Australia's Heavy Vehicle Road Reform programme: An integrated, sound approach to road charging and funding

Although much attention is often given to toll roads in Australia, almost all road distance in Australia does not involve toll roads. As an economy dominated by extraction industries primarily around mining, but with agriculture also important, heavy vehicle use of a large and in many cases, sparsely used road network, is critical to the country's economic progress.  Australia is, after all, a continent, the sixth largest country by area (Russia, Canada, China, USA and Brazil are only bigger), but for its size it is the third least densely populated country (only Namibia and Mongolia have fewer people per square km).  That sparse population explains little when you note that over two thirds of the population live in the eight state and territory capitals, and another 22% live in the remaining urban areas, most of which are located along the coast in the eastern states.  Australia also has some of the largest trucks ever seen in regular use on public roads, with vehicles up to 60 metres long allowed on some routes, and total vehicle mass configurations of well over 100 tonnes. 

So Australia has taken heavy vehicle use of the road network seriously, because the productivity of both heavy vehicle use and the provision of the roads they use, has a direct impact on the economy.

Today, Australia charges heavy vehicles (excluding toll roads) through two means:

- Registration fees collected at the state and territory level (excluding some registered for interstate only traffic);

- Fuel excise duty known as the Road User Charge (which is fuel excise duty minus a refund to reduce it the "Road User Charge" rate), collected by the Commonwealth.  Currently at A$0.258 per litre (US$0.74/US gallon) of diesel.

The National Transport Commission annually reviews the levels of these, based on its cost allocation model, which uses data on recent spending on roads, allocates a proportion of those costs to heavy vehicles, which informs the

A Cost Allocation Model is used, based on historic spending on roads, to inform the setting of both registration fees (which escalate based on the mass/configuration of the vehicles) and the amount of the refund on fuel duty to set the road user charge rate.

For some years it has been acknowledged that this system is far from optimal.  Multiple reports have proposed a shift away from registration and fuel taxes towards direct user charging.

There is a relatively poor relationship between what is paid and the costs that heavy vehicles impose on the roads that they use. Most of the revenue collected through this system is treated as general revenue at the Commonwealth, state/territory levels, so is not dedicated for spending on roads. Numerous studies have noted the scope for reform, and a major reform programme was embarked upon, called the Heavy Vehicle Charging and Investment (HVCI) project, that sought to introduce heavy vehicle road charging. It was abandoned for several reasons, not least the complexity of the proposed programme, and the sequence of reforms, which effectively sought to reform charging before reforming the funding and governance structures for roads.  It also struggled to gain sufficient heavy vehicle user support.

Heavy Vehicle Road Reform

The current Commonwealth Government, under Minister for Urban Infrastructure and Cities, Paul Fletcher, has embarked on a new reform programme that is more holistic and integrated than HVCI.  It is notable in that it seeks to reform funding and management of roads, and how existing charges are set and used first, before replacing the current charging system with direct user charges.

Heavy Vehicle Road Reform seeks to not only reform how heavy vehicles pay for road use, but also to reform the funding and management of roads.

The current system is very much a political command and control model, and is depicted in the image below. Funding for roads is traded off with public spending for other activities, and decisions on priorities for road spending although informed by benefit/cost appraisal, is fundamentally a political call. Road managers primarily operate as engineering bodies, building and maintaining roads, with limited relationship with road users. The money that is spent on the roads is used to inform the charges that heavy vehicles pay, as the National Transport Commission uses data on previous spending (and forecasts of heavy vehicle demand) to inform rate setting of registration and the fuel excise "road user charge". 

The image below from the Department of Infrastructure, Regional Development and Cities is a fair summary of the current situation.

Australia's current system of charging and supplying roads for heavy vehicles

It shows a very limited relationship between road managers and road users, and in the use of revenue collected from road charges and money spent on roads.

The reform steps

The reform agenda comprises four key stages as seen below:

Heavy Vehicle Road Reform stages

 

Congestion pricing or using congestion as a policy

Alan Davies on Crikey writes about the Australian Professor on Global, Urban and Social Studies, Dr Paul Mees of RMIT (Royal Melbourne Institute of Technology), who is critical of road pricing because he believes that the reduction of congestion encourages motorists to drive further.  He cites Vancouver as a city that has used congestion as a tool to encourage mode shift and discourage car commuting, although as Davies points out, Mees has not demonstrated a causal relationship between that professed policy and the reduction in commuting times that is reported for Vancouver.  There could be a multitude of reasons for this around changes in land use patterns.  Besides that, Vancouver itself is not happy with congestion as a sustainable policy tool, as is seen by its own consideration of road pricing, primarily to raise extra revenue but also driven by the objective to positively reduce congestion.

Dr Mees has a firm reputation amongst followers of the "New Urbanism" philosophy of transport and urban planning, and has been strongly critical of much public policy around transport in Australia.   He adopts the familiar line that generally supports more publicly funded public transport and opposes increasing road capacity, because he sees this as a formula for long term behavioural change.  However, he is unusual in also not being supportive of road pricing, because he believes that improving the standard of service for road users is a negative, in terms of encouraging mode shift and behavioural shift more generally.   I have found that many advocates of increasing usage of public transport, walking and cycling tend to support more urban road pricing, for reasons that appear to be fairly obvious.  However, it is worth examining his perspective.

This line of reasoning seems superficial, as of course any form of road pricing that charges for congestion, does two things that "just letting congestion get worse" does not do.  For a start, if motorists have to consider the price of a trip before they undertake it, they are more likely to reconsider whether to undertake the trip in the first place. You see fuel taxes are essentially pre-payment for future trips, and are not seen as payment for using the road, just an incidental expense of driving.  Secondly the mere point that pricing improves congestion is because some motorists have been priced off of driving at that time.  To look only at those remaining on the roads, whilst ignoring those who are no longer driving at peak times, seems rather odd.

