Thursday, 12 November 2020

Will South Australia pioneer light vehicle road user charging in Australia?

 The South Australian Treasurer announced with his budget that:

The government is intending to introduce a road user charge for plug-in -electric and zero emissions vehicles. The charge will include a fixed component (similar to current registration charging) and a variable charge based on distance travelled. Electric vehicles do not attract fuel excess and therefore make a lower contribution to the cost of maintaining our road networks. The proposed road user charge will ensure road maintenance funding is sustainable into the future. The government is consulting with other jurisdictions about the details of the proposed road user charge. Current estimates are that less than about$1 million per year will be collected by the charge.

Note that the South Australian Government doesn't collect fuel excise duty, the Commonwealth Government does, and fuel excise isn't hypothecated, and you'll see that this is a clever means by which an Australian state is seeking to plan for a long term future whereby it grows effectively a new revenue source, whilst an existing revenue source for the Commonwealth Government is slowly eroded by changes in the vehicle fleet.

There is considerable wisdom in moving early on this, not least because the sheer number of electric vehicles in South Australia (I heard an estimate of 800, but I might be wrong), would mean that it is not going to be costly to implement or politically difficult when so few would face paying it.  If any jurisdiction waits till 10% or more of the fleet is electric, it will be harder administratively and politically to implement.  

To date three jurisdictions globally have light vehicle RUC based on distance.  New Zealand (which has all diesel vehicles under 3.5 tonnes paying RUC and will expand this to include electric vehicles from the end of 2021), Oregon (which has a pilot for alternatively fuelled vehicles to pay RUC) and Utah.  Wyoming has announced that it wishes to follow, and multiple US states are piloting it.  South Australia would heed well to learn from all of those systems.

Infrastructure Partnerships Australia (IPA) has been actively pushing for this sort of reform, with its report in November 2019 proposing it.  It advanced three options, from Federal leadership, to State collaboration, to State unilateralism. It looks like this is the first part of the second option (and frankly the third option is difficult to sustain for states with considerable cross border traffic).  This advocacy is to be welcomed, and needs to be supported by a comprehensive programme that ensures that South Australia's proposals succeed

There are some key issues South Australia needs to address in this process, none of which is clear from the news coverage to date:

