Friday, 19 March 2021

The case for road pricing in the UK

(This follows on from a submission to the Transport Committee of the UK House of Commons calling for written evidence on an inquiry on zero emission vehicles and road pricing prepared by a consortium of experts, comprised of Ian Catling, Andy Graham of White Willow Consulting and Andrzej Kowalski, with Steve Morello from Milestone Solutions (as am I))

The primary reason there is any political interest in road user charging in the UK today is fiscal pressure.  However, there is a wider economic, social and environmental case for moving towards road pricing, not least because existing charging mechanisms are very poor at sending price signals to road users about vehicles use.

The revenue case

As the UK vehicle fleet transitions to more fuel efficient engines, including all types of hybrids and electric vehicles, and this accelerates due to the looming ban on sales of new internal combustion engine (ICE) powered road vehicles, fuel excise duty revenues are in decline as fuel consumption per mile driven drops.   The UK Office of Budget Responsibility’s last published forecast of fuel duty revenue was in March 2019, when it forecast that fuel duty revenue would fall by 0.1% of GDP by 2023/2024 (from 2018/2019), that assumed that fuel duty would rise by inflation (Retail Price Index) from 2020/2021, which has just been stopped by the Chancellor of the Exchequer.  

A report by the Institute for Fiscal Studies in October 2019 looked at fuel duty and made a number of conclusions.  

Fuel duties have a roughly equal impact (as a share of spending) across the income distribution, but among car owners make up a greater share for lower-income households. For nearly one household in twenty, fuel duties (and the VAT on them) make up a tenth of their total non-housing budget and for many driving is a necessity, one reason why this is an unpopular tax. 

There is a long term trend of reducing road transport emissions, with emissions having dropped 4% in 25 years, despite considerable growth in demand, but the UK Government announced last year that sales of new petrol and diesel light vehicles will be banned after 2030, with hybrid vehicles only permitted to be sold until 2035.  This is expected to have a significant impact on the fleet during the next decade.  In 2018 only 6% of vehicles sold were “alternatively fueled” (electric or hybrid), but in 2020, despite a 29% decline in sales due to Covid19, the share of sales by electric and plug-in hybrid vehicles increased to a 10.7% share, with conventional hybrids as another 6.8%.  This compares to 3.1% for electric and plug-in hybrids in 2019, and 4.3% for conventional hybrids.  Although a true picture wont be clear until there is a year without Covid19 dramatically hindering the economic, the trend away from conventionally powered vehicles is clear. It indicated that revenue from fuel duty will progressively disappear in coming decades and that the time to address this is now, as it will become increasingly difficult to replace this revenue if a high proportion of the fleet becomes vehicles that are not subject to any form of charging for road use.

Around £28 billion a year is raised from fuel duty and another £6.5 billion from vehicle tax (formerly called vehicle excise duty).  Some argue that fuel duty is a good way of recovering the monetised social costs of road vehicle use, but it simply isn’t. The IFS noted that although the social costs of car use were estimated to be £0.169 per kilometre in 2015, 78% of those costs are generated by congestion, with only 7% of those costs attributable to either climate change or health impacts of noxious emissions.  The average amount paid per vehicle per km is around £0.07, but if most of the other costs are congestion then it’s worthwhile to ask some serious questions as to whether fuel duty is an effective way of recovering those costs.

Fuel duty is arguably a good tax to charging for CO2 emissions, and an acceptable tax for noxious pollutants, but it is an awful way of charging for congestion, not least because it charges all vehicles the same regardless of where or when they are being driven.  

The IFS noted that the most congested roads (London A Roads) have marginal congestion costs of around £0.80 per km, but comprise only 3.5% of all trips in the UK. By contrast, 23.2% of all road trips are on rural A roads, but the congestion costs are only £0.026 per km.  Fuel duty charges vehicles based on fuel consumption, which varies by engine type, driving style and road conditions, but not by that extent.  Furthermore, those costs vary by time of day.  The IFS noted that congestion costs at weekday PM peaks are on average nearly four times as high as offpeak.  However, this is all academic for electric vehicles as they pay no fuel duty and so do not arguably pay for any externalities.

So for around half of all car trips, fuel duty over recovers the social costs of driving, with this over recovery disproportionately affecting driving in rural areas and at off peak times.  If you usually drive in London at peak times then fuel duty is “too cheap” (and the chronic congestion in usual conditions reflects this), but if you usually driven in rural areas at most times, or in regional towns and villages outside peak periods then fuel duty is “too expensive” as a tax.  However, what is the point of taxing congestion if it has a negligible impact on it at all?  Much earlier work on the effects of fuel duty on overall driving demand indicated an impact of about 10% on total vehicle kilometres driven.  This isn’t insignificant, as it assumes that if fuel duty were abolished, there would be around 10% more road travel, but this is exactly how electric vehicles are treated today.  Electric vehicles contribute nothing towards road maintenance, or any other externalities, and they are the future.

Fuel duty has only three advantages: it is very cheap to collect, difficult (although not impossible) to evade and does effectively target CO2 emissions.  However, it is blunt, it does not reflect the wide range of variations in congestion costs and is inequitable, as for many motorists it means they are charged too much to use the roads.  

IFS concluded: 

Alternative taxes will be needed to ensure the social costs of motoring are reflected in the prices people pay. The government should take the opportunity it has now to set out both its long-term strategy for taxing motoring and how it will get there. There is a window of opportunity to do this quickly, before revenue from fuel duties disappears entirely.

The wider policy case for road pricing

If it were just about revenue, the simple answer to the end of fuel duty would be to tax vehicle ownership.  This would mean that vehicle owners would pay thousands of pounds every year to register a vehicle, regardless of how little or how much they use the road network.  This would obviously have a negative impact on the road network, as it would mean those that use the roads the most are cross-subsidise by those that use it the least, so any replacement of fuel duty has to be a charge on using the roads.  It means embracing the user-pays principle and linking what is paid to the costs of what is being used.

Road pricing or road user charging can be used to link paying for the road to a number of factors such as:

Road infrastructure costs, which vary somewhat by location, but also vary considerably by vehicle type and weight (in particular, heavy vehicles generate exponentially more wear and tear on the network than cars do, but noting that around half of all road maintenance costs are attributable not to road use, but simply the effects of the climate (sun, rain, snow and temperature changes) on road structure).  Charges can vary by vehicle type and configuration (as is done in many countries for heavy vehicle road user charging).