The fact that those paying get a better trip is good because they will have paid for it. Mees seems to implicitly treat all those driving as undertaking trips which should be deemed as less valuable than those taking public transport.  I am unsure how he can sustain such a broad generalisation over those using the roads, particularly since I would guess that in any city with congestion charges, he would no doubt advocate the net revenues from those motorists get used to support other modes.  He is in no better position than anyone else to know why a vehicle is on the road, after paying a charge, it could be due to the origin, destination, the time sensitivity of the trip, the driver or passenger being elderly or disabled, or indeed it could be freight. It is all very well pontificating that the freight is being affected by private motorists, but congestion imposes costs upon freight without there being alternatives except changing time of travel.  Professor Mees also seems to suggest that it is fairer to have people deterred from driving because conditions are poor rather than because they unwilling to pay what essentially is something akin to the marginal costs they impose on other motorists by driving.   Queuing isn't seen as a fair way of rationing most goods and services in a modern liberal democratic mixed capitalist economy, so why should it be so for roads?   Particularly when queuing in traffic is not just about wasting time, but about wasting fuel and emitting pollution as you do so!  It is also worth noting that traffic congestion imposes other costs on those dependent on emergency services.  Lives get lost when ambulances and other emergency vehicles are stuck in congested traffic.  Congestion pricing wont eliminate that problem, but it demonstrates that congestion isn't a good thing, it is the breaking down of the efficient use of a scarce and expensive piece of infrastructure.

In addition, what of the traffic for which a mode shift is impossible (e.g. most freight) or so expensive in terms of time, comfort (and price) that it is impracticable (e.g. commutes that would require multiple public transport interchanges or to sites that are too remote for public transport to be viable)?  

I understand Mees wanting to promote mode shift for commutes, where that is viable, but congestion is not a policy tool that is economically or environmentally positive.  Congestion pricing is about applying the widely used price mechanism to roads, so that demand can reflect supply, and so encouraging others who would otherwise drive at certain roads at certain times to either not drive, drive at different times or take different routes.   

Efficient pricing of roads does make driving more attractive, but only at times and places where it is usually now congested for those willing to pay.  It means that a scarce resource, road space, is valued by those using it, and the evidence from all cities that have introduced even a fairly blunt form of pricing is that it can encourage people to consider the number of trips, the timing of trips and their modes.   Of course, it will mean some of those priced out of the peaks drive anyway, at other times, but this means better utilisation of existing road capacity (without having to build more) and is more fuel efficient and environmentally friendly (as it will be in free flow traffic).

Finally, Mees makes much of what he sees as the importance of rail based transport or dedicated rights of way for public transport to offer a real competitive alternative to private motoring, but many people rely on buses operating on conventional roads and congestion makes them even less attractive than driving.   Road pricing can relieve roads sufficient for bus journey times to become reliable and, when compared to driving and paying the price to use the roads, more competitive.  Motorists comparing an unpriced drive plus parking to a bus fare, both in congested traffic, to a priced drive plus parking and a bus fare, in free flowing traffic, are more likely to make a different choice, bearing in mind that in many cases, it is simply impractical to build a grade separated rapid transit system or dedicated bus ways.

Allowing traffic in cities to sit congested, wasting time, keeping buses and trucks stuck with cars, wasting fuel, emitting far more noxious pollutants than with free flow traffic, is not a responsible policy from either economic or environmental perspectives.  It takes an overly general view that all motorised road transport is negative and should be "punished" by allowing it to essentially fail, when it fact it involves many people and businesses undertaking activities of value to them.   Pricing the roads efficiently will mean those who value road space the most will get to use it, at that time, whereas others may drive at different times, mode shift or simply decide that the trip wasn't important enough in the first place.

The strategy by many cities to simply continue to subsidise more supply of public transport, refuse to supply road capacity and hope that this carrot and stick approach is enough, has proven not to be enough.   Singapore, Stockholm and now Gothenburg have all made significant dents in traffic congestion thanks to pricing, and a similar impact has occurred in central London, albeit it is less discernible because of the reallocation of road space to other modes. Road pricing alone is not enough in itself, but to deny that it works and to claim traffic congestion and the waste it ensues is positive is quite irrational.

Free roads - no, really!

For those of us who advocate better road pricing, the objectives may vary somewhat, but some of the principles remain clear.  One of them is "user pays", that those who use the roads should pay for them, in proportion to the degree to which they use the roads, and the costs they impose upon the system.   This may be around wear and tear, road space when demand is at a premium, or simply sharing the fixed costs amongst those who use the network the most.

Fuel tax is seen as very much a second rate option, largely because although those who use the roads more pay more, levels of fuel consumption don't vary at the levels necessary to reflect variations of other costs.  For example, as trucks get heavier their fuel consumption doesn't raise at levels commensuration to the damage they cause to roads, similarly it doesn't rise to reflect scarcity of road space when demand for it exceeds supply.   Still, it is better than nothing - a point that seems to have somewhat escaped Virginia's governor Bob McDonnell (Republican).

According to various news sources he wants to abolish the state's gas tax  (fuel tax) and replace it with an increase in the general sales tax of 0.8%  (which wont apply to "groceries" but will be hypothecated into transport).  In short, he wants roads to be paid for, not on the basis of usage, but on the basis of how much shopping you do in the state.   Those who drive the most, but are frugal with consumer goods, will be getting subsidised by those who don't drive at all, but buy large expensive items.  Of course it will also promote interstate tax arbitrage, as motorists in neighbouring states will seek to buy petrol at the lower rates.

