various forms of road charging, on a 50/50 basis. US$15 million is available in the first year (under the Research pool of funding in the pie chart above). States or group of states may apply for funding through a grant process administered by Federal Highways Administration (FHWA). Applications for funding are expected annually, with the deadline for the first tranch of applications having passed on 20th May, decisions from FHWA on which states have been granted funds are expected shortly.

The objectives are outlined below:

• to test the design, acceptance, and implementation of two or more future user-based alternative mechanisms; 
• to improve the functionality of the user-based alternative revenue mechanisms; 
• to conduct outreach to increase public awareness regarding the need for alternative funding sources for surface transportation programs and to provide information on possible approaches;
• to provide recommendations regarding adoption and implementation of user-based alternative revenue mechanisms; and 
• to minimize the administrative cost of any potential user-based alternative revenue mechanisms.

According to FHWA, States receiving funds under this provision are required to address the following issues:

• the implementation, interoperability, public acceptance, and other potential hurdles to the adoption of the user-based alternative revenue mechanism;
• the protection of personal privacy;
• the use of independent and private third-party vendors to collect fees and operate the user-based alternative revenue mechanism;
• market-based congestion mitigation, if appropriate;
• equity concerns, including the impacts of the user-based alternative revenue mechanism on differing income groups, various geographic areas, and the relative burdens on rural and urban drivers;
• ease of compliance for different users of the transportation system; and
• the reliability and security of technology used to implement the user-based alternative revenue mechanism. [FAST Act § 6020(d)(1)] 

Recipients may also address—

• the flexibility and choices of user alternative revenue mechanisms, including the ability of users to select from various technology and payment options;
• the cost of administering the user-based alternative revenue mechanism; and
• the ability of the administering entity to audit and enforce user compliance. [FAST Act § 6020(d)(2)]

Network charging not HOT lanes

What this means is interest in finding new ways to raise revenue from using the roads, around replacing or augmenting fuel tax. I doubt if the popular trend for HOT lanes is innovative anymore, nor is simply the use of tolls for new or improved infrastructure, but rather it looks like interest in more network wide charging, whether it be tolls on all major highways, distance charging or time based charging (charging based on duration of network use or prepaid access like vignettes in Europe).

Private sector service provision

It outlines key obvious policy issues around acceptability and privacy, but also interestingly embraces "use of independent and private third-party vendors to collect fees and operate the user-based alternative revenue mechanism".  This implies using either the open system approach embraced in Oregon (and now California with its pilot), Hungary and New Zealand, or a full blown PPP, both of which are significant innovations in a country that has one of the lowest levels of private sector participation in the ownership, operation and funding of roads in the developed world.

Congestion pricing

The inclusion of "market-based congestion mitigation" is interesting too, which could range from peak time tolling, to cordons, to full network time/location based charging (the latter potentially presenting challenges on privacy). Market based mechanisms will need to have some direct link of charges to demand and supply, and arguably even infrastructure costs. Ensuring road users pay for the full cost of infrastructure would have an incremental impact on congestion for a start, but to have a time and location based element will be a challenge, although one that pilots should consider.

Equity concerns

It's obvious what this is meant to mean, which is concern that road charging will disproportionately impact those on low incomes or those who use the roads the most. Not sure anyone does equity impacts of the price of food or clothes or many other goods or services where people pay according to supply and demand, but still the impacts of major reforms are important to identify. Part of this should also identify:

- the absolute equity impacts of fuel tax (i.e. are those able to afford to buy expensive electric cars having the roads they use be subsidised by those who cannot?);

- the equity impacts of general taxation funding of roads (consider if telecommunications or electricity infrastructure were funded that way);

- the equity impacts relatively in the current charging system, who bear the greatest cross-subsidy cost and benefit?

Ease of compliance

This is critical, but also alongside ease of enforcement. Users should know what to do and for the compliance costs to be low, but also it should be easy to detect, identify and pursue those who deliberate fail to pay or seek to defraud any system.

User choice

Flexibility and choices for users sings like what has been done in Oregon and California. Users are expected to get more than one option to pay for road use, bearing in mind that the scope to do this is limited by the inevitable game playing of users to minimise charges. The obvious example is not to have both time and distance based charging, because the highest users will pay by time and be cross subsidised by the lowest users. Concerns about overcharging the highest users could be address by volume discounts (as in Slovakia). 