Congestion.  This is a factor of both location and time of day, but road pricing can allow for charges by those factors, to help encourage changes in road demand.  This could be to change time of travel, mode of travel or route.

Environmental factors.  Road use might be charged based on emissions or by location to reflect the environmental sensitivity of a specific location (to deter its use for through traffic). 

What determines what road pricing is used for are the other policy objectives that politicians want to apply beyond simply raising revenue.  The submission suggested the following:

• Reducing emissions and carbon impact, and improving other environmental outcomes (including supporting transition to EVs)

Road pricing, even if it replaces fuel tax, can be structured to reduce emissions and support better environmental outcomes.  The simplest way to do this is to have charge rates that vary by Euro engine rating as is commonplace for HGV charging schemes in continental Europe.  This could be applied to all vehicles, and incentivise zero-emission vehicles (without making them exempt) and disincentivise the highest emitting vehicles.  There is some evidence that this approach has been successful in Germany in driving greater use of Euro 5 and above rated vehicles on motorways.  

A more complex approach would use location and time of day to incentivise more environmentally behavour.  Congestion pricing in itself would have environmental benefits in reducing emissions through better traffic flow, but location based charging could also see higher charges for driving on roads which expose people or sensitive ecosystems to higher environmental impacts.  This could encourage changes in route or mode, and combined with differential charges for vehicles based on emissions.

Emissions could be reduced by having preferential rates for lower emitting vehicles compared to others.  Zero-emission vehicles could be charged less than those with low-emissions which are also charged less than higher emitting vehicles.  Just because road pricing might be introduced doesn’t mean there cannot be higher charges for the most polluting vehicles.  

 • Delivering a better level of service for all road users (to give a secure funding stream to address the maintenance deficit and reform highway governance to be more accountable to road users)

A better level of service could be achieved by more fundamental structural reform in how highways are funded and managed. Revenues from road pricing could be dedicated to funding road maintenance on a long-term basis, much like revenues from water and energy bills are dedicated to funding their relevant network infrastructures. Highway governance could be reformed (perhaps following on from the relative success of Highways England as an independent professional highways manager led by meeting performance targets informed by what users want), and the long-standing maintenance backlog with roads (particularly local roads) could be addressed by a sustainable programme of improvements. There are unseen costs to poor road maintenance, in safety (particularly for pedestrians and cyclists), delays, higher fuel consumption and in some cases detours (especially for heavy vehicles facing weight restrictions on life-expired bridges). All road maintenance should be on a long-term performance-specified basis, so highway contractors can establish economies of scale and the staff with professionals on a long-term basis, like with energy and telecommunications contractors, rather than rely on ad-hoc politically driven pothole funds, which literally patch up a problem that arises from the governance model for roads. Road pricing can link the user to the provider, and enable those structural issues to be addressed and for funding above that to be available to deliver the many high-road improvements needed to address road safety blackspots, congestion bottlenecks and access issues on parts of the network, informed by user demand.

The primary objective would be to put all roads on a sustainable long-term funding basis, linked to what users pay and users needs, economic efficiency and be able to more dynamically respond to changes in vehicle and traffic trends, which vary considerably across different communities.  A hypothecated roads fund, with an independent regulator to allocate funds and monitor how they are spent by highway authorities could form the basis for this.

 • Better managing congestion, or distributing it across wider time periods, places and routes

Congestion may be much better managed if road pricing includes measurement of trips by time of day and location, as congestion pricing may be introduced strategically on parts of the road network. Rather than blunt cordon/area charge schemes as have been introduced in London and proposed for other cities, congested corridors may be charged a higher per mile rate at peak times, with small increments, and charged less off-peak, encouraging motorists to change trip times, route or mode of travel.  No other single policy measure would be more effective in reducing congestion. Although network wide road pricing with time and location would require a lot of vehicles to be equipped to measure road use by such factors, the benefits in reduced congestion could be dramatic, with much of the impact coming from changing time of travel as prices during off peak periods could be commensurately lower, so that overall the same amount of revenue is collected, but with much less paid by drivers in rural areas or during off peak times. The congestion reductions would automatically increase the capacity of bus networks, as buses would not be trapped on congested roads so could undertake trips more quickly, and more frequently, and so be able, in part, to meet higher demand for their services.  However, to do this would require a much bolder step technically than just introducing a per mile charge, which would take more time and at greater cost.  The policy question is whether to do this at the same time as introducing a distance-based charge or to leave it as a subsequent step.

If road pricing includes location and time of day (which would require the use of GNSS telematics either built into vehicles, installed or reliably linked to a vehicle through a smartphone) then it could vastly reduce congestion on UK roads. Studies from 15 years ago indicated that a good national road pricing system could HALVE congestion in the UK.  It is not economically efficient to price all congestion off the roads, because some congestion is due to bottlenecks in the network that haven’t been efficiently relieved (e.g. London’s North Circular Road has three locations where capacity significantly reduces compared to the adjacent section of road), but also it is likely to be efficient to allow some reduction in level of service at peak times, as long as it ensures optimal flow of traffic.  The M25 may function more efficiently at 50mph than 70mph at peak times, so there is no need to price it to sure a consistent 70mph speed of travel.  

The management of congestion should be understood as not being about pricing trips off the network, but rather a mixture of behavioural responses:

Most motorists will continue to drive as they do now, paying for a better level of service than they get now. Experience with sophisticated congestion pricing schemes, such as Singapore, indicates perhaps 70-80% of trips do not change;

Some will change time of travel, to a cheaper time with more spare capacity. Around half may do this;

Some will change route, as in some cases the congested route is parallel to less congested alternatives;

Some will change mode of travel, dependent on the convenience, cost and speed of an alternative mode;

Some will choose not to travel at all, which may mean fewer trips, but the same tasks undertaken by those fewer trips (logistics companies already seek to do this, but it might mean some people plan appointments together on one day rather than on multiple days).

