New York congestion charging is back : 5 January 2025

In May 2024 I wrote on how the Governor of New York, Kathy Hochul had suspended what was then called the Central Business District Tolling Program.  It would have been the first proper congestion charge in the USA, in the sense that it applied a charge to driving on existing roads to manage demand, and generate revenue.

Hochul suspended it for multiple reasons, but a key one was to defer the risk of its introduction costing the Democratic Party support in the November Federal Election for the House of Representatives.

With that all over, and with the perceived risk that the forthcoming Trump Administration may cancel the program, it is all "go".

The New York scheme is now called the Congestion Relief Zone and it will be in operation on 5 January.

All of the equipment is in place, it is ready to go, and with the passage of the Federal election, the Congestion Relief Zone in New York will go live on 5 January.  It was suspended in June, purportedly for policy reasons, but primarily a mix of concern over lawsuits and the effect the charge would have had on the elections to the House of Representatives.

The main change to the suspended scheme is a reduction in the peak time price from US$15 to US$9.

It's not clear whether the daytime period remains as previously proposed (0500-2100 weekdays and 0900-2100 weekends), but it is clear that the daytime charges will range from  US$4.50 for motorcycles, US$9 for cars and up to US$21.60 for large trucks and sightseeing buses.  Commuter buses will be exempt.

A per-trip surcharge of US$0.75 applies to taxis and black cars, and US$1.50 for app-placed trips (e.g. Uber). 

The off-peak discount is apparently 75%, explicitly to encourage off-peak truck deliveries. Albeit, the case for having any charges between 2200 and 0500 appears to be low.

The price will not increase until 2028 when it can be raised to US$12 for cars (with proportion increases for other vehicle classes) through to 2030.  

The charge is expected to enable borrowing of around US$15b in bonds to support the capital program of the New York MTA including:

· Second Avenue Subway Phase 2 extension to East Harlem

· Replacing signaling on 6 lines

· Improving accessibility at 20 stations

· New electric buses

A range of other projects are listed, including renovating parks and greenspaces.

The scheme is forecast to reduce VMT in Manhattan by 5% and a 10% reduction in the number of vehicles entering lower Manhattan. The charge is also being accompanied by other measures to reduce congestion including:

· Expanding enforcement of intersection blocking also known as “blocking the box” violations

· Expanding use of weigh-in-motion technology to enforce weight limits of trucks

· Raising threshold value for removing abandoned vehicles

· Permitting the City to impose surcharges on permits for construction that remove traffic lanes.

What next?

New York has around six weeks before the Congestion Relief Zone comes into effect, but there is a lot to do. A campaign to inform motorists of the coming zone will be critical, and it will be essential for as many as possible to be informed of what they need to do to be compliant with it. As a majority of vehicles entering lower Manhattan already have toll tag accounts for the multiple New York and New Jersey toll roads and crossings (Lincoln and Holland Tunnels carry the traffic from New Jersey and both are tolled), this should be easy for them. The real cost will come from the tens of thousands of occasional visitors, particular from the remainder of Manhattan which don’t have toll tag accounts. 

Eyes will be on the impacts of the charge, the capacity of the bus, subway and rail networks to handle increases in demand, and the profile of demand on the road network, but I suspect the greatest impact will be in reducing frequency of trips. Irregular travel will reduce. There will be modest modal shift, but the real impact will be shifting of some commercial demand to the off-peak period and reduction in trip frequencies.

The press release from the Governor claims motorists will "save" US$1500 per annum, but this is comparing the price schedule now to the one previously proposed. It is being sold as being an improvement by being lower price, but it is still a new charge for driving into lower Manhattan.  This press release covers the positive comments from multiple state and city politicians supportive of the plan.

A lot of the details have not been announced, but I expect most of what was previously announced will continue.  These details will need to be confirmed in the coming weeks, but all going well, the New Year will see New York as the next city globally to introduce congestion charging, and the first in the USA.

Yes its primary focus is in raising money, it would not be happening if the pressure to raise revenue to fund public transport renewals and improvements were not so high, and it is a blunt scheme that will not do much to change time of travel.

As I wrote before, it almost certainly is not a model for the rest of the US to follow, but the principle should hopefully be a success. It should reduce congestion, it should raise a lot of money and enable the city to operate more efficiently.  Let's hope it proves to be a great success.

New Zealand aims to shift all vehicles onto road user charges

Yesterday, 29 August 2024, the New Zealand Minister of Transport, the Hon. Simeon Brown, outlined the Government's ambitions on revenue policy (distinct from policy on time-of-use/congestion pricing).

RUC for all vehicles

The "Revenue Action Plan" has several elements, but by far the most ambitious step is to transition away from fuel tax toward distance-based road user charges (RUC) by "as early as" 2027. The objectives of this is fairness as seen in this statement:

Transitioning to RUC will ensure that all road users are contributing fairly to the upkeep of our roads, regardless of the vehicle they drive.

Note that NZ has had a RUC system since 1978 which applies to all heavy vehicles (vehicles over 3.5 tonnes) regardless of fuel (although electric heavy vehicles have an exemption which expires in 2025), and all vehicles powered by a fuel not subject to excise tax. That means all light diesel vehicles, and since earlier this year includes EVs and plug-in hybrids.

The transition to all vehicles being on RUC means battery-electric hybrids and petrol (gasoline) powered light vehicles (and the handful on natural gas).  

RUC in New Zealand currently has the following numbers of vehicles:

• 176,000 heavy vehicles
• 885,000 light diesel vehicles
• 103,000 light EVs and PHEVs

Note there is no excise tax on diesel in NZ.

NZ has the world's largest light RUC system today, and will be extending it to another 3.7 million vehicles. For most vehicles paying RUC, their owners buy prepaid licences in blocks of 1,000s of km based on vehicle class, with paper licences posted following online purchases (there are also options to buy "over-the-counter"). Some commercial vehicle owners paying for telematics services from three certified service providers are charged RUC through those service providers, which supply on-board units using GNSS and mobile data technology to measure and report travel, and calculate RUC to be prepaid almost "just in time".  Around half of heavy vehicle RUC revenue is generated through these providers.

Other heavy vehicles are required to have hubodometers installed (including all trailers) and have paper licences issued, and light vehicle owners have odometers as the distance reference.

It is fairly clear that there will some challenges in the coming months and years in scaling up and reforming NZ's RUC system to accommodate a significant growth in vehicle numbers.

Of course Iceland also announced it was shifting all vehicles onto RUC by 2025, although it is unclear where that programme is at yet. However, if NZ does this, it will be the largest country to have shifted all vehicles onto RUC and, as it appears, to have abolished fuel excise duty.

Toll

Other parts of the revenue plan include expanding the scope for tolling, with the presumption that all new major roads would be tolled.  The announcement included that three roads currently under construction or approved would be considered for tolling namely:

• Takitimu North Link
• Manawatu Gorge replacement (Te Ahu a Turanga) and
• Otaki to north of Levin highway

All three of these routes are dual-carriageway/expressway standard roads so will be practical to toll, albeit modelling will need to determine the revenue vs. costs. All will have alternative inferior routes available, so motorists will be expected to pay a premium for the significantly improved routes. It will be interesting to see what proportion of capital costs of these projects will be recoverable from tolls.

Other measures

The announcement also noted that value capture would be unlocked as a tool to raise revenue from the likes of property owners directly obtaining uplifts in property values from spending on large transport projects.  "Better use of existing funding tools" would also be part of the plan.