  1. Get the communications right:  The number one failure of ALL programmes to introduce direct user charging on roads is not clearly addressing concerns from motorists and not clearly communicating the policy purpose, what will be done with the revenue, how the rate will be set and reviewed, and what users will need to do. From the media coverage seen so far, South Australia has not done this as well as it could. Take this article which is so full of flaws it's not funny. 
  2. Clarify how little impact road user charging (RUC) will have on electric vehicle takeup.  New Zealand has an exemption for electric vehicles paying RUC until the end of 2021, but when they eventually do pay, they'll pay around A$0.07 per kilometre. So for the average vehicle that may travel 12,465km a year that is A$872.55 a year. Noting that in NZ, fuel duty and the RUC rate are meant to be equivalent. Fuel duty in NZ is equal to about A$0.663 per litre, whereas in Australia it is A$0.423, so RUC might be assumed to be proportionately similar, say around A$0.045 per kilometre - that's around A$561 per annum for an electric vehicle owner, which is not going to be a great disincentive compared to the savings on fuel and operating costs which are much more than that. US states are not concerned about RUC affecting electric vehicle takeup, as Oregon and Utah have already implemented RUC for such vehicles, and multiple other states are piloting or have piloted RUC for such vehicles (see Hawaii, California, Washington State, Colorado).
  3. Be clear on what is to be done with net revenues:  Fuel excise duty in Australia is not hypothecated, but the lesson from every other jurisdiction, from New Zealand to the USA to Europe, is that hypothecating RUC revenue is critical to public acceptability and also accountability for moving from a taxation model to a user pays model. I know Treasuries are loathe to want to treat any taxation as hypothecated, which harks bark to the failures of hypothecation in the UK in the 1930s, but there are plenty of models of hypothecation working well (New Zealand has done an excellent job having evolved towards hypothecation in the 1980s and 1990s). Yes, it will be very little money from the start, but dedicating net revenues towards the State's road maintenance budget would be a good start.  There will obviously have to be longer term discussions about what happens to the money received from the Commonwealth when fuel excise duty revenues really do erode.
  4. Establish a process for setting and reviewing RUC rates that is transparent and linked to what other vehicles pay and cost allocation:  As long as fuel duty is dominant, RUC will be linked to it, but in principle, RUC rates should be based on recovery of fixed and marginal costs of road infrastructure use.  Motorists fear that a new charge will be set based on political desire to raise as much revenue as possible.  For now, it should be linked to fuel excise duty, but not determined by it, after all it is South Australia's RUC, not the Commonwealth's.
  5. Develop policies on distance travelled by location: Even if the approach taken is to use odometer readings as the basis for charging, South Australia cannot avoid having to not charge for distance travelled off public roads (as this is not subject to fuel excise duty now, albeit through a refund process) and out of state.  This obviously means it must be co-ordinated with Victoria and New South Wales in the first instance (very few electric vehicles are likely to venture into Western Australia or the Northern Territory), but electric vehicle owners ought to be able to have technology choices so they can choose an option that includes location - so they are not charged for out of state and offroad travel.  If they don't choose a location based option, then a manual refund process for out of state travel might be developed.  In New Zealand there is a manual option, but commercial vehicle operators using GNSS based telematics service providers do so, in part, to automate the offroad refunds process.  A bigger issue is what to do with out-of-state electric vehicles, which will be difficult to enforce charges against without a multi-state approach.
  6. Decide if charges are prepay or postpaid: The IPA paper is silent on this, but it has considerable impacts on enforcement vs. flexibility. If distance is invoiced after the event, it is much harder to enforce and pursue for payment, than if it is prepaid distance, particularly using a manual method of distance measurement (odometers). Postpayment is suitable for those using automated means of distance reporting (e.g. in vehicle telematics systems), as it can be related to a prepaid account easily, but if you are dependent on motorists reporting distance manually, then there can be issues with managing this at scale.
  7. Develop a scaleable enforcement system:  On a small scale, this wont be difficult because it is easy to chase small numbers of vehicle owners, but it becomes tricker when the numbers enter the tens of thousands of vehicles. Consider what parts of enforcement are around recovering charges vs. charge evasion and fraud, and how each are treated.  Legislation needs to be flexible enough to respond to what behaviour looks like when lots of people are paying RUC and especially when it involves vehicles paying at least some fuel excise duty.
  8. Decide on a delivery model:  On a tiny scale, it can be done within the State Government, but over time this is unlikely to be a suitable model from the points of view of efficiency, user choice and innovation.  Enabling an open market in RUC service delivery is the model pursued in the United States and now in New Zealand, as well as parts of Europe.  This allows for new technology options to be developed, but more critically for the more complicated task of incorporating hybrid vehicles over time, which will need fuel duty refunds in parallel with RUC collection.

It is hugely challenging for South Australia to introduce RUC in around seven months, because the legislation needed will have to be able to adapt to a rapidly changing future. It would be a huge mistake to be confined to one single model for measuring and reporting distance, or to fail to apply the lessons of other jurisdictions, but with such a small scale of electric vehicles, it is effectively a pilot that is smaller than the programmes of other jurisdictions (e.g. Hawaii is currently piloting RUC with up to 2000 volunteers).

All I can say for now is get the policy right and communicate it well.  The world of RUC is strewn with failures from those who didn't do either. South Australia has a great chance to lead Australia on light RUC policy, but if it goes wrong, it will take years before it can try again. Ask the UK, it announced a policy to replace registration fees and part of fuel duty with a national road pricing system in 2006, and has never been able to seriously entertain it since over a million people signed an online petition against it in the subsequent two years.

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