Administrative costs

One of the biggest criticisms of any form of road charging compared to fuel tax is that fuel tax is cheaper to collect. This is indeed true. Yet it ignores the deadweight economic impacts of not directly charging for a service, and the behavioural impacts that ensue. That's not to say that ensuring costs are minimised is not important, it absolutely is. However, I always recall a study in New South Wales Australia that estimated that the economic benefits of abolishing registration fees for vehicles, and replacing it with simple distance/time/location based charging (location being urban/rural, time being peak/offpeak in urban only) would far outweigh the collection costs. 

Who is going to get funding?

That's the US$15 million question. It is known that there are proposals in from at least California, Oregon, Minnesota, Washington, Hawaii, four states in the "I-95 Coalition" (Connecticut, Delaware, New Hampshire and Pennsylvania) and RUC West (a grouping of Western states formerly known as the Western Road Usage Charge Consortium). However, there may be others.

Germany's proposed introduction of road user charging for cars

Germany has had a distance-based road pricing scheme for heavy goods vehicles 12 tonne and over since 2005, initially for the autobahns, which has been expanded in scope to include vehicles down to 7.5 tonnes since 1 October 2015 and increasingly Federal highways (not just motorways).  Indeed, from 2018 all Federal Highways will be subject to the charge (known as LKW-Maut).  I've written more about the expansion here.  In time I'd expect the charge to cover all heavy vehicles down to 3.5 tonnes, as the logical next step.  Indeed, Federal Finance Minister,  Wolfgang Schäuble, has said that over time there will be road pricing on all public roads for all vehicles.  

Map of Federal Highways to be subject to heavy vehicle charge

A more controversial development has been the plan to expand charging to include light vehicles (up to 3.5 tonnes).   It was originally to come into force on 1 January 2016, but has been deferred because the European Commission (EC) believes it is illegal and there is some political controversy about it in Germany.  It is unclear when the car vignette (known as PKW-Maut) will be introduced.

German car vignette

The proposal is to introduce a time based charge, known throughout Europe as a vignette which is based on pre-purchasing access to the road network for a set number of days.  As it stands now, the proposal is as follows:

- All German licensed cars will be required to purchase a one-year vignette to use any public roads.  The rate be determined on environmental factors described as "will be calculated based on their engine capacity and environmental performance. For every 100 ccm increment of cylinder capacity up to a defined cap of 130 euros"

- All foreign licensed cars will choose from either a one-year, two-month or ten-day vignette only required to use the motorways.  Depending on the environmental category of the vehicle it ranges from €16 to €30 for a two-month vignette, or €5 to €15 for a ten-day vignette.

The days for a vignette are consecutive.  A one-day trip on the motorways requires a ten-day vignette, and it is valid for ten consecutive days, not ten separate one-day trips on different months.  

Vignettes will be fully electronic, meaning they are enforced by automatic number plate recognition. They will be able to be purchased online, or in registered retail outlets (filling stations).  

Gross annual revenue is estimated at €3.9 billion (in today's values presumably), comprising €3.2 billion from German drivers and €700 million from foreign ones.  Operating costs are estimated at €200 million per annum.  However, the countervailing reduction in the domestic vehicle tax will reduce revenue by over €2 billion per annum.   The estimated first year net revenue is €500 million, but this is expected to increase rapidly 

All revenue raised from the vignette will be hypothecated into the same transport fund as the heavy vehicle LKW Maut goes into, which is unlike existing motoring taxes.    The table below depicts the range of vignette prices. 

Level	Price of annual vignette		Price 10 days	Price 2 months
	From	To
1	-	39	€5	€16
2	40	69	€10	€22
3	70	130	€15	€30

EC objections

The EC launched an infringement case against Germany (it said it would launch a similar one on the UK for its HGV Levy, but the Brexit vote has effectively stalled this).  The two reasons it regards Germany as infringing the EU Treaty are:

- German drivers effectively will not pay as they receive a commensurate discount in vehicle tax;

- The vignette prices for short term visitors are seen as being disproportionately high.

The German Government is convinced its proposal is legal and personally I do not agree with the first point.  Vehicle tax is a national matter and it is up to Member States as to the level they set it at.  If they want to shift taxation from owning a vehicle to operating it, then it is up to them.  The mandatory one-year vignette for German vehicles using all roads, may be seen as making the vignette different, but this is discriminatory in favour of foreign motorists.  Foreign motorists don't pay when using roads other than motorways, but Germans do.  It would be much more equitable to apply the vignette for Germans to motorways only, but I suspect this would result in significant traffic diversion.  Otherwise, the vignette for foreigners could be applied to all roads, although the EU may still regard this as "disproportionate".  No Member State applies vignettes to all roads, but that is not in itself a reason why they should not be so applied (particularly as, for light vehicles, the marginal costs of their use of motorways is lower than that for local roads, and negligible in any case).  