 • Better recovering road user costs from foreign vehicles as well as UK vehicles

Road user costs from foreign vehicles are only partly recovered now from vehicles over 12 tonnes with the HGV Levy.  Road pricing could enable all foreign vehicles to be charged, and for the flat HGV Levy (which is a charge on the number of days a foreign lorry can access UK roads) to one based on actual usage.  By enabling interoperability with systems in continental Europe (at least for heavy vehicles as there are no light vehicle network road pricing systems in continental Europe so far), then foreign vehicles could be charged per mile for using British roads on the same basis as UK vehicles.  This avoids the trend for some to refuel outside the UK to avoid the UK’s higher fuel duty.  Longer term care will be needed to address concerns if the UK has abolished fuel duty but neighbouring countries have not, but this effect is nullified somewhat if road pricing has equivalent costs.  Filling up on fuel in the UK might be cheaper, but to actually USE UK roads for that purpose will be more expensive, and it will still only be an activity undertaken if there is business in the UK (notwithstanding some potential issues with the Irish border).  

• Digitising highways – making the most of the rich seam of anonymised data from connected vehicles for improved network management, road safety and network planning

Road pricing has the potential to more digitise how highways are managed, by providing an extensive amount and breadth of anonymised data from road users to improve network management, predict maintenance requirements and schedule works.  From the timing of road works, to the provision of information to road users on diversions through to information about the number and average weight of heavy vehicles using roads (and how that affects maintenance) can make the highway network as a whole run more efficiently by delivering operational and asset management savings over time.  Increased data about congestion and what sorts of vehicles are affected by it can help inform interventions to alleviate congestion, or choices about allocation of road space.  For example, what would be the impact of reallocating road space to cycling and pedestrians, as to what types of road users are affected, and how pricing itself might target congestion.

• Other policy objectives, e.g., supporting walking and cycling, modal shift, levelling up costs of travel

Finally, by having road pricing, there is a pricing tool that can be used to meet a range of other policy objectives.  For example, it could discourage short motoring trips to help promote walking and cycling, or it could price differently if there is a lot of spare public transport capacity in parallel.  Pricing offers flexibility that doesn’t exist with fuel duty, albeit the greatest flexibility will need more sophisticated systems capable of measuring distance varying by time of day and location.

Tuesday, 23 February 2021

Submission to UK Inquiry on road pricing

On 18 December 2020, the Transport Committee of the UK House of Commons called for written evidence on an inquiry on zero emission vehicles and road pricing.

Leaving aside zero emissions vehicles (of which I am not so much of an expert), the road pricing elements were of interest.  The terms of reference had the following questions:

  • The case for introducing some form of road pricing and the economic, fiscal, environmental and social impacts of doing so;
  • Which particular road pricing or pay-as-you-drive schemes would be most appropriate for the UK context and the practicalities of implementing such schemes;
  • The level of public support for road pricing and how the views of the public need to be considered in the development of any road pricing scheme;
  • The lessons to be learned from other countries who are seeking to decarbonise road transport and/or utilise forms of road pricing.

I was part of a consortium of experts, comprised of Ian Catling, Andy Graham of White Willow Consulting and Andrzej Kowalski, with Steve Morello from Milestone Solutions (as am I).  The next few blog posts will be about that submission and elaborate further.

I lived in the UK from 2005 until 2019, so have extensive experience with transport and highways policy in the country, and still have a personal interest in the UK.  The UK notably embarked upon and then abandoned a radical programme called "National Road Pricing" between 2005 and 2009, failing due to enormous public and political backlash.  The lessons learned from that attempt need to be heeded again, although technology has changed much in that time, not just for road pricing, but in vehicle motive power technology.  


The UK Government is looking at road pricing for one reason, revenue from fuel duty is in decline because of the switch towards electric and hybrid vehicles, and the ongoing improvements in fuel efficiency of petrol and diesel vehicles.  It’s worth noting that this revenue is treated as general tax revenue in the UK, unlike fuel duty in many other jurisdictions (notably the United States at Federal and State level).  It is important to note that the policy motive comes from a desire to protect general tax revenue, not tax revenue to pay for road maintenance and capital spending more specifically, but the tool being looked at is one generally used to do the latter, although some jurisdictions that hypothecate fuel taxes for transport do so for modes other than roads.

I’ll write more about this in the coming weeks, but for now I want to summarise the six key messages:

Get your objectives clear from the start

Given the primary objective of this exercise is to consider the value of road pricing to raise revenue, it’s important to consider what transport policy outcomes politicians want from introducing road pricing.  If it is simply about revenue sustainability from user pays, then scheme design can be simpler than if it is intended to address congestion.  However, as a tool the introduction of road pricing can be undertaken to be simple at first, but with flexibility built into it to meet other objectives.  Don’t try to do too much at once.

Public acceptability is critical

The UK’s National Road Pricing programme faltered after one of the first online petitions to Number 10 saw over a million signatures in opposition to a policy to introduce time/distance/place based charging.  The reason being that the British public did not accept the need or desirability of the concept, not least because many feared they were to be taxed again with little benefit for them (reflecting the many years that fuel duty increased with the infamous “fuel tax escalator” which increased fuel duty by beyond inflation – all of which was simply general revenue for the Exchequer.

For public acceptability to even begin to exist in the UK, talk of road pricing has to be about replacing fuel duty and largely vehicle tax and the HGV levy.  The public will not accept road pricing on top of existing taxes.  Secondly, road pricing must deliver value to road users, as seen in how at least some of the money is used, such as by addressing comprehensively the backlog of deferred road maintenance and providing a steady schedule of high value road projects to be delivered. Thirdly road pricing must include user choice, whether it be in the technical solution to measure and report distance data, but also the entity a motorist uses to have and to pay a road pricing account.  If roads are going to be much more like other utilities, then paying for the roads ought to learn the lessons from those experiences – competition, choice and consumer interests are important.  One way to develop public acceptability would be a demonstration programme not of technology, but to test the public’s experience of what it would be like to pay by mile instead of paying through fuel.  There is extensive experience in the United States of this that the UK would do well to heed.

Keep it simple and don't try to do a "Big Bang" introduction

Keep it simple by avoiding gold plating requirements (don’t seek to try to implement too many policies at once – it should be about charging by mile, by vehicle type, on public roads) and do not try a Big Bang approach. The National Road Pricing programme sought to do too much in one step, by applying to all vehicles and charging them by road type and time of day.  It would be lower risk to introduce pricing to one type of vehicle first,  such as Heavy Vehicles (replacing the HGV Levy and fuel duty for them) or electric vehicles.  Experience in New Zealand, Oregon and in some European countries indicates that starting with heavy vehicles may make it easier to move to light vehicles subsequently, as heavy vehicles are more complex and need a more complex rate structure (taking into account changes in configuration).  Heavy vehicles and electric vehicles may make sense as the first groups to transition, followed by hybrids and then newly registered conventional vehicles, with a transition that may take some years.