Big step forward

With the recent announcement enabling time-of-use road pricing (congestion pricing) and this announcement, this places NZ at the forefront, globally, in advancing road pricing. As some jurisdictions (Iceland, Netherlands and US states) are advancing RUC for part of their fleet, NZ is about to embark on a major step towards covering all of its fleet. While progress on urban road pricing on existing roads remains slow elsewhere, NZ may be ahead of most cities if one or two cities introduce pricing in the next few years. NZ will certainly be far ahead of any other car-oriented low density countries in advancing road pricing in some form.

Responding to Simon Wilson of the NZ Herald on Auckland congestion pricing

First a warning. I don't use this blog as a place for debate or polemics, but on this occasion, I have decided to respond to an article which is quite damning, as an example of the sort of debate one endures around the topic of road pricing. This article is by no means the worst I've ever seen, but it is full of assertions with little to no evidence, mistakes and bold claims that appear to be more motivated by a desire to undermine the policy itself (and perhaps this is because it is from a government he himself does not support), than to critically review the merits of it.

The NZ Herald is Auckland’s (New Zealand) newspaper of record. Simon Wilson (no relation) is the NZ Herald’s senior writer on transport issues. Given the NZ Government’s recent announcement of its intention to advance congestion pricing (called time of use pricing), he has written a column on the topic, which is arguably a polemic of weak argument against it. Note it is behind a paywall. I am a subscriber, but it is not worth you paying to read his article though. 

It is possible to critique time of use pricing in Auckland on some grounds, such as whether it could be expanded at reasonable cost sufficiently to significantly address congestion, or whether net revenues should be redistributed through tax cuts rather than spending on infrastructure, or if it is better to introduce road pricing more generally, so driving outside congested time and locations is cheaper.  It is possible to argue that there should be more and better public transport to accompany road pricing, or that it could cause government to delay or cancel some new road projects, but none of that is apparent.  

I’ve spent over 20 years working on road pricing policy around the world and I have seen arguments against road pricing from a range of perspectives. Some on the right see it as an additional tax that intends to limit motorists’ freedom and increases the power of the state against them or is used to invade their privacy through "tracking". Some on the left see it as unfair that a scarce resource (road space) is allocated on the basis of price rather than queuing.  Wilson is on the left.

Simon Wilson has written many columns in the past about the importance of tackling climate change, of getting more people out of their cars and into public transport or active modes. He is a fervent believer in behaviour change in urban transport policy. Now he is making himself perhaps the highest profile campaigner against the one policy that could achieve more of what he claims to want than any other – more efficient road pricing.

He titles his article “Sorry Simeon Brown, congestion charges are not the key to freeing up the roads”. 

He’s wrong. I doubt Wilson can identify a city in the world that has freed up its roads without road pricing, he certainly doesn’t name any. Short of Pyongyang (or Covid lockdowns), I don’t know of any major city in the world without road pricing that has significantly reduced congestion, although certainly some that have it do still have severe congestion (notably London). Singapore and Gothenburg certainly have much less congestion than before either city had congestion pricing, Stockholm has much lower congestion approaching its central city and along its main bypass route (although there remains congestion elsewhere in its network). Milan still has bad congestion, although it is better with pricing.  Wilson does not indicate which cities on a scale of Auckland have freed up their roads without either road pricing or depopulation

So what else did he have to say?

He repeatedly asserts that time-of-use pricing, congestion charging etc is a “tax”, which presumably he is saying for pejorative impact to appeal to readers on the right of politics (new taxes are "bad" from a traditional rightwing perspective).  Whether or not it is a tax would be a legislative matter. I’m not sure if he thinks water meters are a “tax” or electricity meters, but applying a price, that varies by time-of-day, and is periodically reviewed as to user demand (as in Singapore), is not very much like a tax. In Sweden, congestion pricing is called the “congestion tax” for legal reasons, in Singapore the term “Electronic Road Pricing” is used to describe simply a fee for using the roads. Does he see bus fares as a tax? Does he see the existing toll roads in NZ as a tax? This is hardly a major point, but it sets the tone for this article, which is a not particularly coherent piece, sometimes opposing road pricing and in one place saying "it has a role". 

Although he admits that congestion pricing works, he then makes several claims that do not stand up to scrutiny, namely:

• They can “do a lot of harm”;

• They are “not the key to reducing congestion”.

He also says they are not popular, which is hardly a surprise, as reports from The Congestion Question (the last major study into the topic from 2016-2020) indicated that public acceptability is the greatest challenge to implementing congestion pricing. Wilson’s column is of course helping to add to this challenge. I don't think you should complain about something being unpopular by contributing to its unpopularity sans the merits.

What about "do a lot of harm”? He doesn’t elaborate, and in fact provides zero evidence of a "lot of harm" anywhere, so why say it? Why scaremonger?

He then acknowledges that for commercial traffic, congestion is a cost, whether for freight delivery or simply providing services that require getting between sites.  However, he then describes Stockholm, London and Singapore as all being cordon schemes, which isn’t quite accurate. Although he cites The Congestion Question report, he clearly did not read the report on international experience (PDF) (disclaimer: I wrote that with colleagues of mine).

Let's be clear, Singapore is predominantly a corridor scheme (with two small cordons), with most charging points on major roads and arterial routes approaching the downtown. Stockholm is a cordon (PDF), but also now has a corridor charge for the Essingeleden motorway that passes through the city.  London is strictly an area charge (it charges circulation within the cordon as well as crossing it).  

Wilson mentions this because he prefers cordons it seems but sees corridor charging (which the Mayor of Auckland did propose last year) as being flawed because they are easy to avoid by rat-running on local roads. That’s true, if you don’t put in place measures to price that rat-running (e.g. by pricing exiting and then re-entering a road to avoid a priced point). 

This appears to be a very weak attempt to condemn road pricing schemes that aren't cordons, but the Government's policy is not that there should not be cordons, or that there should be any specific type of congestion pricing scheme at all.  

Of course, there has been no decision at all about what proposal to introduce in Auckland, but the Congestion Question did recommend a downtown cordon supplemented by corridor charges, on the most congested routes on the Isthmus and towards the North Shore first. More work has to be done on what the first scheme would look like. So it seems rather premature to be antagonistic to the very concept as a whole at this stage.

The Congestion Question indicative downtown cordon

His next point is to appear to be critical of the timeframe, as he claims the first scheme would not be in place until 2028. This seems pessimistic. Sure the legislation and approvals will not be finished until 2025, but it is entirely plausible for a scheme to be operational within two years of that. He indicates that the timing of elections (local in 2025, national in 2026) is driving this, but it’s unclear that this could be accelerated to be significantly faster. He says it should be operational when the City Rail Link opens, which I agree, but it seems unlikely that even if approved today, that a scheme could be operational in 18 months. Yet surely if that is the best time, the second best time is as soon as possible afterwards?

Then Wilson goes back to how unpopular it would be. He claims it is a “regressive tax”, yet I don’t recall him calling the introduction of the Auckland Regional Fuel Tax that, even though there is a study that explicitly concluded that (PDF). The fuel tax applied 12.5c/l on petrol and diesel sold in Auckland, and of course meant everyone driving paid it, except those able to afford an EV or hybrid vehicle. Wilson did support the regional fuel tax when it was introduced, and he said “It does hurt the poor disproportionately …. But it also targets almost everyone who's clogging up the roads”.