In short, as long as the same price applies to foreign as to German vehicles, for the vignette, then what is done with other taxes appears to me to be a national matter.  

On the relative prices,  the issue is more subtle.  A vignette, as a daily charge to use the network, seeks to recover costs that should be something akin to usage.  That doesn't mean that a rate for a year should be 36.5x the price for 10 days (or vice-versa), bearing in mind that a short-term user is likely, on average, use the roads much more in terms of time and distance than a long-term user.  Short term users may transit the entire country, or visit it to many places, long-term users may spend days without using their cars.  

I will just point to this report of which I was one of the authors.  The methodology we used to compare the prices of short and long term vignettes was to establish the average daily price and the ratio in daily price between the shortest and longest period products.  

This extract from the report outlines the findings (for prices in 2011):

EU vignette price ratios between longest and shortest term products

As you can see, at the time Slovenia charged by far the highest price for a short term product compared to a long term one, probably because it knew it could charge high prices for what is a two hour drive between Croatia and Italy or Austria.  Austria, by contrast, had the lowest ratio.  What about Germany?  

Applying the same methodology, to the middle environmental category, the ratio per day is:

€0.15 per day for an annual vignette in the mid-range of "Level 2".

€1 per day for a ten day vignette in Level 2.  So the ratio between the long and short term product is 6.7, putting it much closer to the high charge countries than the lower charge ones.

Bear in mind since that report, following representations from the European Commission, Slovenia has altered its vignette rates by increasing its annual charge, so it now charges:

€0.30 per day for an annual vignette for cars;

€2.14 per day for a one-week vignette for cars, with a ratio now of 7.1

It seems difficult for Germany to justify charging cars over 6x as much for a short term vignette than a long-term vignette, as this presumes the average distance or time spent on the network is 6x greater for a 10-day vignette user than an annual user.   There may be statistics to justify this from the BMVI (Federal Ministry of Transport and Digital Infrastructure), but I have not seen them.  I would suggest the Austrian and Hungarian ratios of 3-4x are more realistic.

Where to from here?

I suspect that whatever the findings of the infringement action against Germany, it will continue with the charge, if only because it is unlikely that any fines will significantly offset the €500 million net revenue it will receive.

However, for Germany the vignette should be an interim measure.  It makes some revenue from foreign cars, which is what it is designed to do, but it isn't much of a reform in terms of changing behaviour or in encouraging the more efficient management of roads.

As it expands the LKW Maut in 2018 to Federal Highways, the case for expanding the scope for all vehicles down to 3.5 tonnes must be high, given that neighbours Belgium, Switzerland, Austria, the Czech Republic and Poland all have heavy vehicle road user charging systems that apply to such vehicles.

For light vehicles, it could do with observing the pilots underway in Oregon and California, and looking at move from vignettes to distance charging, even if it is as simple as odometer reporting. Furthermore, it should do so not simply to rebalance charges from taxes on owning vehicles (which are regressive) but also from fuel taxes which are inevitably eroding in yield and fairness, due to the appearance of more fuel efficient and electric vehicles.  Such a shift would apply primarily to Germans, but could mean Germany charging much lower fuel prices than its neighbours (down closer to the EU legal minimum fuel tax rate), and for all road use to be charged by distance and vehicle size, emissions rating.   Foreign vehicles could simply be required to have distance charging accounts and have distance measured whilst in Germany (and have it apply to all roads at the same rate, unless users want to pay according to road type - with higher charges for local roads, lower for Federal Highways and the least for motorways).  

Those that do not pay by distance, would not be able to receive fuel tax refunds.

Of course there are a number of complications and issues around doing this, but the platform already exists to do this.  Moving the LKW-Maut down to 3.5 tonne vehicles has to be the first step, but the case for distance charging of cars exists now and Germany would be well placed to look at how it could progress this, to replace the vignette it is about to introduce.

Auckland road pricing should be full network charging says report

I've written about Auckland plenty of times, not least because I am originally from New Zealand. (NZ)  There have been two major discussions about road pricing in Auckland in the past 12 years, the third has now come from the interim report of the Auckland Transport Alignment Project (PDF).

Auckland motorway network

Later I will write a more detailed look at road pricing in Auckland and New Zealand, but for now a quick summary.