Use proven technologies and systems, but don't treat it as just another IT service.

There is no need to reinvent the wheel.  The time for treating road pricing as bleeding edge technology is long over, as multiple jurisdictions have proven.  However, it isn’t just another IT service, so don’t just treat it as buying an IT and billing system.  Road user charging involves reliably and consistently identifying a chargeable vehicle, metering its use of a geographically defined (and vast network) and billing it accordingly (and enforcing it).  Experience in many jurisdictions should be brought to bear in designing the system, by specialists who know how it works from years of actually operating systems.  Note that no jurisdiction to date has introducing road user charging for all vehicles on all roads, but a few have applied it to some vehicles on all roads.

Let competition drive innovation and user choice

Let the market provide innovative competitive customer service options this could range from a plain, simple account to an account that provides a platform to pay for parking, pay-as-you-drive insurance, roadside assistance and other related services.  There shouldn’t be a government mandated single box and account, but rather allow road user charging to be just another service that is offered.  This reflects experience in countries like Belgium, Hungary and New Zealand. 

Use this as an opportunity to reform the UK highways sector more generally

Highways England was a good start, but this should take things much further as it applies to all public roads and should move roads away from the current panoply of central government funds supported by council tax, to a more dedicated and accountable system of funding all roads from a user charge.  It should mean that users get a better level of service, that maintenance is prioritised and maintenance happens at times that minimise disruption to road users.  It should mean delivering objectives around reducing congestion and improving safety, and a dedicated funding stream available to ensure the road network enhances accessibility.  It should mean an end to ad-hoc politicised funding of roads driven by central and local politicians wanting to make names for themselves, rather than meeting the needs of those who are paying.

Monday, 14 December 2020

Brussels Government to introduce road pricing across the Brussels region

In a radical reform of how light vehicles are to be charged for road use, the Brussels Government has announced that it is replacing high annual vehicle registration fees with a charge based on distance.  If successful, it is possible this model will be replicated in other jurisdictions that charge ownership of a vehicle rather than usage, such as in the Netherlands, Denmark, Sweden and also Australian states and territories.  

The policy is called "SmartMove" and has its own dedicated website in English, Flemish, French and German.  It means that vehicles registered in Brussels (which is one of Belgium's three Federal "states") with gross mass of less than 3.5 tonnes will pay a per kilometre charge that will vary by time of day and engine size (the latter appears to be a legacy of the existing registration fee system).  

It applies to all roads except the Brussels ring road and access roads to park and ride stations at the periphery of the Brussels-Capital region.   

Brussels SmartMove charged roads


The scheme objectives are to:

  • Improve fairness: Charging light vehicles by how much they use the road network, rather than simply ownership, will mean the costs of maintaining and developing the network are born the most by those who use it the most.
  • Improve mobility: It is expected that the reform will reduce congestion, and through use of the app, enhance mobility by making it easier to make choices about alternative modes (and for those who drive, less congestion improves mobility and makes freight and bus traffic more efficiient).
  • Improve quality of life: Reduced congestion and traffic levels will reduce emissions and improve air quality.
  • Provide 24/7 assistance to road users, using technology.
It is hoped that the reforms will reduce car trip numbers by 25% by 2030, by encouraging motorists to consolidate trips and choose other modes of travel. 


The policy was announced in July, and an impact analysis is currently underway.  The project is seeking volunteers to test the app, with the full test phase to be launched in 2021. The impact analysis will look at transport impacts, as well as socio-economic and environmental impacts. It is expected to be fully operational in 2022.

What vehicles?

All light vehicles, including cars, vans and motorcycles. Heavy vehicles are excluded as they are already part of Belgium's nationwide heavy vehicle road user charging scheme called Viapass. It applies not only to vehicles registered in Brussels, but ALL vehicles entering the Brussels-region. They will all be subject to a distance based charge. No exemptions have been announced (other than heavy vehicles of course), except mopeds with a maximum speed of 45 km/h. Electric vehicles are expressly included, as the proposal is about congestion.

As it will replace the registration fee and annual road tax, it is worth looking at what those fees are.  Below is the table for registration fees (on first registration in Brussels):

Brussels Capital Region - first registration tax

As can be seen, it ranges from €61.50 for a moped through to €2478 for a 3.1-3.4 litre engine vehicles that is less than one year old.  From then, the annual road tax is as follows (up to 5 litre CC, the table does go up to 8.8):

Brussels annual road tax (up to 5 litre)

This means annual road tax is €292.38 for a 1.6 litre vehicle, but escalates rapidly with larger engines. This is a broad proxy for emissions, although bluntly (as a large capacity engine may be cleaner burning than some older smaller capacity engines) and not officially.  As the distance based road pricing scheme would still charge more for larger engines, it is unclear whether any vehicle owners will benefit based on engine size, but it is likely they will benefit if they drive relatively low distances within Brussels region. It isn't difficult to envisage this benefiting car owners who don't commute by car in Brussels, but drive longer distances outside the region (which itself will benefit Brussels by reducing congestion).

How will it work?

All vehicles using the scheme will have number plates registered and Automatic Number Plate Recognition (ANPR) technology will be used to identify vehicles as to whether they have:
  • Registered for the app with an account; or
  • Bought a day pass (intended for visitors/occasional users).
However, unlike a traditional congestion charge, the Brussels system will operate seven days a week, 24 hours a day, but will have higher charges at peak times.

The mobility app is intended to:

"enables the comparison of mobility alternatives (travelling at a different time of day, public transport, bicycle, car sharing, taxi…). The SmartMove app also keeps track of individual travel costs and calculates the impact on air quality and the climate so people can make the best travel choice.  It’s our ambition to also link MaaS (Mobility as a Service) to the app, allowing users to plan a quick, affordable and sustainable journey in just a few clicks. Occasional drivers, tourists or visitors can also purchase a day pass via the app (or website)."

