Monday, 23 November 2020

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

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

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

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

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

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

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

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

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