Summary

Auckland Council and the NZ Government have been disagreeing about a future transport strategy for the city for the past few years.  It has focused on the priority Auckland Council has given to an underground railway loop through the city's downtown Central Business District (CBD), but has wider implications.  Auckland Council has prioritised significant capital spending in fixed public transport infrastructure, but the NZ Government has been sceptical about the economic efficiency and value for money for such spending.  Auckland Council's primary revenue raising instrument is property rates, and it is political unsustainable to fund the proposed capital works from rates alone (rates already pay for around 60% of the costs of maintaining and upgrading local roads, not motorways and state highways), and pay for around 50% of the costs of subsidising public transport).  The NZ Government fully funds motorways/state highways and pays for 40% of the costs of maintaining and upgrading local roads, and the other 50% of the costs of subsidising public transport, it also owns the railway network and motorways/state highways.  The funds spent on transport by central government are mostly raised from hypothecated motoring taxes on road users, being fuel tax, a weight/distance tax on heavy vehicle and light diesel vehicles, and  registration/licensing fees.

The Auckland Transport Alignment Project (ATAP) as the project name suggests, is a joint project between NZ Government and Auckland Council representatives to get alignment between both levels of government on a 30 year strategy for transport in the city.

Talk of road pricing goes back over ten years, with an initial report (Auckland Road Pricing Evaluation Study) concluding the blatantly obvious, that you can reduce congestion and raise revenue from introducing road pricing.  However, the options considered were limited, in part because the lead consultant and the client decided that only point based charging was proven and feasible (that is charging using DSRC/tag and beacon, or automatic number plate recognition technologies).  The only options modelled at the time were cordon charges, area charges and motorway charges.  The cordon/area charge options had to be large to have any meaningful impact (a downtown cordon would have little impact on traffic and generate limited revenue).  Furthermore, by placing cordons across suburbs, there would be significant impacts on businesses and residences either side of these artificial boundaries, as those just inside would lose value and those just outside would benefit, and congestion impacts would be blunt.  Motorway only charging was ruled out because it would greatly increase congestion on local streets.

Subsequently, Auckland Council has proposed motorway charges, as a way of raising additional revenue to pay for rail projects, but as the motorways are owned by the NZ Government (and Auckland Council has no powers to introduce any form of road pricing on existing roads), it has been a point of difference with the NZ Government.  With that issue, and a broader concern about the need for a coherent strategy for Auckland transport, to address congestion and accommodate a growing population, ATAP was set up.

The first report of ATAP (Foundation Report-PDF) was published in February 2016, outlining the key strategic issues, which are:
- ensuring access of residents to employment and employers to labour;
- reducing congestion;
- increasing the mode share for public transport, to help reduce congestion (and to ensure adequate utilisation of considerable capital spending on public transport infrastructure).

The interim report which has just been released came to the conclusion that changing the scope and type of capital investment in the next 30 years will not make a substantial difference in transport outcomes.  Much heavier spending on public transport instead of roads or targeted investment on specific high value road and public transport projects will have localised impacts, but will not adequately address the key challenges.  It also concluded that shared mobility options and connected vehicle technologies (and greater automation) could contribute towards improving "network performance".  However, it also came to the conclusion that variable network pricing by time of day and location, could significantly relieve congestion.

Urban network pricing or beyond?

There is no specific proposal on pricing, but two suggestions made in the report indicate a direction that hasn't been picked up by the NZ media.  One suggestion was that heavy vehicles be the first to move towards such pricing and the other was that fuel tax could be replaced with such pricing.

NZ has long had a weight/distance road user charge (RUC) applied to all heavy vehicles and all diesel vehicles (including cars and light commercial vehicles) on all public roads (fuel tax is only applied to petrol, LPG and CNG, not diesel).  A prepaid distance permit is bought by road users, by reference to the vehicle's hubodometer reading for heavy vehicles and odometer reading for light vehicles.  In the past six years the option of having a GPS based on board unit and paying a certified service provider has been available, although it is still to pay for prepaid electronic permits.

Where to go from here?