That’s nonsense. It targeted nobody. He also said “one day we’ll have better ways to manage demand” saying essentially road pricing would be that but “we don't have the technology in place to do that yet and it's controversial”. The regional fuel tax was not introduced as a demand management tool, but moreover the technology to do road pricing exists now.

Now the government is now advancing it, and he opposes it, not because of the unavailability of technology. Of course the regional fuel tax is now history, but that measure improving the cost of living for most Aucklanders is unnoticed, because this is a polemic.

He gives no evidence for road pricing being particularly regressive, although as a concept it is no more “regressive” than pricing water, electricity or indeed public transport or food. As part of developing proposals for Ministerial approval, an impact analysis of the proposed “time of use” pricing scheme will need to be undertaken.  Perhaps Wilson could focus on what that analysis should look like, rather than dismissing the whole idea of pricing as regressive. Now the Gothenburg congestion tax IS regressive, there is evidence of this (PDF), but it was a scheme set up to raise revenue and is far larger in scope than the scheme that would have been needed to relieve congestion.  The NZ Government is proposing time of use pricing specifically to improve network productivity, not to raise revenue, but Wilson ignores that, as it doesn't fit his polemic. Of course congestion is regressive, as the richest don't commute at peak times or can buy homes close to work.

He claims “It’s not the key to solving congestion. And one of the most common arguments for it is economic gibberish”. This is rather embarrassing. If you don’t understand an economic argument then the best way of understanding it is not to call it gibberish, in fact it displays astonishing ignorance. His understanding of the value of time and the economic impacts of congestion is poor indeed.

He claims “These charges will be a cost of doing business that companies will pass on to their customers. For the general public, they will raise the cost of living”. Will they? Having claimed correctly that less congestion will make all sorts of businesses more productive, whether it be for freight deliveries or services such as the building trades, they will be able to undertake more jobs for the same cost (wasting less time and fuel). Pretty much all benefit/cost analysis indicates businesses save much more than congestion pricing costs, so it would not be passed onto customers. Of course congestion costs are passed on.

It's his next claim that is the most embarrassing.

Alan McDonald from the Employers and Manufacturers Association (EMA) has said much the same. “Recent traffic monitoring data has found that Aucklanders are losing 22 million hours per year out of their lives while they sit in traffic,” he declared. “That equates to a $1.3 billion annual hit to GPD.”

Gibberish. You can’t link private travel to productivity because very few people drive to work on company time. However long your commute takes, it’s your own time you’re wasting.

Everyone resents it, and fair enough. But the economic value – the “annual hit to the GDP” – is zero.

Wilson claims that the economic cost of congestion to private individuals is zero. He claims this doesn’t impact on GDP.  Let’s set aside the obvious social cost. Congestion means commuters leave home earlier and get home later than they would otherwise. That’s less time with family, less personal time, less time to cook, to exercise, to sleep even. Wilson understands what externalities are, I think, so he could at least acknowledge that.  However, what he misses out is what congestion does to opportunities for individuals.

You see the available job pool for most people is directly related to the duration of commute from wherever they live to wherever jobs are located. Most people are happy to commute for up to half an hour, and many in a larger city for up to an hour, although those with children to look after are more challenged. Beyond an hour those able to spare that amount to time to travel to and from work are much more limited in number. In short, congestion reduces the opportunities people have to increase their incomes with better employment, and it also reduces the labour pool available to employers to improve their productivity. I’m always a little sceptical of the methodologies used to “cost” congestion, but to dismiss traffic congestion as not imposing costs on GDP as it applies to private individuals is ignorant. There is literature to back this up.

Wilson then determines that the answer isn’t road pricing, but more rapid transit. Yet he doesn’t seem to be able to explain why cities like Paris, Amsterdam, Tokyo, New York, Sydney or San Francisco all have chronic congestion WITH lots of rapid transit? The Northern Busway is a great piece of infrastructure, but it hasn’t fixed congestion on the Northern Motorway, although it has absorbed a lot of demand growth. Buses do carry a lot of people over the Auckland Harbour Bridge, but the idea that this is a substitute for road pricing is simply absurd. He may as well say that you don’t need parking fees if there are free buses.  It’s completely false to equate the impacts of the Congestion Question, which was a network wide reduction in congestion, from the effects of the Busway on one corridor.  He claims rapid transit reduces emissions. This only happens if it enables modal shift from driving cars, which of course congestion pricing promotes as well (bearing in mind transport emission in NZ are capped with the Emissions Trading Scheme anyway). 

The article explains all of the benefits from a lot of public transport, without even really noting that the costs of all of this infrastructure he wants need to be paid for, and one way of doing it would be through congestion pricing. That doesn’t mean I think that’s how the money should be spent, but surely that connection could be made? Furthermore, all of the rapid transit he touts does absolutely nothing for freight or tradies or other commercial traffic, as they can’t use it.

He then makes this remarkable failure to connect thoughts:

Our roads are appallingly congested, we are failing to reduce carbon emissions and our road safety record is among the worst in the developed world. The opportunity is for a rethink about how and why we use the roads, so we can build ourselves a more functional, friendlier city. Instead, the Government proposes a new tax.

He claims “a great many people will not be able to avoid a congestion tax”. How does he know? If it is a downtown cordon, where only 13% of employment is based and half of commuters already travel by public transport or active modes then hardly anyone will be affected. Even if it is just the Mayor’s two corridors, that wont affect most commuters either. Again, this is just nonsense. 

If Simon Wilson can’t see the link between road pricing, reducing congestion and emissions, and making a city more functional and friendly, then he is either ignorant or deliberately disingenuous. I fear he is simply a polemicist seeking a headline and he can’t give any credit to a politician he doesn’t like or support for implementing a policy that does more for what he wants than any other single measure at the lowest cost.

Opposing the very concept of time-of-use road pricing at this critical stage indicates he is not really interested in enabling all of the potential tools to reduce congestion, lower demand for emissions and encourage modal shift at all, but rather is just writing polemics for headlines. 

Wilson would be better placed to focus not on opposing the first government in NZ’s history to advance road pricing to implementation, but rather to focus on the design of the first scheme proposal for Auckland, to ensure it has a positive impact on reducing congestion, minimal impact on those with low incomes and limited choice, and to encourage creative solutions, such as those used elsewhere, to address any issues. If he wants a cordon, then talk about it. If he wants a different option, then fine. However, if he doesn’t know anything much about the topic at all, he might prefer to read a bit more, talk to people who do and not try to undermine a policy that actually has general support across the political spectrum from the Greens on the hard-left to ACT on the classically-liberal right. 

Time-of-use pricing could help Auckland look much more like what Simon Wilson wants it to, it’s just a shame he wants to get in its way, on grounds that are spurious and almost entirely baseless.

The Congestion Question evaluation of impacts

New Zealand Government to introduce legislation to enable congestion pricing: Part One - Summary

Auckland - the Congestion Question general depiction of locations for congestion pricing

As US advocates for road pricing mourn that New York has, once again, seen congestion charging stall, it is New Zealand (NZ) which is showing a path towards implementing that most difficult of types of road pricing.  On 12 August the Hon. Simeon Brown, Minister of Transport for NZ announced the NZ Government’s policy for implementing “time of use” road pricing (congestion pricing) (TOUP is my acronym), including that it would introduce legislation to enable TOUP later this year. TOUP will be led by the NZ Transport Agency (NZTA), the central government agency which is the state highway road manager, the manager of the land transport funding system and manager of the motor vehicle register and road user charging (RUC) system. 