He wants to retain tax on diesel, because he recognises that trucks cause more damage to the roads (although transport economists will explain that the 4th power rule means that when trucks get beyond 9-12 tonnes of gross laden weight, diesel tax is simply incapable of fairly reflecting this increased damage).  

The lack of diesel cars in the US means this will make little difference to light vehicles, although I would have thought anyone with light commercial diesel vehicles would move to the petroleum equivalents.   Interestingly about two-thirds of state diesel tax revenue comes from interstate trucks, it's curious that there hasn't been a similar figure given for interstate cars (although the figure would be lower).

He wants to introduce new ownership taxes on alternatively fueled vehicles (US$100 a year) and increase other ownership taxes by US$15 a year.  However, according to TollRoadsNews this extra revenue is going to subsidise public transport.  It's not clear the economic justification for that connection to those fees, as again, it penalises those who hardly use their cars at all, but not those who drive the most frequently.

Virginia's state fuel tax is 17.5c/gallon (4.6c/litre), so that is the saving that would be made for motorists.

It is economically irrational as it means highways will be subsidised by virtually everyone buying goods and services in the state.  Environmentally, it means that those who drive the most and emit the most will pay no more than those who do not drive at all, unless of course they also do bigger shopping sprees.

McDonnell makes the sound point that fuel tax is unsustainable because of vehicle efficiency and alternative fuels, but then claims that it is "regressive" because people in rural areas pay more, yet the main costs upon the system are in urban areas.  Unfortunately, this misses some key points.

Maintenance is the bread and butter of highway expenditure, and it is commonplace that motorists in urban areas tend to cross subsidise those in rural areas, because around half the costs of maintenance are fixed, and in rural areas there are less vehicles to divide those fixed costs between.  It is possible to justify charging the fixed costs of highway maintenance in part to property owners adjacent to roads (because they benefit directly from the access amenity), but this argument is difficult to sustain when a road is primarily arterial.  It is also possible to justify charging those costs using a fixed annual licence fee, as an access charge, but this creates its own deadweight distortions, and the externality costs of congestion (and emissions) can be equally as serious, and they are not readily addressed by ownership taxes.

However, what's apparently missing is any serious economic analysis behind this proposal.

I'd argue that what Virginia needs is an economic land transport costs and charges study, similar to those carried out in the UK, New Zealand and several countries in Europe.  That would establish who is underpaying, who is overpaying, the long run infrastructure costs for the state, costs of congestion (and emissions if desired), what existing taxes, tolls and charges do (it can also include public transport and the private railroad networks as well if desired), and provide an evidence base for moving forward.  That would be more robust in terms of economic impacts and distributional impacts, and would address concerns about any existing taxes being regressive or otherwise.

My expectation is that the conclusion would be that motorists do not pay enough to keep the network in a steady state, except those on toll roads.  It would need to be followed by a separate evaluation of options for charging, including expansion of tolls, the role of fuel taxation and options for alternatives like ownership taxes, property access levies and vehicle mileage tax (including a weight based one for trucks).

You see, as much as politicians may focus on the finances, they ignore the economic impacts of what they do.  Abolishing the gas tax will increase private vehicle use, increase congestion and emissions, which will increase demands for new capacity.  Increasing other taxes will see a small deadweight loss in consumption of various goods and services, which will likely have a distributional impact highest on those with the least discretionary spending.

It's astonishing, it is economically irrational and is a step away from the sort of smaller government more market oriented agenda some in the Republican Party espouse.  Indeed, it does absolutely nothing to ensure the roads are better maintained and the quality of service motorists get improves, in fact why should it?  They aren't paying for it.  They should expect what happens in other jurisdictions when governments offer something for next to nothing - unpredictable and wildly varying standards of service.

It has been criticised in many quarters, the Baltimore Sun suggests it would complicate debates for neighbouring states such as Maryland, but some of the public think they would be better off.  Motorists, of course, would be.

I can only hope for a rational debate to come about this proposal.  Well intentioned, with the key issue of the sustainability of fuel tax being central to it, but creating new subsidies and almost completely disconnecting the cost of highways from most of the users is neither economically rational, nor sustainable, nor a solution I'd expect in an economy that purports to be predominantly embracing the principles of market capitalism.

It's even more astonishing when you consider the point made in TollRoadsNews that tolls are important in Virginia today, yet don't form part of the Governor's plan.   Though I am now less surprised that there are now politicians in the state seeking to nationalise some private toll roads, because they think the price is too high.  Yes, they are Republicans too.   No, really!

Toll prices cut on San Diego toll road

I’ve written extensively about the “renationalisation” of a private toll road in San Diego, the South Bay Expressway as follows, which gives you background about this poorly performing investment:

- Why does San Diego want to buy a bankrupt toll road?

- San Diego "nationalises" a private toll road

- San Diego debates how to pay for the South Bay Expressway

The new owner, the San Diego Association of Governments decided to cut tolls in order to spread demand between the toll road and the existing parallel untolled I-805.

CBS8 reports that tolls have dropped by between 21% and 41% from a range of US$0.85 to US$3.50 to US$0.50 to US$2.75 per trip for account holders with tags. Cash or credit card payment at toll booths will drop US$0.50 (a new range of US$2-US$3.50 compared with US$2.50 to US$4).

What will be of interest to some in the industry will be the extent to which the lowered tolls induce a shift in demand patterns, and whether this will more than offset the reduced yield per trip.  There being two relevant goals.

The primary goal is likely to still be to maximise revenue, with the hope that lower prices are more than offset by increased demand.   

Yet the secondary goal will be to enable enough shift in demand from the congested parallel highways to mean overall time savings for traffic on those highways are valued sufficiently highly enough to offset any reduction in toll revenue.