So it doesn't just manage the account, but also is intended to measure distance travelled and promote alternatives.  However, the website does indicate that "other systems may also be made available, in cooperation with other external parties, for calculating the kilometre charge".  This could be a dedicated On Board Unit or a vehicle's own embedded native telematics, but none of this is determined yet.

There are some big questions about this approach such as:
  1. What happens if your phone is off when you drive? You have an account, but it isn't measuring distance travelled, do the ANPR cameras take enough records of number plates to match in the back office vehicles that don't have active smartphones reporting trip data? What happens if the phone is on and off while driving during the day?  How is it enforced? 
  2. Who is responsible if the battery on the phone expires whilst in use, or the phone reboots due to a manufacturer's setting?
  3. What happens if your phone is on and you don't drive? You could be in a friend's vehicle, or on a bus, will it measure distance and charge you accordingly? Or will ANPR be used to avoid this?  How many ANPR cameras will there need to be around Brussels to enable this?
  4. What happens if you switch vehicles and don't update the app?
These are some of the challenges that have meant other jurisdictions have not adopted mobile phones as the platform to measure road trips on a continuous basis, because it has been difficult to ensure that a phone is on and running the app the whole time a vehicle is travelling (and not running the app when a driver leaves the vehicle), and also that no more than one phone and app are operating at once. 


The Brussels scheme will be ground-breaking, as the first time any jurisdiction has replaced high ownership based taxes with distance based charging, with a time of day element to reduce congestion.  It will be the first distance-based charging scheme in Europe designed for light vehicles, but not the first light vehicle distance-charging scheme globally (New Zealand, Utah and Oregon all have these, but only in Utah is distance-based charging an option to replace higher annual registration fees).

More importantly, it doesn't just mean a shift from ownership based taxes to distance based, its attempt to include a congestion charging element could significantly improve mobility and environmental conditions in Brussels. Albeit that the congestion charging element is blunt (it doesn't vary by road, which it would have to, to seriously target major bottlenecks), it may yet provide an example of how a flat non-usage based tax might be replaced with charging based on usage in a way that improves the performance of the network.

I'll look forward to seeing how trials progress in 2021, and if the technical issues around exclusively using mobile phones to measure distance can be resolved.  If so, Brussels may set the path for other jurisdictions in Europe seeking to move away from high fixed charges to lower usage based charges.  However, it is notable that this is not a replacement for fuel duty, which is charged at the Federal level in Belgium (at €0.61523 per litre (US$2.83 a gallon)).


However one point on its website is inaccurate. "In other major cities that have introduced smart kilometre charges (e.g. Stockholm, London and Milan), many positive effects on the local economy have been identified: more attractive and pleasant cities, time gains for economic activities, a more attractive and accessible labour market".  None of those cities have any form of distance based charging at all. They do have cordon/area charging schemes to reduce congestion.

Monday, 7 December 2020

Auckland congestion charging to go to Parliamentary select committee

Following the release of the Phase Two report and significant numbers of reports on congestion pricing in Auckland, Stuff reports that a Parliamentary Select Committee (presumably Transport and Infrastructure) will conduct an inquiry into the issue.  This arose from comments from both the New Zealand Transport Minister Michael Wood (who is new to the portfolio, since Labour won the general election in October 2020) and Finance and Infrastructure Minister, Grant Robertson, alongside the naming ceremony for a railway tunnel boring machine - part of the NZ$4.4 billion Auckland City Rail Link project

The congestion charging report indicated that the two scheme options with the greatest merit are:

  • City Centre peak time cordon scheme;
  • Congested Strategic Corridors scheme.
The significance of the Auckland City Rail Link project is that it adds considerable capacity to Auckland's electric commuter railway system, by replacing the terminus arrangement of the downtown railway station at Britomart, with an underground loop, connecting the three main railway lines (to the west, south and east-south) in both directions. The Mayor of Auckland has suggested that congestion pricing for the downtown area be introduced to coincide with the opening of the rail project, as it significantly enhances the capacity of public transport along some major corridors into downtown Auckland. 

It was notable that although the Mayor of Auckland spoke favourably about congestion pricing after the reports were released, both Ministers were non-committal about the proposals in the reports. Deputy Chair of the Transport and Infrastructure Select Committee, Green MP Julie-Anne Genter has been reported as supportive of congestion pricing stating:

"The Green Party is supportive, and believes the government should be driving this forward, especially if there are mitigations in place to ensure it doesn’t disproportionately penalise low-income households...Replacing the regional fuel tax with a congestion charge would do that because it is disproportionately high income people who drive into the city centre...We are disappointed the report didn't focus more on the impact on greenhouse gas emissions, I suspect congestion charging could make a big diff[erence]."

This is a positive start and she is correct, there should be positive impacts on low-income households if introduction of congestion pricing replaces the regional fuel tax, so that only those driving at peaks on congested roads are paying more, but everyone else is paying less. 

It is also worth noting that there have been no statements opposing congestion pricing from Opposition political parties on the centre-right (National) and free-market right (ACT) (both supported congestion pricing as a concept before the election). There has been no statement to date from the Maori Party (centre-left) either.

However, there are much greater impacts from congestion pricing on strategic corridors, compared to the Auckland city centre. Already around half of all commuting trips to downtown Auckland use public transport, cycling or walking, so there is less scope to shift mode compared to all other commuting, which is dominated by car use. 

Key to the next steps is how to conduct public engagement and consultation, with Auckland Council's planning committee approving ongoing work on the project last week.

Part of this absolutely has to be to present the case as to how congestion pricing can replace the regional fuel tax, and what to do with additional revenue generated assuming that, as it scales up in size, it raises more than the regional fuel tax does now. It could replace ratepayer funding for new capital transport projects, but there will be a range of views including reducing ratepayer contributions to road maintenance and public transport subsidies. Questions around governance and delivery of congestion pricing must also be considered, particularly as there will be pricing on a mix of local roads and state highways, and governance will affect decisions on operational policy, rate setting and use of net revenues.

The Congestion Question project has been innovative in developing options for congestion pricing in a city dominated by car use, with most employment not located in the downtown area, and with 74% of commutes by private motor vehicle (11% by public transport, 5% by active modes, remainder work from home or "other means"). Auckland is a new world city, with relatively low density development, so is much more akin to many North American cities than European cities. If it can pioneer congestion pricing that effectively reduces congestion across the city, for lower density cities, it will be an example for others to follow.