As a unicameral Parliamentary democracy, with the governing coalition having a majority in its Parliament, passage of legislation should not be a problem, although the legislative process will provide ample opportunity for input and submissions from the public. It is almost certain this will pass into law, and NZ will have enabled the introduction of TOUP on a case by case basis.

In summary, the process will see NZTA work with local authorities that express interest in introducing TOUP to develop proposals for approval by the Minister of Transport for introduction. Those proposals must fit a series of criteria, and be focused on reducing congestion and will be developed as a partnership between the two levels of government. The overwhelming emphasis is on developing TOUP proposals that can gain public acceptance. In short, NZ does not want the scenario seen in the UK whereby local authorities develop proposals in isolation which are focused on raising revenue or restricting traffic for the sake of public amenity, but to have a joint central/local government approach to making the road network be more productive.

All going well, with legislation enacted in 2025, it is possible that the first TOUP scheme will be operating in NZ in 2027 or 2028 in Auckland. 

More details are in this background document here (PDF), but below is a summary.

Background

As I wrote previously, the change of Government in New Zealand has seen adoption of explicitly pro-road pricing policies, including support for congestion pricing, which it has called “time of use” pricing or charging.  

This is largely driven by congestion in the country’s largest city, Auckland, with five studies in the past twenty years all supporting the introduction of some form of road pricing in the city. However, the policy is not just about Auckland, but about any city which can demonstrate a case for congestion pricing. There is a case for it in Wellington and Tauranga, given congestion in those cities due in large part because of trip patterns on a constrained road network.

The history of time of use pricing in New Zealand goes back to the Helen Clark led Labour Government of 1999-2008, which initiated the first major study into road pricing in Auckland (summary here). This did not result in implementation, largely because of a strong political belief that major transport projects in Auckland needed completing first before the public would accept road pricing. This include key projects upgrading and extending the motorway network (notably SH20 and SH18 to provide the “Western Ring Route” as a bypass to the Auckland Harbour Bridge and the central motorway junction), the Northern Busway and modernisation, expansion and electrification of the city’s commuter rail network. These projects have all been completed, with two more busways and an underground inner city rail loop under construction as well now.

However, interest in road pricing did not end when the Clark Government lost the 2008 election, as studies continued under the John Key/Bill English led National Government of 2008-2017, and under the Jacinda Ardern/Chris Hipkins led Labour Government of 2017-2023. Yet it is the Chris Luxon led National Government that looks likely to finally implement it.

It is NOT a model of enabling local authorities to implement schemes, but rather a partnership approach whereby central and local government work together to develop and implement road pricing.

Key points

• Time of Use Pricing is to be introduced to improve traffic flow and shorten journey times. It is not to be introduced as a revenue measure, although net revenues will be generated by it.
• Legislation is to be introduced to create an enabling framework for road controlling authorities to work with the NZTA to develop TOUP proposals for approval by the Minister. NZTA itself, as a road controlling authority for state highways, can generate its own TOUP proposal for part of its network.
• TOUP proposals will need to be consulted with local stakeholders and the community.
• TOUP proposals must include impact analysis on traffic and local businesses, as well as the community.
• TOUP proposal design will be led by the NZTA, working with relevant local authorities. This will form a TOUP partnership which will lead the consultation of the scheme.
• Scheme development, design and implementation costs must be fully recovered from future revenues.  Government funding will not be made available for TOUP schemes on the basis that they should at least pay for themselves.
• Net revenues must be spent on the transport system in the region where money is raised and will supplement not replace existing funding sources. Decisions on the precise projects or activities to be funded will be made by the local authority members of the partnership and the Minister of Transport.
• Authority to implement a scheme will be granted by the Minister of Transport through Order in Council.  The Order in Council will include details about where and when the scheme will operate, and how much it will charge users. 
• There will be flexibility in the Order in Council to vary charges and the geography of the scheme within defined boundaries. The illustration below demonstrates this.
• The "scheme area" will be determined by Order in Council, but the first scheme implementation could be a small cordon within it, or a single route, and the TOUP partnership would have flexibility to progressively expand (or contract) the geographic scope without seeking new approval.

Flexibility within New Zealand congestion pricing scheme proposals

• TOUP schemes will be required to regularly monitor their performance, specifically impacts on traffic volumes, travel times on priced roads and the wider network, revenue raised and how it has been used as well.
• The Secretary of Transport (head of the Ministry of Transport) will be responsible for scheme oversight including whether the scheme is meeting its objectives and complying with the relevant Order in Council
• If the TOUP partnership wishes to change elements of the scheme outside the Order in Council, it will need to engage in public consultation and seek an amended Order in Council from the Minister of Transport. 
• The policy is technology neutral, although it is expected the first schemes will be using ANPR-based technology as detection and/or declaration based schemes, likely using the NZTA's tolling system back office.  

Process of application

The full process for approval of TOUP schemes is depicted below:

New Zealand Time of Use Road Pricing approvals process

What's next?

As the legislation is to be drafted and policy developed, the Ministry of Transport and NZTA will be focused on this in coming months. Meanwhile, it is widely known that Auckland Transport has already procured services from a consulting consortium to help it design and develop a TOUP scheme that it wishes to seek appropriate, and it is unclear how that work will proceed under this framework.  It seems likely that the scope and timing will be curtailed somewhat, as any scheme needs to be developed in partnership with NZTA, and Auckland Transport will not want to risk spending too much money on scheme development if it doesn't have the consent or approval of NZTA.

The next major step will be the publishing of draft legislation and its introduction into the NZ House of Representatives later in the year, after which it will be sent to the Committee stage for public consultation.

Comment

The NZ Government has taken a prudent approach to the development of TOUP given that the world has no shortage of congestion pricing schemes that have failed to proceed due to public backlash. It is appropriate for both central and local government to work together closely, as the UK experience of local government led congestion pricing schemes is largely woeful.  There are far more cities that have advanced and seen proposals be cancelled, than advanced, and that is in no small part to local authorities appearing to be unable to develop schemes that bring the public on board.  See Cambridge as the latest example. 

NZ is going to probably have two cities at best implementing TOUP before 2030, and perhaps one or two more after that. It needs to get it right, and with a small population (5.1m) it should rally the resources of both levels of government to enable it to be done in a way that obtains public support.  NZ has the world's highest per capita car ownership, so it is critical that it introduce urban road pricing in a way that delivers value for those who pay, without frightening those not affected, and it actually reduces congestion.

This is why NZ sees Singapore, notwithstanding enormous differences in urban form and travel patterns, as the best case study for congestion pricing today. It is the ONLY system that regularly reviews and changes prices both up AND down based on network performance.  No other system is that sophisticated or flexible. NZ could do worse than emulate the policies seen in Singapore.

NEXT: The Cabinet Paper for Time of Use road pricing contains a lot of analysis and consideration of options for this policy, I'll summarise this.

"Motorists First" - Findings of the Independent Toll Review for the NSW Government - Part Three: The Recommendations

Given the findings of the Independent Review, and particularly the highly controversial Interim Report (which essentially called for the NSW Government to legislatively override existing toll concession agreements, causing heart attacks at Transurban and among its investors), the recommendations to finally come out of this review are critical. However, equally critical is what, if anything, the NSW Government is going to do in response.