I doubt that the revenue maximising toll is the utility maximising toll (or indeed that cutting rates will be more than offset by increased demand, as the elasticities of demand on single roads are not that great).

SANDAG will be hoping for both of course, because even though there can be a net benefit of reduced congestion which, in overall economic good terms, could be much higher in theory than the loss of revenue, it will be embarrassing for SANDAG to have turned a toll road that was not a financial success into being even less financially successful.

More details on tolls on the road's recently updated website here.

News briefs - Colorado, Indonesia, Missouri, Norway, Russia

I-25 HOT lanes Denver

The Denver Channel.com reports that Colorado has received US$15 million from the US Federal Government as seed funding to enable the start of the new I-25 HOT lane project.  The total cost of the project is US$44 million, with the state, regional and local authorities providing the rest.  It comprises additional lanes between route U.S. 36 and 120^th Avenue in Denver.   The project is intended to relieve this very heavily congested stretch of highway by narrowing hard shoulders in favour of creating a new HOT lane in both directions.

What’s worth noting is that this project isn’t getting funded because of the toll, but the toll is being used to manage demand on the road.  Certainly, the marginal revenue on the lanes will be helpful,  but the bottom line is better use of the existing corridor through pricing.   Vehicles with two or more occupants, including buses, will not be charged.

 Bali toll road

Jakarta Globe reports that the 11-kilometre toll road linking Nusa Dua to Bali’s Ngurah Rai international airport is expected to be open for traffic in July 2013.  The project is expected to cost US$244 million.  The concession is held by Jasa Marga Bali Toll for 45 years with tolls expected to range from RP4,000 (US$0.42) - RP10,000 (US$1.06) per vehicle. 

University of Missouri study

A study from the University of Missouri suggests tolling would more equitably allocate costs of road capital and maintenance among road users compared to fuel taxes according to a report fromForConstructionPros.com . The report indicates the key equity benefits being that those who use the road the most pay the most, and that it would far more effectively reflect the wear and tear the heaviest vehicles impose on the network.  Further evidence that relegates fuel taxes to being an inferior option if charging road users is meant to reflect equity.

St. Petersburg toll road

Construction Europe reports that finance has been obtained for the 1.5 billion Euro (US$1.87 billion) next stage of the St Petersburg Western High Speed Diameter project.  The new segment, which will be tolled, is expected to carry 140,000 vehicles a day.

Norway peak pricing of public transport

OK so it's not road pricing per se, but the Nordic Page is reporting that Ruter - the public transport authority of Oslo and Akershus, is planning to introduce congestion pricing on public transport.   The intention is to charge much higher at peak times, where capacity is scarcest relative to demand, but discount during off peak periods when much capacity lies idle.

Given Oslo has had road pricing for some years now, it makes some sense to start applying rational economic principles to public transport pricing, as the key problem with urban transport pricing is that peak demand is typically underpriced on both roads AND public transport.  If only a few more cities recognised this, and saw road pricing as a opportunity to think holistically about transport pricing across the board.

Congestion pricing beats higher public transport subsidies in achieving mode shift

So says an article in the Atlantic Cities about "what really matters for increasing transit ridership".

It cites an upcoming article reporting research that ranks measures to increase the cost of car use well above capital expenditure on improving rail transit and reducing rail fares as a way to achieve mode shift.

In an upcoming issue of Transport Policy, a group of Chilean researchers led by Louis de Grange of Diego Portales University investigated these three ideas to see which emerged as most effective. Using data from 41 major cities around the world, de Grange and company ran a total of 16 econometric models comparing these methods. After controlling for key demographics the researchers found a consistent pattern: System expansion increases transit ridership a little. Car regulation increases it a lot. And fare subsidies have no effect at all.

Now I will wait  until I read the article in detail to see if the statistics used are comparable.  For a start, I don't think there is much evidence to demonstrate meaningful increases in rail usage in London and Stockholm from congestion charging, but rather meaningful reductions in car use.  The key mode shift appears to be increases in bus use.  However, it is entirely plausible that 10% expansion of rail system capacity may only increase usage by 3-4%, and the more damning view that increased public transport subsidies may simply reduce productivity and increase costs with little effect on patronage is worth consideration, against those who advocate higher fare subsidies as a way of achieving mode shift.

The implied lesson is that people are more likely to be dissuaded from cars to public transport by being priced out of driving, rather than being lured by cheap fares.  Free public transport wouldn't have a significant impact, compared with charging road space more efficiently.

So if the policy goal is mode shift, it may be time for cities to think more about pricing roads and targeted improvements in networks and services, rather than reducing fares, suggesting that pricing scarce road space more to match demand with supply makes more sense than underpricing public transport to attract more demand.

Fear that tolling Columbia River Crossing will result in excessive diversion

CRC in blue adjacent to I-5, I-205 is upstream on the right

The news of the 50% reduction in traffic expected on SR 520 in Seattle from tolls has caused concerns in Oregon that the proposed tolled Columbia River Crossing project (which will replace the current over 95 year old "bridge lift" equipped bridge that forms Interstate 5 connecting Oregon with Washington) will suffer a major diversion of traffic to Interstate 205's Glenn L. Jackson Memorial Bridge some 6 miles upstream. 

The Columbian reports some concerns that estimates of toll revenue (neither route is currently tolled) are excessive and cites the expected 50% diversion in Seattle as likely for Oregon.   It claims the 2009 toll study only predicted diversion of less than 10% by 2030.

The bridge is estimated to cost between US$3.1 and $3.5 billion (including a light rail extension), with about a third coming from tolls, a third from the Federal Government and the rest from both Washington and Oregon State Governments.