Tuesday, 1 December 2020

Arguments against EV road user charging in Australia refuted

Should Australian states introduce a EV tax - a road user charge based on distance for electric vehicles?

Over the past couple of weeks a coalition of the Australian electric vehicle industry and the leftwing/progressive think tank The Australia Institute have been waging a campaign (actual campaign) against the introduction of road user charging (RUC) for electric vehicles in South Australia, Victoria and New South Wales.  It went so far as The Australia Institute hosting a nearly one hour long webinar (see bottom of the page if you have the time to spend on it) that made a whole series of points which ranged from a whole set of ideas for promoting electric vehicle sales in Australia to opposing RUC not only for electric vehicles. It goes so far as justifying road funding being completely disconnected from how road vehicles are charged, but then arguing for road user charging and including some red herrings, so I thought it would be worth responding to.

Bear in mind that there have been some clear blunders in the design and communication of the “EV tax” announcements to date, but I’ll come to those later.

Behyad Jafari, as CEO, has led the criticism from the Australian Electric Vehicles Council of the proposals for charging electric vehicles by distance.  His claims need to be refuted and the Electric Vehicles Council ought to be engaged to take a far more constructive approach to improving conditions for electric vehicle owners and the road transport sector more generally.  Not only because failing to do so will harm efforts by States to establish RUC, but because if the States fail to do this now, it will come at a much higher price at a later date, for Australia and for electric vehicle owners.

There are insufficient incentives to encourage sales of EVs in Australia:  This may be true. Certainly the Luxury Car Tax shouldn’t apply to them, and there are multiple policy initiatives that could be taken to incentivise sales of lower emission vehicles. The purpose of this blog is not to discuss these, but arguments around the absence of sufficient measures to encourage electric vehicle sales should not be an argument against charging such vehicles for the use of the roads.

RUC for EVs would be a significant disincentive to sales: On the face of it, charging EVs for road use should have an impact on sales, but it is more likely to have an impact on usage. The only state to discuss a rate for EV tax so far is Victoria, at A$0.025 per kilometre.  Given average distance driven by a vehicle in Victoria per annum is around 12,000km that is around A$300 a year to pay to use the roads. It’s difficult to see how this will discourage purchasing electric vehicles except at the bare margins.  Indeed, the idea that someone should buy a car because it costs nothing to use the roads, is negative, because the car still takes up road space (which is scarce in cities and on busy roads) and still benefits from the capital tied up in the network. Bear in mind that most Australians don’t buy new cars (there are roughly three times as many used car as new car sales in Australia each year), indicating those that do tend to be on higher incomes, so are unlikely to see a small per kilometre charge as being a significant disincentive to buying an electric vehicle.

Fuel excise isn’t hypothecated so a loss in revenue doesn’t affect road funding:  This is true, but the analogy to tobacco tax (that if revenue drops governments don’t go looking for new revenue) is a poor one. For heavy vehicles at least, fuel excise is not charged on off-public road use, and there has never been an explicit policy to treat fuel excise as a disincentive to using the roads (unlike tobacco tax which exists, in part, to reduce demand for smoking). If fuel duty erodes, it will affect the capacity of the Commonwealth to fund multiple activities, but there would be merit in it being hypothecated for road spending, at least in part, at the same rate for heavy vehicles and light vehicles. Heavy Vehicle Road Reform proposals have included the concept of hypothecation, in part because a shift towards more direct user charging would establish a relationship between road users and the provision of roads. It is true that, for now and for some years, there is unlikely to be serious erosion of fuel duty revenue in Australia from electric vehicles, but that erosion will become an issue.  

Reform of charging for road use should start with heavy vehicles:  There is a lot of merit in this, but this is already happening. There has been a small-scale trial of RUC for heavy vehicles in Australia already, and work underway on developing a larger trial of distance, mass and location based heavy vehicle RUC, alongside supply side reforms. Richard Denniss from the Australia Institute claims in The Guardian that “undercharging of heavy vehicles” has seen a loss in mode share for freight from rail, which is highly debatable.  Railways since the 1980s have moved away from a model of handling wagon loads of goods to small stations (which are not economic to handle or competitive in price and time with road transport), to focusing on bulk goods and line-haul containerised freight.  The same has happened in New Zealand over that period which has had RUC for heavy vehicles since 1978.  The claim that heavy vehicles in Australia only pay 12.5% of land transport taxes is simply wrong, because it ignores what is spent on registration fees, which for heavy vehicles can reach over $10,000 a year. Undercharging may be true in the current year, based on the NTC’s Cost Allocation Model, although the road freight peak bodies note that for several years the amount charged by the fuel-excise based RUC was higher than the model stated should be recovered from heavy vehicles. In other words, the populist belief that trucks are always underpaying is not true. However, the system does need reform, and Heavy Vehicle Road Reform could result in this and this does not reduce the arguments for RUC for light vehicles including electric vehicles.  

So, should electric vehicles get to use the roads for free?  

The argument suggested by some that “we don’t charge people to use public parks” implying that roads are the same doesn’t bear close scrutiny.  Roads are not public parks, as their scarce capacity is much more readily reached in cities and unlike public parks (except at very rare extremes), roads beyond a set capacity becomes congested and their utility is significantly diminished. Congested roads also increase fuel consumption for all vehicles, increasing emissions for non-zero emissions vehicles, but also increasing energy costs for electric vehicles. I doubt the Australia Institute would argue against congestion pricing, but in the absence of congestion pricing, allowing a category of private vehicles to use city roads for free will exacerbate congestion, discourage use of public transport. There IS a legitimate question as to whether electric vehicles pay a discounted rate or even for free when numbers of electric vehicles are extremely low, but that is different from claiming that they shouldn’t pay for road use at all, or that a small per kilometre charge is devastating.

Electric Vehicle supporters should advocate for the interests of Electric vehicle owners in reforming how roads are charged for and funded.

There is virtually no relationship between what motorists pay to use the roads today and what they get, except for toll roads.  A shift towards RUC develops that relationship, and RUC with a hypothecated roads fund, with RUC rates directly related to the costs of spending on the roads attributable to different types of vehicles, WOULD see such a relationship and mean motorists move from being taxpayers to being consumers of a service – roads.  This would mean more emphasis on consistent levels of maintenance, in improving the network in ways that best support the safety and efficiency of road use, rather than political calculations around popular, but low value large projects.