It's worth noting the wealth of data and research compiled in this review, which should help inform discussion and debate about tolling in Sydney for some time.

42 recommendations were made, and I wont repeat them all in detail here. 

However, a key part of the review work was to model the impacts of models of reform that were presented. It's critical to understand that the report recommends "moving towards" the Network Toll Restructure and Reduction model, not necessarily the details of that model exactly, but does not recommend the Network Toll Restructure Model.  Therefore, I will focus on the former.

These models are:

• Network Toll Restructure model: Introduction of standardised network tolls and including application of two-way tolling; and

• Network Toll Restructure and Reduction model: This uses revenues generated from two-way tolling, peak pricing and other sources to reduce tolls where appropriate. A declining distance approach with fixed infrastructure charges is proposed.

The effect of the latter was modelled as meaning:

• 78% of motorists are the same or better off, 17% would pay $3 + more per trip.

• Main losers are those using the Sydney Harbour Crossings

• Western Sydney motorists get some relief as longer trips are reduced in cost

The following table lists the current tolls in Sydney (all in Australian Dollars ~ US$0.66-A$1.00:

As you can see the basis for tolling varies between being two-way or one-way, fixed or distance-based, with rates for different classes of vehicles varying considerably between toll roads, and the basis for adjusting tolls varying as well.

The proposed new structure is as follows:

This is for Class A vehicles only for simplicity in illustration, but would have a consistent toll distance rate, with infrastructure rates that reflect fixed costs for those roads. The declining percentage means that every 4km the per/km distance rate declines 15%.  The effect is to make some shorter journeys more expensive, and almost all longer ones cheaper.

The following table indicates what the modelling of the Tolling Review suggests would be the distribution by trip distance of the "winners" and "losers" of reform. All those travelling longer distances would be better or no worse off, whilst about 40% of shorter (<10 km) toll road trips would be more expensive. 

The difference in average toll for a car would be to reduce from $9.02 today to $5.43, a drop of 40%. The effects on the network are seen in the following map, depicting traffic increases and decreases on the tolled and untolled network. It would increase traffic on the M2, M4, M5 east and south west and M7, as well as River Road, Victoria Road and James Ruse Drive (as traffic either avoids the northbound Harbour Crossing tolls or queues to use the M4 more intensely). 

It's striking that the obvious impacts on reducing traffic are on the Harbour Crossings and Eastern Distributor, as introducing northbound tolls on the Harbour Crossings and southbound on the Eastern Distributor sees some redistribution of traffic to the west, primarily on the untolled crossing at Iron Cove Bridge and Gladesville. There is also reduction on some streets in the CBD and some parallel routes to the M5, as lower tolls make some toll roads more attractive that local streets for some drivers. The M4 and M5 in particular see much higher traffic volumes. It's unclear the impact on congestion overall, as this did not include any peak/off-peak pricing on a network basis.

This table produced with the press release accompanying the Independent Toll Review (PDF) illustrates the effects on some toll trips:

The Toll Restructure and Reduction scenario has significant impacts on all of these examples, notably halving the cost to drive from Campbelltown to the CBD, but more than doubling the price from North Sydney to the airport. 

Before summarising the other recommendations, it is worth going over in some detail the proposed tolling principles (the first set of recommendations).

Tolling principles

These principles are recommended to guide policy measures to reform tolling of existing roads and should inform the implementation of tolling on new roads.

The Tolling Review considered the set of tolling principles agreed in 2014 which were as follows:

1. New tolls are applied only where users receive a direct benefit. 

2. Tolls can continue while they provide broader network benefits or fund ongoing costs. 

3. Distance-based tolling for all new motorways. 

4. Tolls charged for both directions of travel on all motorways. 

5. Tolls charged reflect the cost of delivering the motorway network. 

6. Tolls take account of increases in expenses, income and comparable toll roads. 

7. Tolls will be applied consistently across different motorways, to the extent practicable, taking into account existing concessions and tolls. 

8. Truck tolls at least three times higher than car tolls. 

9. Regulations could be used so trucks use new motorway segments. 

10. Untolled alternative arterial roads remain available for customers. 

The review found that these were rather general and didn’t include some key issues, such as the proportion of costs that should be recovered from tolls relative to taxpayer funds. There was little recognition of the need for tolls to vary by time of day, plus although some of the principles (tolling in both directions) are valid, they were not always applied (see the Harbour Crossings and Eastern Distributor).

The review proposed a set of modified principles with one set about the level and structure of tolls and another on consistency with competition policy.

Proposed New Tolling Principles

On the level and structure of tolls:

• Toll setting should be guided by the objectives of efficiency, fairness, simplicity and transparency. 

• Tolls should have regard to the costs associated with the provision of toll road services as well as benefits. Declining distance-based tolls are consistent with the principle and have efficiency and equity advantages over fixed distance-based tolls or variable zonal distance-based tolls. 

• In general, it is appropriate that beneficiaries pay for toll roads, for example, where benefits flow to the broader community then government contributions are appropriate. The extent of cost recovery achieved through tolls should reflect the extent to which a toll road’s benefits are enjoyed directly by motorists. 

• The process for setting tolls should be transparent to the public to promote understanding and allow for informed comment. 

• The methodology for determining tolls should, so far as possible, be applied consistently across the entire network. 

• Tolls should allow toll road operators to recover their costs incurred in financing the construction of the toll road including an appropriate (i.e. risk adjusted) return, and efficient operating and maintenance costs where relevant. It may be appropriate to apply specific charges to individual parts of the network to allow for cost recovery, for example infrastructure charges to cover the additional costs associated with constructing tunnels or bridges. 

• Tolls should not be set at a level which would allow excessive, monopoly profits, or inefficient cost levels to prevail over time. 

• Maintaining flexibility to adjust tolls over time in response to demand and supply changes is important. 

• Toll setting should take into account fairness as well as efficiency considerations, bearing in mind that other more direct policy approaches may be preferable forms of intervention in relation to fairness. 

• The different vehicle categories for tolls should balance impactor pays (the extent to which vehicles impose costs on the network and other users due to their weight and size set against the costs imposed by such vehicles on ancillary roads) and beneficiary pays considerations (a higher willingness to pay for travel time savings). For example, under this principle setting higher tolls for heavier and larger vehicles is consistent with efficient tolling. 

• The structure of tolls should be simple enough to be readily understood by users and avoid creating perverse incentives for the use of the road network. Inconsistent approaches to the tolling of toll roads can cause distortions to traffic flows. 

• Tolling information should be communicated in real time to inform customer journeys and enable improved decision-making.

On consistency with competition policy:

• Competitive pressure should be harnessed when setting tolls and assessing concessionaire bids (competition for the market) and when regularly reviewing tolls (competition in the market). Bidding for concessions should focus on ensuring tolls are set at competitive levels. 

• Unsolicited proposals for toll road extensions should not be considered in isolation of the possibility of first modifying tolls to better manage traffic flows. 

• Restrictions should not be imposed on the use of any road or public transport in order to enhance the financial viability of a toll road. 

• Tolls should only apply where motorists have reasonable and effective untolled road options, including arterial roads, or public transport alternatives, except where community benefit may necessitate restriction on access to alternatives. 