Tolls are to be electronic free flow using DSRC and ANPR, with peak congestion based charges.  Curiously it has a break down of revenue and expenditure (although toll rates are not defined yet) of:

91% revenue from tolls, 9% from surcharges on ANPR based transactions.

69% of expenditure is to be available to service debt on the bridge, 23% pays for toll collection costs and systems maintenance, 5% are "uncollectable tolls" (written off), 3% paying credit card fees and 1% for operations and maintenance of the bridge.

It appears to be a very high cost of collection, something that ought to be seriously reduced over time. I'd hope that 26% toll collection costs should easily be half that within 3-5 years.

However, it will be fair to assume that there will be substantial diversion in the initial years.   What it will take to minimise this is for tolls to be at lower prices initially whilst accounts are opened up and people get used to free flow tolling when neither state has much experience of it (and people in Portland are to be expected to become familiar with it).  The effort taken on the customer service end for the first year will be well worthwhile.

RAC Foundation revisits the acceptability of road pricing for the UK

Background to UK pricing

A motorists’ advocacy group isn’t typically known for advocating road pricing. Most motorists are suspicious of being told it is “good for them” to have to pay to use a road, although they will grudgingly accept a toll on a new road, as the price to pay for a new route. As long as the old route is untolled, they are happy.  

However, roads are priced almost everywhere, just not very well and certainly not directly. Fuel taxes almost universally serve as a proxy price for road use, one that is “prepaid” in that a motorist pays a tax, with the fuel, before using the roads. This is grudgingly accepted because of its simplicity, but motorists have long been suspicious that the money collected isn’t well used. Why? Because they see the state of the roads they use.

In the UK, most towns and villages have plenty of potholed local streets, because of a lack of maintenance by local authorities, who themselves blame government for not giving them enough money for it. Motorists in the UK know they pay just under £0.58p a litre in fuel tax (US$0.94 a litre or around US$0.206 a gallon). Many also know that none of that money is hypothecated (earmarked) for spending on roads, but that the government spends around one fifth of what it collect on fuel tax on roads. Understandably, they think they are getting ripped off.

However, the real crippler for mobility on roads in the UK is congestion. Sir Rod Eddington undertook a comprehensive review of transport policy for the last government, and stated that congestion cost the UK economy between £10-20 billion p.a. (US$16-$32 billion) in lost time, productivity and wasted fuel. Given the current fiscal position of the UK economy, there is no remote chance that government will support road construction to address much of that (nor is there likely to be public appetite for the necessary road building in built up areas). Furthermore, while public transport delivers mobility on some major corridors, the potential for mode shift without radical changes in pricing, is marginal indeed. Again, given expansion of public transport tends to rely on subsidies, the government funding potential to do more than is currently approved is limited. Certainly, the business case for a new high speed rail line is not based on mode shift from road to rail.

Investigations and studies into road pricing in the UK were substantive in past 10 or so years. The London congestion charging scheme has been lauded worldwide, and the British government was on the cusp of introducing a nationwide distance based road pricing scheme, on all roads, for all trucks (called Lorry Road User Charging (LRUC)), until the project was cancelled due to Treasury fears of risk around cost and technology of large government IT projects (among other reasons).

The previous government’s embrace of road pricing saw it move emphasis towards incentivising local authorities to replicate the success of London with the Transport Innovation Fund. In essence, councils would get new money for public transport and roads if they also introduced road pricing (or workplace parking levies). However, that fell on its face when Manchester foolishly decided to put the idea to a referendum, and grossly mishandled the public relations. A nearly 4-1 majority against congestion charging in Manchester saw the deathknell of new congestion charging schemes for some years, along with the recession and financial crisis. 1.8 million people signed an online petition against national road pricing, as the public revolted against the idea of a new tax.

Quite simply, most British motorists didn’t trust politicians to introduce road pricing without reducing other taxes (and neither did politicians make it clear that would happen), and most didn’t trust that the money would be spent on roads. Even the devolved Scottish government abolished tolls on all of the roads in its territory.

The only light in the road pricing world in the UK has been the Conservative/Liberal Democrat coalition government that has been progressing a time based (vignette) lorry road user charging system, whereby it is expected that trucks will pay to use the road network on a daily, weekly, monthly or annual basis, and there will be countervailing reductions in annual Vehicle Excise Duty (known in other countries as annual vehicle licensing/registration fees).

RAC Foundation goes out on a limb

The RAC Foundation is one of the UK's leading motoring advocacy groups. The RAC Foundation’s Director, Professor. Stephen Glaister, is a renowned transport economist and has a long background in influencing transport policy in the UK. He was on the Transport for London board for eight years, and was a member of the National Road Pricing Feasibility Study steering group. He has long been an advocate of road pricing, so it is not surprising that he commissioned Dr. John Walker, (another renowned expert on Intelligent Transport Systems, with a particular emphasis on the technology behind road pricing) to prepare a report called “The acceptability of road pricing”. I recommend you download it here (PDF), because there is a wealth of useful information in it, and I can’t start to do justice to it all (or comment on it).

Dr. Walker seeks to break through the political morass of road pricing to find a way for it to be acceptable. The key points he made were:

- Road pricing has to be equitable, compared to the alternatives. Paying for what you use isn’t inherently unfair, but helping those less fortunate may be seen as fair;

- Revenue neutrality is important. For road pricing to replace existing taxes so that government doesn’t collect more than it does at present, or for any revenues to be invested in improving the transport system;

- It shouldn’t have high overheads. One of the chief concerns is that it will be administratively complex and inefficient to collect;

- People need to be convinced that it will work. Education and demonstration projects are essential to do this.