This has the potential to change how roads are charged for, so that users pay for what they use, but also how money raised from that is spent. A shift towards longer-term guarantees of maintenance funding and a more commercial approach to road management and funding, that sees funding based on long-term revenue forecasts and demand, so that capital spending on roads is user driven, rather than politically driven.  Highway England is an example of how that is done, with a five year funding settlement, from a hypothecated roads fund (from registration fees), it has to deliver set service outputs around maintenance, safety and new projects to enhance safety and reduce congestion. 

Are there enough incentives to buy Electric Vehicles in Australia? Probably not, but that’s a different argument from saying they should get free use of a capital intensive resource that excludes the use by others.  More electric vehicles will reduce CO2 emissions and noxious emissions, but it will not reduce congestion and a transition towards direct road user charging for all vehicles needs to include light vehicles and light vehicles that don’t pay fuel duty are an easy and simple place to start, before developing options for those that do.  This is what has happened in Utah and Oregon, and is being developed in other US states.  It is exactly what should happen in Australia, it is just a shame that the Commonwealth Government has been silent on this, because it will need some co-ordination and common policies. 

Given jurisdictions as diverse as Oregon, Hawaii, California, Washington State, Utah and New Zealand are all on pathways (or already are) charging electric vehicles by distance, some of the hysterical responses in Australia to the concept need to be dismissed, including the bizarre non-sequitur that a state-run odometer reporting system for reporting distance is about "privatisation".

Monday, 30 November 2020

Auckland congestion charging reports released - Phase Two recommends two preferred options

Auckland Transport and the New Zealand Ministry of Transport today released a series of reports that represent Phase Two of The Congestion Question study, that has been investigated the merits and options for congestion pricing in Auckland. The point of the study is to investigate congestion pricing to improve network performance a stark contrast to more recent examples discussing road pricing (see Australia on electric vehicles, the UK on road pricing) which are about raising revenue. In fact, the Auckland Mayor has already stated that he sees this as replacing the regional fuel tax (NZ$0.10/litre plus 15% GST), which is likely to have positive economic, environmental and social impacts, as it would mean only those travelling at peak times on congested roads would pay. 

t is a joint project between central and local government, and the technology option proposed is use of Automatic Number Plate Recognition (ANPR) cameras, although other options were considered.  The proposal for pricing is peak only, with the sample tariff below considered for the city centre cordon option:

The purpose of the study was to undertake a detailed investigation of the options and established some preferred options for more detailed design and possible implementation.  Given transport in Auckland is dominated by use of the private car (and trip patterns that are highly dispersed, with only 13% of employment in the central business district).  Transport in Auckland has had literally billions of NZ$ spent on it in the past twenty years, this includes:

  • Completion of the Western Ring Route of the motorway network, allowing through traffic between south-west and north Auckland to avoid the Central Motorway Junction and Auckland Harbour Bridge, and multiple upgrades to other parts of the motorway network, including grade separation, new lanes and ramps, and targeted capacity increases;
  • Transformation of the commuter rail network, including opening of a downtown railway station, electrification of the network with new rolling stock, additional tracks, upgraded stations and a significant uplift in service frequencies. A city centre underground railway loop is now under construction to increase capacity of the network;
  • Busways on corridors without railways (North Shore and now eastern and north western under development);
  • Significantly enhanced bus and ferry services, some bicycle lanes and park and ride facilities.

The table below summarises the analysis of impacts of the shortlisted options:

The key conclusion from the reports is that the two preferred options are:

Auckland City Centre Cordon congestion pricing option

  1. City Centre Cordon scheme: This scheme simply places a cordon around downtown Auckland, bounded in part by the central motorway junction (which would still be free to drive along to bypass the cordon) and the harbour.  It would only operate at weekday peak times in inbound and outbound directions. It would be easy to implement, has a high standard of public transport accessibility, high levels of public transport and active travel already.  It would generate annual benefits of around NZ$27m per annum, mostly from travel time savings, but also improved trip reliability and reduced vehicle operating costs (mostly fuel consumption).  It was calculated at having a benefit/cost ratio of 1.7.  It would reduce vehicle trips by 4,500 in the AM peak, so it is on a small scale, but is seen as a good starting point.

Thursday, 26 November 2020

How states should respond to critics of Australian state EV tax proposals

You couldn't be blamed for looking at the media coverage of the proposal to introduce distance based road user charging (RUC) on electric vehicles in three Australian states and think it was a crazy idea.  There is far more attention been paid to the utterances of the Electric Vehicle Council and a number of motoring related publications, compared to what has been said by Ministers or the relevant Departments.

There is a pretty clear reason for that.

Neither the Ministers nor the departments responsible for leading the communications on the proposals have done enough to follow the number one lesson in advancing road pricing, road user charging or indeed any proposal to introduce direct user charging on existing roads - dominate the narrative.

This lesson was learned in a different, but related endeavour in this field. London Congestion Charging.  Sure, Australia isn't London, and charging EVs for all road use is not the same as congestion charging in a small inner city area.  It's MUCH harder.

Only 55% of households in London have a car (or access to someone else's car).  In Australia it is 91%.  Yes the number of EVs is very small, but charging for all road distance 24/7 is quite different from charging to use a small area of roads at specific times. Moreover, Ken Livingstone got elected on a manifesto that included congestion charging, none of the State Governments proposed RUC for EVs. That doesn't mean everything a government does needs to be in a manifesto, but it certainly makes it easier, and even though <1% of car trips in London enter the congestion charging zone, it was still a proposal that barely got majority support.  

Charging EVs in Australia is much more difficult if you don't take the lesson from London Congestion Charging - lead the narrative. At the moment the narrative is being led by a lobby that regards the proposal as an attack on its constituency and by populist fear of the unknown, and that's because, with the exception of Victoria, the proposals have been too vague and the purpose poorly construed. That's because the introduction of RUC for EVs is a long-term strategic move to avoid the "sinking ship" of fuel excise revenues over time and for the states to get revenue from EVs that would otherwise be collected by the Commonwealth (if EVs were petrol or diesel powered vehicles). 