Other recommendations

Moving to network tolling: The core recommendation is to change the current ad-hoc setting of tolls by individual concession (and the State), to a more coherent and consistent approach. The key recommendation is to have declining distance-based tolls, so that the first two kilometres are charged at a higher rate than the next two and so on.  This is for fairness, but also efficiency to recognise the cost imposed on other users of using toll roads for shorter trips, and disrupting traffic flow.  Network tolling should mean some reductions in tolls, through measures like implementing two-way tolls on one-way toll roads, and more use of peak tolling to lower tolls off-peak. Moving to network tolling should help with steps to phase out or reform toll relief, and how to progress this over time. Other options to lower tolls includes extending toll concessions.

Using pricing to influence demand: Going beyond tolling as an infrastructure cost recovery measure, is to use peak and off-peak pricing, with an initial focus on trialling peak pricing for the freight sector. This is both to reduce congestion at peak times, and to encourage better use of spare capacity off-peak. Included in this recommendation is dynamic pricing, which by the conventional definition is not a good idea in this context (although reviewing peak/off-peak pricing more frequently than annually IS a good idea). 

Updating vehicle classifications and charges: Having uniform classifiers and consistent multipliers for heavy vehicles are the key recommendations, along with exempting public bus services from all (not just some) toll roads.

Expanding toll coverage: Applying two-way tolling on the Sydney Harbour Crossings and Eastern Distributor is the obvious step (and one that has generated understandable controversy in isolation). More strategically, the review recommended evaluating the entire motorway network to see if untolled sections should be tolled (reducing tolls on other sections) or if tolls should be removed from some sections. It seems likely that this will be difficult to sell politically.

Initial assessment of toll reforms: Implementation of the reforms should be carefully monitored with frequent modelling to ensure results meet policy objectives.

NSW Motorways: The review recommended establishing a new entity called NSW Motorways, intended to strengthen governance and accountability over NSW toll roads in order to improve outcomes and transparency for motorists. It would work with concessionaires to set network tolls and adjust them working with concessionaires. It would take over the E-Toll retailing business of Transport for New South Wales and have a focus on innovating to improve the tolling experience in the state. It could also manage future toll roads and contract managers for those toll roads, and bring existing public toll roads within its operations.

Concessionaire negotiations: The Review recommends that the Government negotiate with concessionaires to implement network tolling by the end of 2024 and if not achieved, use legislation to advance it. This raises obvious concerns about legislating over the contracts the state has with concessionaires.

Independent oversight of toll setting: The Independent Pricing and Regulatory Tribunal (which is already price regulator for water, public transport and local government services) should also have oversight for toll rate setting. It should work with NSW Motorways and Transport for New South Wales to monitor prices, including the financial and traffic impacts of network tolling, toll relief schemes, the need for and operation of time-of-day pricing and concessionaire performance. 

Legislative package for toll setting: Essentially a recommendation to legislate over concession agreements if necessary to implement network tolls. This should include a Revenue Adjustment Mechanism so revenues can be “appropriately” shared.

Competition measures: These recommendations seek more competition in future concessions and a long-term view on competition with procurement of future toll roads. Concession periods should be set based on public interest considerations, including competition. Competitive tendering should be favoured over unsolicited proposals. Roaming fees (across retail toll providers) should be regulated.

Transparency for motorists: Motorists should be able to see past and projected future toll road spending.  More information should be provided for trip-planning online and via apps, as well as better signage to inform motorists of toll road prices before they make a decision on whether or not to use a toll road.

Tolling customer advocate: NSW Motorways should have a tolling customer advocate function to consider and manage customers complaints, influence improvements to systems, processes and legislation to minimise future complaints and improve compliance. It should manage awareness and education campaigns, address new “pain points” from the transition to network tolling, and publish reports on the implementation of toll reform. If a toll debt is disputed, debt recovery action should be suspended while the dispute is being addressed.

Industry ombudsman: Proposes that NSW, Victoria and Queensland require toll operators to belong to a statutorily approved independent dispute resolution scheme.

Toll notices: These should be simplified and modernised, calling them “invoices” and removing administration notices, but adding late payment fees to incentivise early payment. Information provided should be user-centric, informing them of the most common reasons for non-compliance (flat tag battery and number plate not linked to an account) so motorists can address such issues to avoid a repeat of unpaid tolls.

Debt recovery:  Reform criminal enforcement so there is only one offence per trip and clearly identify if it applies to the driver or the registered vehicle. At present debt is owed by the vehicle’s owner, but it may be appropriate for that to be the driver in some cases. For civil debt recovery, find ways to improve the accuracy of contact information for registered vehicle owners. Noting that debt collection agencies seem to be able to find debtors easier that toll road operators. Toll road operators should develop and publish customer charters

My thoughts

This is a weighty report, and a lot of thought has gone into it.  The reforms proposed might be categorised into three areas:

• Rate setting/tolling policy
• Business rules
• Competition
• Governance

The most fundamental part of the review is the recommendation to take a network approach, and to apply a declining distance based tariff with an infrastructure fee layered on top of it for the higher capital cost toll roads. There is merit in taking such an approach, albeit it is obvious the biggest challenge is doing this whilst ensuring concessionaires are not disadvantaged, and consent to the changes. The "sword of Damocles" of regulation may be there, but it is not one the NSW Government will want to enforce, as it is likely to make any future PPPs more expensive (as it would have an impact on investor confidence in contracting with the NSW Government).

Two-way tolls and having consistent vehicle classifications and multipliers all make economic sense, but it will be difficult to convince motorists that pay one-way on the Sydney Harbour Crossings that they should pay in both directions, without getting anything for it. Other than by halving existing tolls (so they are split by direction), which will likely exacerbate AM peak congestion, it seems unlikely that this will be able to be implemented due to public resistance, although if it were focused on managing demand (and moderating tolls for the Western Harbour Crossing) there might be more tolerance for it.

Certainly the distributional impacts of tolls in Sydney fall greatest on those in the West, so it is understandable why there is some emphasis in improving conditions for motorists there. I note that significant cutting tolls from Campbelltown to the CBD, a route which has a frequent commuter rail service, might have negative impacts on congestion if the modelling doesn't take into account the risk of modal shift from rail to driving, although the cost and availability of parking is a significant deterrent.

The biggest challenge is going to be getting agreement from Transurban to advance these proposals. This is only going to happen if it can be convinced it will be no worse off, not just today, but over the duration of each concession, because each concession has investors (Transurban does not own 100% of all of them) expecting consistent returns. The willingness to do this is likely to be limited, as it requires forecasting changes in demand for several decades out.

The proposal to enable peak/off-peak tolling is likely to have the greatest impact on congestion on the one-hand, and underutilised capacity on the other, noting that for concessionaires, underutilisation is not a problem but rather maximising yields. If there is a public policy reason to reduce tolls off-peak on some roads, to remove traffic from other roads, this may justify a subsidy, or better yet, justify peak pricing to offset it. 

What all of this suggests is that the proposal to change governance, by creating NSW Motorways, to undertake the analysis and modelling needed to advance negotiations with Transurban, will be important. Assuming the NSW Government is not willing to regulate over concessions, it will need to be able to model the impacts of a range of pricing policy options on each individual concession, and to creatively identify options to ensure that public policy objectives are achievable (reducing congestion, better use of toll roads off-peak) alongside making sure concessionaires are willing, to commercially, to accept changes to their concession agreements.  It is appropriate to set up NSW Motorways in any case, as a road regulator which applies to state toll roads (there are two more being built now on top of the two existing Sydney harbour crossings), and which could be extended to cover a future road user charge...