He points out that in London, congestion charging is now accepted, given Ken Livingstone was re-elected as Mayor after introducing it, and Boris Johnson as Mayor whilst abolishing the Western extension, has no interest in abolishing the original central charging area. In Stockholm, a demonstration project saw a referendum on congestion charging narrowly pass, whereas today it reportedly has 70% support.

He also notes that while Stockholm had a major expansion in bus services before congestion charging, the mode shift did not occur until afterwards. In other words, simply supplying more public transport is not sufficient in itself.

Perhaps the most important conclusion he reaches is that previous estimates about the costs and risks of introducing wider road pricing systems in the UK are now obsolete. Technology and the implementation of systems elsewhere has reduced the cost and the risks of road pricing. He believes costs need to be looked at again, with some piloting done to confirm it.

He believes such piloting could enable LRUC to be started again, and that another comprehensive study, like the ROCOL study of 1999, be commissioned, to review how to introduce road pricing.

A key proposal is that any future introduction be undertaken with rebates of fuel tax. That is a critical way to drive acceptance, as people will understand they are getting something back.

In short, any further progress will depend on giving motorists a reduction in the current taxes they pay.

Some of the interesting statistics he quotes include how 67% of freight tonne kms shifted go by road (second is water, covering coastal shipping and inland waterways with 20%, rail is a distant third with 9%). 84% of passenger kms travelled (excluding pedestrians) are by car or taxi, with rail far behind on 7% and bus on 6%. In short, roads are by far the dominant mode of domestic transport, even a doubling of rail passenger and freight trips will not change this.

My analysis

Walker’s thesis is compelling. He is quite right that it does not seem impossible to gain public acceptability, but to do so requires motorists to be convinced that road pricing will benefit them. The chief barriers to that come down to:

- Disbelief that road pricing will reduce congestion;

- Lack of trust that the money collected will be used to improve the network;

- Lack of trust that other taxes will be reduced to compensate.

His paper includes some summary costings for a potential nationwide LRUC scheme based on distance of between £200 million and £1.3 billion (US$324 million-US$2.1 billion). More interesting is that a more recent public opinion survey indicated the three biggest reasons to oppose road pricing are:

- “it would cost more” (which could be addressed by rebates of other taxes);

- “too much tax paid already” (ditto);

- “things are fine as they are”.

He believes there should be more demonstrators. I agree this would be helpful, but there have been several demonstrations and other than those who are part of the “road pricing community”, their results have been almost invisible on a wider basis. The odds of a second congestion charging scheme in the UK in the next five years are very low, the LRUC vignette system likely to be introduced will do little to demonstrate anything (besides the government’s appetite for low risk, but low impact options) and anything more will need money to prove something beyond technology. In my view, the technology isn’t the issue – it is proving to people that behaviour will change and positive results can be gained for road users.

However, I don’t agree with his idea of some sort of nationwide pilot of ANPR (automatic number plate recognition) based charging. Simply because it will be unlikely to achieve anything in terms of demonstrating value to the public, and will unnecessarily raise fears about “tracking” and “privacy” which will louder than the genuine public concern about it.

I think it would be preferable to pilot a system whereby people chose to pay by distance instead of paying either annual vehicle excise duty (road tax), or/and part of the fuel duty. Such a system would need to be about private motorists, and may duplicate part of the pilot trial undertaken in Oregon some years ago. It would be intended to show how road pricing can be introduced in a “revenue neutral” cost effective way, and demonstrate that it isn’t simply about getting more money.

Beyond that there needs to be a debate about the future of raising revenue from motorists. Part of this can be driven by the ever decreasing yields from fuel tax because of electric and ultra fuel efficient vehicles, but it also needs to be about changing the relationship between the motorist and government in the UK. At the moment most motorists feel taxed a lot (and they are), and they see the state of some road maintenance, and congestion at bottlenecks, and wonder what value they get from it. The truth is, the road transport sector has for years been a windfall form of easy taxation, which governments have used to pay for anything but transport. That wont be quick or easy to fix, but what can be done is to have a closer relationship between what is paid and how roads are funded.

People accept that they pay for what they use in electricity, gas, water and telecommunications. They know that what they pay for, pays for the networks and services they get, begrudgingly at a profit for the owners. The networks almost always function to expectations as a result. In some cases they willingly pay less or more at different times due to demand.

Conclusions

I believe that the future for the UK has to come from freezing existing motoring taxes and providing motorists with options to opt out of them. In the meantime, surely the most obvious demonstration project would be to hurry up with converting the Dartford Crossing barrier based tolling system, with electronic free flow tolls and peak time charges. As long as new capacity is being progressed, with the cashflow from tolls, this ought to be a simple test case as to how to make tolls become more publicly acceptable on an existing road.

The RAC Foundation’s support for road pricing hasn’t gone done well among some motorists, but its courage in pushing for a rational, sensible discussion and to seek to address the key issues behind it, is welcome. If only all motorists’ organisations could soberly read this report, instead of writing ignorant insane rants that are technologically illiterate.

and think a bit more about how road pricing can produce positive results for motorists as a whole, rather than remain wedded to the Soviet style central planning approach to road funding and taxation that is the norm in most of the developed world.   As Dave Hill of th Guardian writes - Conservatives should have no opposition to road pricing, as it is a market based mechanism.  However, as in politics all too often, perception is more important than principle.

Australian Federal Government floats road pricing in new tax discussion paper

After a cool reception for the Henry Tax Review, commissioned by the previous Labor (Federal) Government in Australia (under Prime Minister Kevin Rudd), the current Labor minority Government (supported by the Greens and three Independent MPs) has released a tax discussion paper called "Tax Reform: Next Steps for Australia" (Full PDF file)

Among other things it proposes:

- Heavy vehicle road user charging based on mass, distance and types of roads used (implying a shift from vehicle registration and fuel taxes) to be developed through the state level Council of Australian Governments;

- Congestion charging variable by time and location.