Rather than have an Auckland specific variation on this, a logical policy path would be to evolve the existing road user charge, because the only way that variable network charging is going to work effectively will be if all vehicles are on it.  To do that would mean:

- Providing a post-payment option for RUC (even with a prepaid account) so that road users can more closely relate usage to what is paid, linked to electronic measurement of distance.  This would best be provided by private account managers;
- Transition away from hubodometers and paper RUC licences to all heavy vehicles being on electronic systems that are capable of charging by time of day and location.  One way to do this would be to make electronic systems mandatory for all newly registered heavy vehicles or to have a transition period of say five years;
- Introduce some location based charging to heavy RUC, based on infrastructure costs (e.g. cheaper on motorways than local roads) and even time of day incentives for off peak driving in urban areas;

That alone would enable heavy vehicles to be charged with more disaggregation, but the much bigger step will be for light vehicles.

- There are options now for electronic measurement of distance for light vehicles paying RUC, but this should be encouraged further.  A transition towards universal electronic light RUC could be achieved by making it compulsory for newly registered diesel vehicles.  Lessons should be learned from the Oregon and California pilots on how this may best be achieved;
- Transition dual-fuel vehicles towards light RUC by piloting a mechanism to deliver fuel tax refunds for such vehicles, and removing fuel tax on LPG and CNG (which will also remove a costly compliance burden on many users of those fuels who are not using it on road and claim fuel tax refunds as a result). This should also be a time to remove the exemption on RUC for electric vehicles;
- Introduce RUC as an option for petrol powered vehicles instead of paying fuel tax;
- Develop a process to transition petrol powered vehicles to RUC.

Of course all of this raises big questions.  One is privacy, another is what sort of organisation should be responsible for price setting of disaggregated variable road charges.  I doubt it should be any that exist now, and there is a strong case for transitioning road management towards more commercial entities with the power to set such prices and vary them based on demand conditions.  That means taking the power to set RUC away from central government politicians and moving the management of roads from central and local government entities to independent companies.  I doubt ATAP will go quite that far, but the greatest benefits from dynamic variable road pricing will come when roads can be priced according to changes in demand, supply and infrastructure costs.

ATAP is about a thirty year time horizon for transforming Auckland.  To implement the sort of road pricing that will deliver the greatest benefits for Auckland will need around half that time, but it will be for all of New Zealand, and will also challenge both road and public transport capital spending ambitions.  Most of all, it will change the relationship between road users and road providers, and also provide a major challenge to assumptions around all transport modes.  After all, once roads are priced relatively efficiently, so congestion is significantly reduced, what remains the case for subsidising peak provision of public transport, when road users are paying fully for the costs of their road use (and incentivising the use of other modes)?

California launches Road Charge pilot

On the 1st of July the most populous and richest state in the US launched its pilot programme to trial road user charging, for both light and heavy vehicles, called the California Road Charge Pilot Program.  

California Road Charge pilot logo

For the next nine months, participants will simulate paying for road use by distance or time, after which Caltrans will assess the performance and public reaction to the various charging options.   Undoubtedly this is the highest profile live pilot of road user charging for cars anywhere in the world, and so not only is it being watched in the US, but around the world.

 Over 7,500 individuals had expressed interest in participating in the pilot with 5,000 having been chosen to participate.   Selection of participants has been partially focused on achieving a demographic spread based on income and location as seen below:

Target Demographic of California Road Charge participation

Charging options

Participants have five different options to choose:

1. A prepaid time permit which allows unlimited use of the roads over a fixed period of time, in 10 day, 30 day and 90 day increments (akin to vignette systems seen in Europe);

2. A prepaid distance permit, prepaying mileage in advance in 1000, 5000 or 10000 mile increments (similar to New Zealand's traditional Road User Charge system for light diesel and heavy vehicles);

3. A postpaid odometer reading distance charge, with the motorists reporting mileage through odometer readings;

4. Postpaid automated distance reporting using on-board vehicle technology without location; 

5. Postpaid automated distance reporting using on-board vehicle technology with location (to distinguish off-road and out of state driving).

The process for participation is outlined below.

California Road Charge pilot volunteer process

Privacy matters

I'm more interested in the three latter options, partly because I doubt that a time permit can co-exist with a distance based permit without road users gaming the options to their advantage.  There are advantages and disadvantages of all, and the key reason why there are multiple options is privacy.  In the US, there is considerable concern that any distance based charging system involving GPS will become a mass surveillance system.  This is being addressed in two ways.  Firstly, by offering options that do not involve location data being collected.  Secondly, by having private companies offer the service and collect the charge.  This separates the state government from the collection of data.

Competition

The pilot is not being operated by a one-size-fits-all single operator, but rather choice is the keyword, with competitive delivery of account service delivery.   This competitive dynamic should help to ensure the performance of all participating companies is enhanced, and may offer a taster of how deployment of this sort of system may progress in the future.

