Wednesday, 20 July 2016

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.


Sunday, 10 July 2016

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)?



Monday, 4 July 2016

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.