The Review does allude to the wider issue of how motor vehicles are charges for road use across the network in NSW, and the need for some form of road user charging for EVs. Ultimately, there may be scope for more direct user charging across all roads, but given the Vanderstock decision at the High Court of Australia, that looks likely to be led by the Commonwealth Government. At the very least, the NSW Government should be thinking strategically about tolling in that wider context. It is not that road user charging will replace tolling anytime soon, but if there is to be a shift towards distance based tolling across the board, it should not be inconsistent with applying some form of per kilometre charging for vehicles on all roads. 

On the business rules side, the proposals around debt recovery, transparency for motorists and an industry ombudsman are all good from a consumer protection point of view.  None of this should be particularly controversial.

Given the role of Allan Fels it should not surprise anyone that competition has been a focus of this review. The dominance of Transurban should give cause to seek to diversify the profile of future concessions, but the retention of retail competition is also important. Bear in mind the main competition for toll roads are the untolled roads (and for a small subset of users, public transport on some corridors), and although it is flawed, toll roads do have a form of price control over price increases (albeit it effectively means prices increase by inflation).  However, competition can never really be addressed whilst other roads are priced so indirectly, through fuel tax and fixed charges like motor vehicle registration fees. Perhaps the most effective way of enabling competition for future toll roads is either for such roads to be state owned and concessions issued for operations, or for future concessions to have tolls set by independent regulation.

Finally, although the political will is hardly likely to exist for it, there is likely to be sense in at least considering implementing congestion pricing in the form of a CBD cordon in Sydney in parallel with such changes. Such a cordon could be used to moderate tolls as well as better manage congestion on traffic towards the CBD, but that was outside the scope of this review.

The response

The Government response so far is through this press release, which is not really a response as of yet. According to The Guardian, Transurban has said it wants to take a corridor based approach and does not approve of the full network approach.  Roads Minister John Graham also suggested that taxpayers might pay concessionaires to implement some of the recommendations, which is a good idea, if it results in net benefits to consumers and the economy (noting that it could reduce the cost of existing toll relief schemes if tolls can be reduced for some customers).

The full response will not be clear for perhaps a few months, and it seems unlikely that all recommendations will be accepted. However, there is a strong case for more consistency in tolls across Sydney, and despite the unpopularity of two-way tolls for the harbour and peak tolling, the merits of being able to spread demand more efficiency are likely to be high.

What needs to be behind any reforms are consistent principles and objectives. Discouraging short trips on toll roads is likely to result in more efficient use of the network, declining distance based tolls makes sense up to a point, but the merits of high toll costs for long distance travel come from the signals they send for land use and modal choice. 

There have been enough toll reviews in recent years, as my first post on this topic showed (and I was involved in one of them myself). I sincerely hope the NSW Government acts on much of what this one recommends.

"Motorists First" - Findings of the Independent Toll Review for the NSW Government - Part Two: The Findings

Following on from my previous post, this is a listing of the 16 findings of the review. Not the recommendations, but the findings. I have included some of my own comment on these at the end of each finding. Generally the findings are fair, although I think some of them are repetitive and essentially different sides of the same point. The findings have a strong consumer interest element to them, which is unsurprising given it was led by Allan Fels, but there is also some discussion around public policy implications and a bit around markets and delivery of services. Again it reads a bit like an ACCC series of findings, unsurprisingly.

For me, the main points are the lack of coherence around toll rate setting and structures, the inflexibility to apply time-of-use based pricing to better manage congestion and demand, and the poor policy responses to the current structures.  The dominance of Transurban is valid in the toll concession process, but with the presence of E-toll, its retail market share is not monopolistic. Future envisaged toll roads are not intended to be undertaken as PPP concessions, indicating a willingness to take a different approach, although it should be possible to proceed with PPPs without the restrictions and constraints (including the toll rate escalators) implemented in previous years.  Following this article will be one on the recommendations and what I think of those.  However, for those outside NSW, the main benefit of this report is on lessons to apply elsewhere around toll rate setting, PPP contracts and taking a strategic network view, rather than an ad-hoc approach to separate major projects. 

The structure of the findings is a summary of the findings from the report, followed by my brief comment.

The findings

1: The process for setting tolls has been flawed: Largely because governments determined them in advance of PPP concessions, rather than using competition in procurement to incentivise bidders to propose the lowest tolls needed to fund the roads. Long concession periods and higher than inflation cost escalators mean tolls in early years are lower than they should be, as the cost of the infrastructure is pushed towards future users more than early users.  Efficient in road and toll operations almost entirely benefits owners of concessions and is not reflected in lower tolls. Comment: Ideally tolls should be proposed by project bidders or proponents and be subject to competitive pressure, and rigorous public sector scrutiny. It is worth reviewing the merits of allowing tolls to increase above CPI if costs do not do so, but not there is also no scope for tolls to reflect actual demand. Rigid concession conditions around tolls affect the ability for future tolls to be able to address distortions in pricing between tolled and untolled roads, and changes in demand across the network.

2: PPP details relating to toll setting are not publicly disclosed reducing information available to assist in public understanding: Commercial confidentiality claims around PPP agreements limit this information, and consequently increase public disquiet about toll rate setting. The Review noted that Base Case Financial Models are confidential and commercially sensitive, but said returns from PPPs are “generous”. The Review cannot publish the differences between actual revenue and model forecasts because of this confidentiality, making it difficult to assess whether tolls set are too high and whether excessive profits are being generated from toll concessions. Comment: Future concessions should enable regulatory oversight of the differences between actual and forecast revenue. A careful balance is needed between incentivising PPPs sufficiently and not enabling rent-seeking behaviour.

3: Toll road users bear a disproportionately high proportion of the cost of toll roads: The key issue is when toll roads bypass the untolled network and generate significant local amenity benefits. The Review noted the Cross City Tunnel (which provides a bypass of inner Sydney between east and west) which brings significant benefits to surface traffic, including property owners and pedestrians, but was expected to be fully funded by the users of the tunnel. There is a case for those others benefiting from the project to contribute towards its costs. Comment: Toll roads offering significant local amenity improvement, due to removal of traffic and enhancing of property values ought to be partially supported by revenue generated from surface traffic (through network charges such as fuel taxes) and property taxation from property owners. It is clear the Cross City Tunnel in Sydney is underutilised due to its high toll structure.

4: There is no overall system of tolls: Tolls are all set in isolation of each other, and although they could be set to send price signals to optimise the use of road infrastructure they are not designed to do so. The complexity of tolls as they are, including toll relief schemes, untolled motorway sections (which are often used by many motorists paying tolls on other sections).  Comment: From a network perspective, tolls in Sydney send inefficient price signals that distort behaviour and do not encourage efficient network use. For example, overnight toll prices are far too high and ought to be set to remove traffic from surface streets whilst peak period tolls are often too low, and should be priced to encourage time and modal shift. There are no effective means to enable this.

5: The lack of a unified tolling system creates complexity, inefficiency, inequities and unfairness: With different vehicle classification systems and toll regimes, similar trips are priced differently across the network. Roads with similar levels of service are priced differently. Smaller trucks are in some cases charged the same as larger trucks, discouraging them from using some toll roads. Comment: As above, there should be more efficient pricing applied by location, distance and time-of-day and vehicle class. More standard pricing across the network, unless particularly costly parts of infrastructure are being used, would be rational and efficient.