It also notes that technology may allow road pricing to be implemented more widely than those examples.

Page 29 of the discussion paper explains the thinking, none of which should be a major surprise.  It criticises the current system (which is widely implemented globally) as follows:

current arrangements provide inadequate incentives to operators to choose routes and vehicle configurations that minimise road damage and costs on others. The current charging system also results in significant cross subsidies between different types of heavy vehicle operators.

Quite. Vehicle configurations are taxed based on annual registration fees, and fuel tax only encourages road use that minimises fuel consumption, which may not minimise road damage.  In addition, it is clear that the heaviest longest hauling trucks are likely to be cross subsidised by the shorter haul vehicles, because fuel tax over long distances means less charged per km than for short or urban trips, because fuel consumption is so much more efficient.  Road costs do not decrease though.   In addition, with registration fees reflecting weight, the vehicles that travel the least distance effectively cross subsidise the ones that travel the most.   

On congestion charging, the key point is the limits to building new infrastructure:

Building more roads is one way to try to address congestion concerns, but equally important is better utilisation of existing infrastructure. There are physical, environmental and financial limits on the construction of new transport routes.

What does it mean? Well a Tax Forum is to be held to discuss all of the issues in the paper (and most are unrelated to transport).  Questions offered for discussion are:

• Should Australia consider ways to more closely link road charging to the impact users have on the condition and upkeep of roads?
• Is there a case to more closely link road charging to the impact users have on the level of congestion on particular roads?

My answer to both is "yes", but this is about convincing the transport sector and the public.  For it is a prelude to potentially wide ranging changes in how roads are charged for in Australia.

If I was to lay a bet on it, I'd say Australia will first implement heavy vehicle charging, because there are clear economic benefits in doing so, the political cost is not particularly high, and it is a significant first step to prove a system or systems can work, be user friendly and efficient.  Congestion charging in cities may be harder, because most of the cities don't lend themselves to compact easy to implement solutions, although the existing toll roads in many major cities could be used as a first step with peak pricing (which already happens on Sydney Harbour Bridge).

However, given the importance of the Greens in supporting the current government, I wouldn't be surprised if some incentives were created to promote congestion charging.  In addition, as it is a couple of years till the next election, it is easier to be brave this early in a Parliamentary term.

So the big question is, will Australians accept a shift in how vehicles are charged in the coming years?  At least the discussion is being had, and it appears the terms of reference for it are quite rational.

Australian Professor suggests comprehensive road pricing reform

My attention was drawn to an article in Australian website Business Spectator by John Stanley, Adjunct Professor, Institute of Transport and Logistics Studies, Faculty of Economics and Business at University of Sydney.

He calls for radical road pricing reform for Australia saying:

My strong preference is for a broadly based road pricing reform agenda, which includes pricing for congestion and also for other identifiable costs of road use, such as road damage, various emissions and accident costs that are not adequately covered by existing arrangements. This could be done by a GPS-based pricing system that includes a variable road use charge to cover costs such as air pollution and accident costs that are not met by current charging/insurance arrangements and base road damage costs, levied through a vehicle kilometre charge.

In addition such a scheme would include tonne-kilometre (mass-distance-location) charging for additional road damage costs of heavy vehicles and congestion pricing by time and place.

I don’t agree that accident costs should be charged for, because that implies all motorists, those who do not have accidents included, pay for the costs imposed by those who do have accidents.  This is a matter for insurance premiums to reflect.  I also question whether the right approach to air pollution is to charge for it, when other activities are not also charged for creating air pollution (and when regulatory measures may be more effective).

However, he wisely notes that pricing shouldn't be introduced in isolation of offsetting complementary policies (the type that are essential for public acceptability):

As an offset, the reform should include abolition of existing excise and registration charges. Revenue should be hypothecated to a transport trust fund, with transport (road and public transport) and related environmental improvements being eligible for funding from this trust fund.

Reforming road pricing would also provide the opportunity to review public transport fares, many of which are currently artificially low to compensate for inadequate road pricing.

In other words a shift from vehicle ownership and fuel taxes to road pricing. He also notably recommends that public transport fares are too low because road pricing is inadequate, and that this should be corrected.

Beyond the detail, this is a good summary of the economic policy points around road pricing. It can better recover costs imposed by road use, and should be considered as a replacement for the legion of “second best” policies that have been introduced to tax fuel and vehicle ownership, and subsidise public transport as an alternative. It is a view that deserves more discussion and debate, and more forward thinking than simply seeing road pricing as a revenue raiser or as a way of suppressing traffic.

Tauranga: New Zealand's toll road capital got one wrong

There have been very few toll roads in New Zealand's recent history, but for some reason the city that seems to have had the greatest interest in tolling is not a major one, but a relatively fast growing provincial town called Tauranga (population today of around 120,000).   Outside Tauranga, only one other city (Auckland) has had a toll road in the past 25 years.

Its first project was a very successful harbour bridge, which dramatically shortened (halving) the driving time between Tauranga City Centre and the neighbouring upmarket suburban district of Mt. Maunganui (which is also the locality of the Port of Tauranga, one of New Zealand's most dynamic port companies).   Between 1988 and 2001 it was tolled, after which the tolls had fully paid down the debt and interest (and some) of the bridge and tolls were removed.  The result of removing the toll was an 18% increase in traffic across the bridge (with only a 7% reduction in traffic count on the alternative route) which is hardly surprising.  In fact the continued increase in traffic was such that the bridge and its approaches were increasingly congested.  A proposal to toll the bridge again to fund a duplication of capacity and some grade separated approaches was cancelled, because the government of the day needed support from a minor political party, whose leader was then the MP for Tauranga (and who opposed tolls).  (The duplicated bridge has recently opened).

