Australia's National Heavy Vehicle Charging Pilot: Part Two - The National Pilot Program Stage One

The announcement of a National Heavy Vehicle Charging Pilot by the Australian Minister of Urban Infrastructure and Cities in December 2017 was designed to break what has been some years of inertia in progressing heavy vehicle road user charging in Australia.

As I have written before, there is no shortage of reports or studies about the merits  and possible approaches to transitioning from fuel tax and registration fees to direct road user charging for heavy vehicles in Australia, but there have been a series of key issues that have hindered progress, which in part reflect the constitutional and governance arrangements for roads and charging of road use in Australia.

The previous project, (which lasted seven years) called the Heavy Vehicle Charging and Investment project, floundered for a host of reasons.  It was too focused on charging, and not the funding or supply of roads.  Although many reports were prepared on a host of elements of charging policy, insufficient attention was paid to issues around transition.  How to get from the current charging system to feasible and user acceptable steps to direct user charges wasn't adequately addressed.  As such, the proposals focused on the costs of implementing heavy vehicle charging, in the context of a single or limited competition for supplying such systems, which raised questions as to the costs and economic viability of charging. It did not sufficiently engage with Treasuries at Commonwealth and state/territory levels, furthermore its complexity was such that it was difficult to get political traction and with that stakeholder support for the project.  It wasn't helped by a complex project governance structure that saw it lose momentum.

Given it is clearly possible to reform the supply side of roads, without reforming charging, and that reforming the supply side can help address key issues that arise in charging (especially how to set charge rates and convincing road users that revenue collected is spent wisely and in their interests), it made sense to adopt the Heavy Vehicle Road Reform approach. 

What makes road charging complicated in Australia?

1.  Registration fees are charged at the state/territory level (and motor vehicle registers are state managed, except for one for interstate heavy vehicles), but fuel tax is charged at the federal level as it is an excise duty.  This adds a complication in terms of co-ordination, but also institutional responsibility for refunds.  A state/territory level road user charge could not refund fuel duty, without a specific arrangement with the Commonwealth.  If a state/territory applied road user charging on its own roads, without fuel duty refunds, then it is only likely that its own heavy vehicles would pay road user charges, as out of state heavy vehicles would still be paying registration and fuel duty (so could not be expected to pay a state level road user charge on top). 

2. All road managers are at the state/territory or local level of government, but a significant proportion (23%) of spending on roads come from the federal (Commonwealth) level of government.  However, two thirds of revenue raised from heavy vehicles come from fuel tax (levied at the federal level).  The Commonwealth government doesn't manage any roads, but it does manage the primary means of charging for road use.

3. With a couple of exceptions, none of the revenue collected from heavy vehicles is hypothecated into funds for road capital or maintenance spending purposes.  All funding is allocated through politically led processes at Commonwealth, state/territory and ultimately local levels, on an annual basis.

4. Heavy vehicle configurations in Australia are complex, and some of the largest heavy vehicles allowed on public roads anywhere in the world. 

In essence, because the Commonwealth is not a road manager, is not the primary funder of roads and doesn't register or maintain registers of motor vehicles (with one exception), there was always some sense in encouraging states and territories to take the initiative on road user charging.  It seemed appropriate for the Commonwealth to have oversight and guidance, to ensure interoperability between road charging systems and to address interstate/cross border issues of charging, as well as being the regulator for price setting to deter the setting of "monopoly" charge levels and discriminatory behaviour with charging.  Ultimately, the ideal of land transport market reform that turns the provision of roads for heavy vehicles into an economic service, would see the providers of that service (road managers) leading the setting of road charging rates, and managing the provision of road charging services for their customers (albeit that such services may be operated at the state/territory level rather than the local).