Azuga and Intelligent Mechatronic Systems (IMS - branded as Drivesync) are offering multiple mileage based accounts for participants (covering options 4 and 5).   Azuga offers options including a plug in device for the vehicle, a car's built in telematics (if compatible) and a smartphone app.  Drivesynch offers a plug in device or a car's telematics.   

Arvato Bertelsmann is operating the California State Account Manager, which is supplying options 1 to 3.  EROAD is offering solutions for heavy vehicle participants (options 4 and 5). 

Purpose

The reason for the pilot is simply revenue. The chart below is the California Air Resources Board forecast of future traffic demand and fuel consumption in the state.  This pilot is intended to develop a medium to long term solution to this problem which cannot be resolved by simply increasing fuel tax.

The basis for the pilot is Senate Bill 1077 which Governor Jerry Brown signed into law on 29 September 2014, which requires the state of California to design and implement a statewide pilot program to study the implications of a road charge model no later than January 1, 2017.

The Bill states as follows:

(a) An efficient transportation system is critical for California’s economy and quality of life.

(b) The revenues currently available for highways and local roads are inadequate to preserve and maintain existing infrastructure and to provide funds for improvements that would reduce congestion and improve service.

(c) The gas tax is an ineffective mechanism for meeting California’s long-term revenue needs because it will steadily generate less revenue as cars become more fuel efficient and alternative sources of fuel are identified. By 2030, as much as half of the revenue that could have been collected will be lost to fuel efficiency. Additionally, bundling fees for roads and highways into the gas tax makes it difficult for users to understand the amount they are paying for roads and highways.

(d) Other states have begun to explore the potential for a road usage charge to replace traditional gas taxes, including the State of Oregon, which established the first permanent road user charge program in the nation.

(e) Road usage charging is a policy whereby motorists pay for the use of the roadway network based on the distance they travel. Drivers pay the same rate per mile driven, regardless of what part of the roadway network they use.

(f) A road usage charge program has the potential to distribute the gas tax burden across all vehicles regardless of fuel source and to minimize the impact of the current regressive gas tax structure.

(g) Experience to date in other states across the nation demonstrates that mileage-based charges can be implemented in a way that ensures data security and maximum privacy protection for drivers.

(h) It is therefore important that the state begin to explore alternative revenue sources that may be implemented in lieu of the antiquated gas tax structure now in place.

(i) Any exploration of alternative revenue sources shall take privacy implications into account, especially with regard to location data. Travel locations or patterns shall not be reported, and legal and technical safeguards shall protect personal information.

The Bill establishes already that charges that vary by location are not being considered.  California's Road Charge is not a trojan horse for any form of congestion pricing.  It is seen as a pure revenue replacement exercise.

Of course California is at the forefront of plug-in electric vehicle takeup in the US as seen by this image from the US Department of Energy in 2015:

Electric vehicles in the US by state

California is clearly the highest, with Hawaii second (and also investigating running a pilot) with Washington, Georgia, Oregon and Vermont the remaining states with more than 1 per 1000 people.  Of course Washington and Oregon are developing or running pilots already.   Yet road user charging isn't primarily about electric vehicles, but about fuel efficiency.   Road Charge would replace California's gas tax if it were implemented.

Fuel tax isn't a good way of charging for road use

Fuel tax is a very poor way to charge for road use.  It is only a very rough proxy for road use and about the only thing it is useful reflecting is CO2 emissions.  It is not even good at reflecting noxious emissions, as highly fuel efficient diesel vehicles may emit many more toxins than less efficient petrol vehicles.

Fuel tax cannot reflect variations in infrastructure costs or demand/supply.  Neither can it adequately reflect the increased costs of wear and tear imposed on roads by heavier vehicles, as fuel consumption does not rise at the same rate as wear and tear which increases exponentially along with weight per axle.   Likewise, fuel taxx charges light vehicles differentially for infrastructure costs even though the marginal costs imposed by all of them are identical.  Those with smaller, newer vehicles pay less than those with larger, older ones.  

I hope that the California Road Charge Pilot gets a good response from participants and lots of useful information to inform the assessment of the options.  Getting the public involved is important.  I wish all participants the very best.  California, the USA and the world are watching.

More details at the pilot project website.

California Road Charge brochure download here

California Road Charge Pilot Technical Advisory Committee meeting details here 

Disclaimer: D'Artagnan Consulting is supporting Caltrans in managing the California Road Charge and I am working on the California Road Charge Pilot Program.