The third project is the forthcoming Tauranga Eastern Link, being led by central government, it is a motorway bypass 23km long which is to include electronic free flow tolling, entirely ANPR based.  It is a four lane motorway that bypasses one town and a rather tortuous stretch of single carriageway.  

Tolling is specifically to help finance the road, which is also being funded from conventional road taxes (fuel tax and road user charges (weight/distance charge on heavy and diesel vehicles)).

The second project is the one that has gone wrong.  Known as Route K, it was commissioned by the Tauranga City Council as a 5 km single carriageway (1 lane each way) highway bypass of its southern suburbs.  It is located on Google Maps as Takitimu Drive between Route J and State Highway 29 only (the northern half of Takitimu Drive is the untolled approach to the Harbour Bridge).

Tauranga City Council commissioned it as a fully toll funded road, but the problems with it were rather apparent from the start.  It cost NZ$45 million (US$33.7 million) to build, but has lost money every year it has been in operation since 2002.  Tauranga City Council now owes NZ$55 million on the road, and it can neither sell it nor will central government take over this liability.  Why has it failed?

First the route it bypassed wasn't particularly congested (or rather the routes, as there are two parallel suburban main roads).  It was primarily expected to be used by residents of growing southern suburbs, which haven't grown, and the time advantage frankly wasn't good enough for a journey this short.  

Route K is between the Pye Pa Bypass and the SH2 Northern Corridor.

Secondly, the route itself was forecast to need 10,000 vehicles a day to break even.  The fact the road is a single carriageway highway, that is not a crossing should be a clue as to whether enough revenue can be generated from tolls to pay for it.  Furthermore, the road went through analysis according to the Economic Evaluation Manual of the then funding body - Transfund New Zealand - and came out with a benefit cost ratio barely over 1.  That was why it was not funded with other road projects because it was poor value for money.   That tells you that no only could it not be justified from a national economic appraisal point of view, but users also perceived it was not worth paying for to use.

Actual traffic volumes are only 4840 daily,  even that is a 28% increase on a year ago.   Assuming all of those vehicles paid fuel tax (not true but just for argument's sake) and were relatively inefficient, they would only generate another NZ$295,000 p.a. if it was shadow tolled.

So Tauranga has a problem.   It borrowed money and built a road that doesn't have enough traffic and is tolling users and has less than half the demand necessary to break even.   The tolls are not high at NZ$1 (US$0.74) for cars and up to NZ$ 4 (US$3) for trucks, and the Council struggles to raise the tolls by 50%.   It is a manual tolling system with a cheap bespoke tag system that appears to have low takeup (and with a NZ$2 monthly rental for a tag and no discount the incentives to use them are low).

What it shows is the mistake of modelling demand based on assumptions about value of time that do not take into account the cost to users of engaging the toll transaction.  Quite simply put, motorists are far less likely to part with money for a toll than money for another discretionary purchase, particularly if they do not part with tolls regularly elsewhere (After all Route K opened a year after the Harbour Bridge toll was abolished).  In particular, if the new road doesn't bypass particularly congested routes, its appeal will be limited.

Demand has increased recently for two reasons, first the duplicated and improve Harbour Bridge corridor which leads to Route K has meant that it is now part of a far less congested major corridor to the Port, secondly the southern end of Route K is connected to the recently opened Pyes Pa Bypass, which itself comprises a recently improved secondary highway to the major town of Rotorua.  In other words, the road itself was built before its time.

As Tauranga grows and the attractiveness of the route given the roads either end of it, becomes more apparent, then the road will become viable.  Meanwhile a Council is stuck with a gamble, based on poor forecasting and assumptions about revenue! Here is a newspaper article explaining the council's troubles.

Congestion pricing explained by video

Lewis Lehe was an economics student who decided to use video to explain some economic concepts. These videos were featured on Rustwire here.  He is keen on the concept of congestion pricing, and frankly this is one of the clearest ways of explaining the issues around rationing road use by price.  I think these are excellent.

How do you price a road? Half res from Lewis on Vimeo.

Is congestion pricing fair? from Lewis on Vimeo.

Just imagine the difference videos like this would have made with debates on road pricing in the UK, New York and elsewhere.  Lewis has exceptional communications talent.

Congestion Charging advocated for Melbourne

Allan Fels, Dean of the Australia and New Zealand School of Government  has said in the Australian newspaper that congestion charging would be one of the best measures to improve economic efficiency in the state of Victoria, Australia.

Victoria has already investigated traffic congestion and congestion charging before, in a comprehensive report by the Victorian Competition and Efficiency Commission.   The response of the Victorian government was to embrace many of the proposals around new infrastructure and public transport services, but to sidestep urban congestion pricing.  Given Melbourne's extensive CBD centred public transport network, pricing road access to the CBD (which already exists on two tolled corridors) does not appear unreasonable, but is politically difficult.  Although parking is effectively priced and rationed in a way that forms a second-best proxy to congestion charging.  Yet urban CBD charging alone would only address some of Melbourne's congestion problems given the very large area of the metropolis and high usage of cars for trips that do not focus on the CBD.   This suggests that wider reform of road charging policy (replacing fuel taxes and ownership taxes with distance based charging) may have more applicability.

Yet the mere fact it is being discussed in Australia is progress on its own.   Simply building roads and building public transport networks in themselves does not address the fundamental problem with not efficiently pricing roads - when demand exceeds supply, queuing eventuates.

It follows on from reports earlier this year that Infrastructure Australia is supporting congestion charging to make cities more sustainable, and to raise revenue to improve transport networks.