However, it has appeared that there are two main risks with leaving it all to states and territories. Firstly, states and territories that seek "first mover advantage" could risk adopting practices in rate setting, governance and scheme design that are sub-optimal for other states and territories.  They might suit the policy objectives at the state/territory level, but not at the wider Commonwealth level. One example could be adopting a rate setting approach that lowers costs for heavy vehicles on the roads in that state, which may be appropriate for recovering the costs of those roads, but which implies that lower costs would apply on similar roads in other states.

Secondly, there is a risk that states and territories adopt approaches that do not work, and so undermine the chances of success elsewhere.  At worst, if a state or territory introducing heavy vehicle charging in a way that proves unpopular with road users, it could create opposition elsewhere in Australia, putting at risk wider deployment of heavy vehicle charging, potentially for some years.  

Finally, states and territories may simply do nothing without leadership from the Commonwealth. Without access to money from fuel duty, it may simply be seen as too difficult for states and territories to progress road user charging.   Although they can refund registration fees for vehicles in their state, they can't refund fuel duty.  This adds a complication for out of state heavy vehicles, which would all be paying under the current system, but either would have to be exempt from a state level road user charge, or effectively pay twice.  For heavy vehicles paying the road user charge in their own state or territory, when they enter another state or territory they would not pay the road user charge.

Stages of the National Heavy Vehicle Charging Pilot

Stage 1 of the Pilot is intended to start mid June 2018 and will effectively conclude in November 2018 (although some elements may run till  June 2019).  It has three major strands of work:

• Development of design, and planning on the implementation and evaluation of on-road heavy vehicle trials for future stages of the National Pilot.
• Modelling of the spatial and distributional impacts of direct user charging scenarios  that could replace current charges under reform  
• Market research and surveys to obtain baseline information on the views of industry, supply chains, road managers and the wider community on direct user charging for heavy vehicles.

The first workstream will focus on the preparation for Stages 2-4 of the National Pilot, including project planning, design of concepts of operation and development of an appropriate evaluation framework for all three stages.

The second workstream is effectively the first pilot, as it will seek to model the impacts of charging scenarios on different groups of heavy vehicle users.  Datasets on different types of heavy vehicle users (by geography, type of haulage, fleet size, vehicle size, routes and trip patterns, freight and passenger services) will be used to model how much such users would pay under four different road user charging rate scenarios. All these scenarios presume revenue neutrality (although it is unclear if that means neutrality after taking into account the costs of collecting revenue).

Those scenarios are:

1. A flat national mass-distance charge, applicable to all routes. This could be seen as akin to both the Oregon and New Zealand heavy vehicle charging schemes (albeit with mass as a static measure of average loading.

2. Mass-distance charge that varies by state/territory: Similar to Scenario 1, but with charges that vary by state/territory, presumably to reflect average spending (or forward looking costs) attributable to heavy vehicles by each state/territory.  Interstate trips would change in price at the state/territory borders. This would appear to be a relatively simple variation on Scenario 1, although it would expose cross-subsidies between states and territories.

3. Mass-distance charge that varies by road type, based on marginal cost: Prices would vary by road type, nationally, based on the marginal costs heavy vehicles impose, by mass. This assumes a road type classification that reflects differential costs. However, it does raise a question as to how fixed costs are recovered (still with registration fees, or charged at a flat rate by distance).<

4. Mass-distance charge that varies by road type, based on level of service: As in 3, with national charges by road type, but varying on a defined "level of service". This could range from multi-lane grade separated roads, to unsealed tracks.  This is contrary to Scenario 3, as it implies paying more for a higher level of service, but this typically means lower marginal costs. 

The third workstream appears to be strategic engagement with road users, road managers and other interested stakeholders about their views on road charging, and will presumably be the foundation for further engagement with such stakeholders through Stages 2 to 4.

The final report of Stage 1 will be submitted to the Transport and Infrastructure Council (TIC) (Transport Ministers under the Council of Australian Governments, covering both the Commonwealth and State/Territory Ministers) in November 2018.  The expectation and hope is that the TIC will approve moving to Stage 2, an on-road pilot of heavy vehicles "paying" a simulated road user charge.