Road pricing is the answer, but it is best to start from first principles

The costs of maintaining and developing a road network are often not calculated on the same basis as other infrastructure or other assets. In many jurisdictions roads are not given a capital value, whether it be replacement cost or (more usefully) economic value as an asset generating wealth. The concept of depreciation is not applied, so there isn’t an economic basis to calculate the life-cycle costs of a road. Capital spending on roads is frequently just “written off” when it is spent, unless the road is debt funded and perhaps supported by tolls. 

Traditionally justifications for road funding have been based on engineering assessments alone, rather than looking at service to end users and optimisation of costs.  Cost optimisation would see depreciation taken into account, so that maintenance is undertaken on a long-term optimal basis, rather than just reactive to emergencies or to political demands. It’s grossly inefficient to take the latter approach, as it inflates costs over the long-run, offering few chances to spend more upfront on renewal of road sub-structures and surfaces for a longer life, and to manage the asset pro-actively.  Equally as important, reactive approaches are not conducive to quality of service. It is not often that politicians or civil servants talk of road users as “customers” or of providing a high standard of service to them, yet this is what they are.

So the primary objectives around spending on road maintenance and renewal should be about sustaining an appropriate level of service for those using it. Any additional capital should be about improving levels of service, whether it be improving safety, reducing congestion, allowing larger or heavier vehicles to use a corridor valuable for freight, reducing journey travel times etc. and should reflect some analysis as to whether it is both economically justifiable and if it addresses road users’ priorities.  

 Ideally, once there is a clear forward-looking strategy, with the right incentives to deliver improved levels of service to road users, then the question as to who pays and how much should be considered in some detail.  Who pays, by how much and by what means can follow on from that. 

So an article in CleanTechnica on 20 September 2021 titled “Is Road Pricing The Way To Equalize Electric- & Gas-Powered Vehicles?” asks some questions and presents some answers.

 The article correctly reflects the problem, which is that fuel taxes are not longer sustainable proxies for “user pays” to pay for roads in many jurisdictions.  In jurisdictions where fuel taxes bear no relationship to what is spent on roads (see the UK and most other European countries), it is a wider pressure, noting that taxes on fuel are used to bolster general government spending.

Plug In America, a lobby group for electric vehicles, not surprisingly argues that road user charging on EVs would both hinder the transition to such vehicles and not raise enough money.  Both of those claims need further scrutiny at a later date.  

 Another claim is that EV owners already pay enough taxes for road maintenance through other means, like general sales taxes on new vehicles. It quotes a questionable report from Arcadia Center in 2018 that this indicates that such owners pay more than owners of vehicles with internal combustion engines. The only basis by which this makes any sense is for Massachusetts which hypothecates sales taxes for new motor vehicles into the Commonwealth Transportation Fund.  So this is not applicable for jurisdictions that do not do this, but it is also worth noting what a bizarre policy that is. Imagine if sales taxes on electrical appliances were used to fund maintenance of the electricity distribution network, or sales taxes on mobile phones to pay for cellular networks.  The tax is legally avoidable by buying a vehicle out of state and registering it there, and it is inequitable as it bears zero relationship to how much of the road network is used. Sure this applies to ALL types of vehicles, but it is hardly a solution that is efficient or equitable.

The CleanTechnica article proposes several solutions:

Increasing the gas tax is an option, but is dismissed rightly because although it would accelerate a transition to electric vehicles, it would be unfair to those who cannot afford them. Increasing the gas tax is only appropriate if it is part of equalising across what all vehicles pay, not just those paying the gas tax.

Fixed fees for EV owners: This is dismissed as being higher than what some owners of other vehicles pay in gas taxes, which will be true for some, albeit that any fixed fee is good for those who drive a lot, and is not good for those driving a little. In any case, although there is a case for recovering some road costs from fixed fees (because of the proportion of road maintenance costs that are fixed), there is a better case to recover more from usage-based fees in order to recover the most from those that use the network the most (and to help address externalities).

Taxing the electricity EVs use: The Arcadia Center article proposes this, but it lack merits. The CleanTechnica article notes it is technically difficult and could hinder take up of EVs. Technical difficulty (and difficulty to enforce in some cases) is entirely valid, although the idea it might hinder take up of EVs seems no more valid than applying it to other types of fee. If the problem is paying for the roads, then objecting to any measures because they may put off purchases of EVs, means a balance has to be struck. Regardless, surveys indicate for most people one of the main reasons not to buy an EV is upfront cost, which suggests that any tax breaks or subsidies are best placed at purchase. In other words, Massachusetts would encourage MORE EV sales if it exempted them from the sales tax, and implemented a distance-based road user charge, than trying to recover the same revenue from taxing the purchase of the vehicle.

Road pricing: Four types are listed:

·      Flat rate per-mile: This is the classic road user charge, but the article suggests it could vary by weight (yes for heavy vehicles), fuel consumption (why?), emissions (yes, this can be done) and damage done to the road network (well that’s weight really).

·      Geographic/toll-based charging:  This really isn’t a solution to replace the gas tax for EVs, as it is route or location specific.  The description is more like a congestion charge, which is fine, although that has a different purpose and shouldn’t be confused with RUC.

·      Time-based rate:  The idea that you are charged a fee by minute has never been implemented anywhere.  It has one major negative externality, it rewards excessive speeding and running through red-lights.  It’s not a good idea.

·      Dynamic rate:  Dynamic rate of what?  This could just be a dynamic distance-based rate, which is basically applying congestion charging to RUC.  It is described like using a toll tag, which wouldn’t be useful on a network wide basis.  So this isn’t really useful to replace the gas tax, unless it is just a further evolution of RUC.

Now this article is positive, as it advances the value of road pricing and suggests a whole set of principles which are largely worthwhile and agreeable, but I want to suggest that the problem (not enough money to pay for the roads) should start with identifying exactly what it is money is needed for, how that is assessed and then to work out who should pay what.  

This means having asset-management systems for roads, it means accounting for roads in the same way as other assets, and developing a cost-responsibility approach to work out who should pay for what costs (and there are multiple options to address that), alongside the means to recover those costs. Fuel taxes have been easy for a long time, but their time is running out.  Fees based on distance, vehicle characteristics, and some element of location are likely to be better, but any such system should seek to balance the need for price signals vs. the need for a relatively simple way to charge user fees.  One reason for this is simply to gain acceptability from road users.  It isn’t just about raising money, it should be about delivering better outcomes for those who pay.