6: Tolls are too rigid and locked-in for decades without options for review:  No other sector of the economy sets prices for such a long period, certainly no other transport mode. This increases perceptions of unfairness over time, as prices rise faster than inflation. The Review reports modelling that around A$123 billion in tolls will be paid between 2024 and 2060. With no processes or means to review tolls during those concession periods, it raises serious questions as to why it is justifiable to have prices set for well over a generation through contract between the private sector and state government. Comment: Concessionaires like guaranteed toll levels and escalations, but no other investments in the private sector guarantee such revenues without regulatory oversight (see energy and water utilities which are subject to such oversight). This suggests that future PPPs have provision for regulatory oversight of pricing at regular intervals.

7: On most toll roads, time-of-day tolling is not used:  At off-peak periods many toll roads are heavily underutilised, and at peak periods several can be highly congested. Pricing should enable better utilisation of the infrastructure. Comment: Generally, there are wider economic benefits in enabling better use of tolled infrastructure, especially since most of it has natural monopoly characteristics and there are some amenity benefits in enabling it.  However, there is limited elasticity of demand off-peak, in that lower prices will result in lower revenues (as additional traffic is unlikely to offset reduced prices), although at peak times higher tolls that reflect demand profiles should improve congestion on a network basis and encourage modal shift. There are considerable merits in enabling time-of-day pricing, subject to regulation, in ways that do not undermine concession net revenues, but significant improve outcomes for the transport network. 

8: The financial impact of tolls is greatest in Western Sydney: Western Sydney suburbs have the highest proportion of motorists paying over A$60 a week on tolls, reflecting the extent of tolled infrastructure in the West and the lack of useful alternative routes. This arguably affects access to employment and other opportunities for residents in those suburbs. 

9: Transurban’s profitability has not been excessive in recent years, but its NSW toll road portfolio profitability is likely to increase over time in line with traffic and toll rate escalation, and declining construction costs: Sydney generates 50% of the toll revenue for Transurban, but its returns are not excessive when considered against the Weighted Cost of Capital. However, it is expected that profitability will row in future years. Comment: This is critically important, as it is important to ensure that Transurban isn’t extracting excessive rents from Sydney road users. However, it also suggests that the toll rate setting system for future concessions should not enable continued increases above inflation.

10: The level of tolls appears to be higher than necessary and desirable: This is in part, counting earlier points as follows. There was no competitive bidding for PPPs on the basis of toll price, concession agreements allow relatively high returns for multiple reasons including a regulated monopoly price safe from competitive challenge, incentives for efficiency are largely captured by concessionaires (and not shared with users). Toll roads are relatively free-flowing and potentially underutilised (indicating tolls are certain times are too high) and motorists perceive tolls as too high. Most of those surveyed who claimed tolls are too high tend to use alternative non-toll routes or reduce frequency of non-essential travel. 15% use other modes, but nearly 40% do not change behaviour (but pay the toll). Comment: There is clearly a distortion in travel between tolled roads and untolled roads essentially because of underpricing of untolled roads. Surveying the public about tolls is likely to result in an answer that many people think tolls are too high, but the real evidence is that the tolled network has much less congestion, on average than the untolled network. Many complain about tolls but still pay them, but that does not mean that tolls are not too high, but it does mean that this is overplayed. Toll roads take up land, and are high capital cost assets and arguably it is fair they generate a return on capital (even if this isn’t what explicitly happens with other roads). However, the negative externalities of pricing only part of the network are not insignificant, and there is a strong case for enabling time-of-use pricing.

11: Transurban has a dominant market share in the current provision of toll roads in Sydney:  Although this is clearly the case, there is competition from untolled roads and other modes. Restrictions on Transurban include the limits on toll rate increases and the conditions on maintaining network quality during concession periods. Comment: Transurban has been commercial adept in expanding its presence in the market, but the “market” itself has entirely been driven by the State Government issuing concessions and the conditions it sets for those. The presence of the state account manager adds significant competition in terms of customer service, for “some” services, but concern over Transurban’s dominance is within the control of the State Government for future toll road concessions and in future regulation of them.

12: Transurban has been dominant in the NSW market for acquisition of toll road concession contracts: This is due to factors, such as its experience in bidding, the economies of scale of its existing operations and its access to in-house data on traffic and in modelling.  It’s noted that of the four motorways under construction in Sydney today, two wont be tolled and the other two will be state-owned toll roads. Comment: This is essentially a repeat of the previous finding, and what matters is what impact it has on public finances, motorists and the economy. That hasn’t been explained clearly.

13: The significant position of Transurban in the toll retailer market could adversely affect competition for tolling concessions: Until 2019 there were four toll road retailes, but Transurban acquire two of them. Now it is Linkt (Transurban), E-Toll (State Government) and Eastlink (a toll road in Victoria) that hold the entire market, with Eastlink’s presence essentially only for a handful of vehicles that hold such accounts in Victoria visiting Sydney. Barriers to entry are not seen as significant, and clearly the presence of E-Toll makes a difference to Transurban’s performance in the market. Comment: There is a “could” here significantly diluted by the presence of E-Toll, but there aren’t enormous barriers to market entry and future concessions and toll roads should be open to more innovative solutions in providing retail services. This could include the growing mobile phone based suppliers, but longer term the inevitable implementation of RUC in Australia should see providers of such services also being able to supply toll retail services to their customers (e.g. telematics service providers for heavy vehicles). 

14: Current tolling information fails to adequately enable, inform, and educate motorists thus reducing user empowerment and efficient decision-making: There is no “one-stop” platform for motorists to obtain all tolling information (including available rebates) and undertake trip planning in a way that is easy to use. Signage about toll rates is inadequate to give motorists sufficient time to adjust route choice. Retail toll platforms do not allow motorists to project future toll usage. There is little understanding as to how tolls are calculated, or understanding about toll administrative charges, and what revenues are used for on non-PPP toll roads. There is also insufficient information about the rights and responsibilities of toll road customers. Comment:  This is true, although there is nothing stopping there being such an app or platform to do this, other than the lack of commercial interest in doing so.  Signage should better enable route choice, and even could compare travel times by tolled and untolled road, although this would have to be the responsibility of the public road controlling authorities. 

15: Toll reform is preferable to toll relief: The current toll relief schemes are inadequately targeted and underutilised, in part due to overly complex administration. Toll relief is not financially sustainable given the existing pattern of toll escalation and limitations on the availability of government resources to fund relief:  This is focused on the M5 toll relief scheme which is confined by geography, does not have processes for review. It appears to be politically entrenched and is likely to have significantly affected transport and land use decisions along the M5 corridor. This and other toll relief schemes are blunt and likely to be financially unsustainable, and likely to primarily benefit higher income earners. It would be preferable to reform tolls more widely. Comment: Clearly the current toll relief schemes are inefficient ways to address public concerns about toll rates, and it would be much preferable to phase it out and reform the toll system more widely. 

16: Concessionaires are an unintended beneficiary of the current approach to toll relief. Increased traffic and patronage of toll roads, through induced demand created by toll relief, directly benefits operators by increasing their revenues: By subsidising tolls, toll relief effectively benefits concessionaires by subsidising demand for their facilities. It is not enough to generate funds beyond agreed levels that would require upside sharing with government, but is enough to benefit Transurban.  Comment: This highlights the inefficiency of toll relief as a subsidy from other road users and taxpayers to concessionaires and the beneficiaries of relief.