Yet unsurprisingly, the lesson time and time again from the experience of US states that have introduced RUC (Oregon, Utah) and those that have trialled it (Hawaii, California, Washington State) is that the public simply doesn't care about government revenues. Most people see incomes tax, GST, local authority rates, stamp duty occasionally and other taxes as just being there and given most aspects of government tend to work from time to time (and government is often reported as having wasted money or mismanaged it), there is a great deal of cynicism about higher taxes or new taxes. Right from the start, the idea that electric vehicles should pay a "tax" is the wrong idea.

A "tax" is just a way of penalising an activity that collects money for government.  It isn't seen as a "user charge" or "fee" for a service given.  As fuel excise is exactly that, and none of the money is hypothecated, it is even more difficult to sell the idea of an EV tax based on distance. So it SHOULD be called a user charge, and although critics would call it a tax, the reason to call it a user charge is to differentiate it, and to show it is a start of a wider reform, designed to benefit road users.

A road user charge could be defined as changing that relationship between road users and road providers, and as a first step towards including hybrid vehicles as well, so that over time decisions on spending on roads within states are more controlled by states (and territories).

The narrative should not be about a revenue problem, but about moving away from a model whereby there is no transparency in money going from road users to the roads, to one that has a closer relationship.  This is already the narrative around supply-side reforms for heavy vehicles in Heavy Vehicle Road Reform at the Commonwealth level. These reforms have widespread support in the heavy vehicle user sector, and there would be considerable advantages in bringing this together with electric and hybrid light vehicles as well, so that rate setting, use of revenues and planning for investment are linked with user preferences.

Moreover, don't let opponents and the less well informed lead the narrative. If you don't fill the gaps in information, they will, and you will lose the argument.  This already looks like what has started to happen in South Australia.

Monday, 23 November 2020

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

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

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

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

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

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

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

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

Tuesday, 17 November 2020

Yes the UK should introduce road pricing, but it should learn from the mistakes of the past

Until last year I had lived in the UK for 14 years, and I had worked on congestion pricing and road pricing projects there and in other countries, and the number one lesson that comes away from ANY jurisdiction wanting to introduce direct road user charging on existing roads is that it will succeed or fail on PUBLIC ACCEPTABILITY.

I'm afraid that the media coverage in the UK in the past few days, which looks very much like the Chancellor of the Exchequer floating an idea in the press, shows that there have been few lessons learned from the last large scale attempt to introduce road pricing in the UK - which was the National Road Pricing project under the Blair Government.

That project followed on from the failure of the Lorry Road User Charging project, which had been led by Her Majesty's Revenue and Customs, and for which costs were looking like spiralling out of control.  That project in itself saw pursuit of a truly bizarre procurement process, which had been recommended by one of the Big 4 accountancy firms, and ultimately failed because the costs seemed likely to outweigh net revenues.  In order to spread the costs more widely (and unlock the potential benefits of decongestion), the project became the National Road Pricing project in 2005, but it failed due to enormous public backlash, famously getting over 1.8 million signatures of a petition to Tony Blair to stop the project.


Because neither officials nor politicians really grasped what road pricing is - road pricing makes roads a public utility, and makes road users customers, but politicians and officials treat them as besides the point.

But the public don't trust them to do anything other than take more money, and do nothing about the roads.

Road pricing enables a fundamental change in the relationship between the users of the roads and the providers of the roads, and in the UK that relationship has for far too long had next to no link between what users pay and what they receive in terms of level of service.  It becomes pure chance whether a motorist gets a well sealed road or a potholed one, an uncongested route or a road congested all day long.

Motorists pay Vehicle Excise Duty (VED) (and lorries pay the HGV Road User Levy) which are charges effectively on owning a vehicle, but only this current financial year (2020-2021) is it being hypothecated to pay for Highways England. Yet how many motorists even know this, and what does it mean for vehicle owners who rarely use motorways?  Even if they do know it, what value do they think they get for it?

Then there is fuel excise duty, famously not hypothecated because when it was, it was badly managed, in the 1930s. The UK Treasury has never let this go, because it sees it as a tax so it's general revenue, yet it's a tax mostly paid by road users at £0.5795 a litre.  The £28 billion a year raised from it is far more than is needed to spend on roads, but it represents an unofficial "return on capital" from the UK's road network (that's not just the Strategic Road Network, but local roads and the roads of the devolved Administrations).  Money spent on roads is through a hotchpotch of politically motivated "funds" which do not represent a coherent approach to funding and managing the country's largest transport infrastructure asset. 

It is a de facto user charge on road use, and it is only now that this is rapidly eroding due to the rise of electric and hybrid vehicles (and the announcement of the intention to prohibit sales of internal combustion engine powered vehicles from 2030) that there is interest in replacing it.

So politicians have to make a choice!

If Fuel Excise Duty is just a tax (as some in the Treasury think), and nothing to do with road use (!) then there is no need for road pricing, just hike up other taxes/cut spending/mix of both, to offset it. The residual environmental argument evaporates in a world when road vehicles no longer emit fumes.  

If Fuel Excise Duty is a charge on road users, then part of it should be hypothecated to pay for roads, and that part can then be replaced by road pricing.  Treat it as a fundamental reform of the road sector, not as a reason to do business as usual, because business as usual is a mismash of ad-hoc central planning, wildly varying levels of service and little accountability for poor service, especially from local authorities.  Consider Hammersmith Bridge which is closed to motorists, but the London Borough of Hammersmith and Fulham is not accountable to them, nor for failing to have an adequate asset management system in place to ensure it would be well maintained. It is a Soviet-style approach to managing economic infrastructure that if repeated in energy would result in constant blackouts and failures in service.  In roads, the failure of service is seen in chronic congestion and the wear and tear, damage and accidents caused by poor road maintenance.

The need for clear messaging and boundaries around road pricing for the government is critical, but so far that messaging has been anything but that.  So let me help them out with some ideas:
  1. PILOT FIRST! The Government should pilot road pricing for electric vehicles and any other motorists who want to trial it.  Initially with a mock billing trial, then followed up with actual billing and crediting those motorists who do try it with a 50% refund of fuel excise duty and VED cut to £50 per annum.  DON'T introduce it in a big bang, the successes of states like Oregon and Utah have been through gradualism. Show the public what you want to do first, it makes it much less frightening and builds confidence.
  2. WE'RE CUTTING FUEL DUTY AND VED: Road pricing should mean that those who pay it, will save around 70p/litre on fuel and pay much less in VED.  People should be charged mostly based on USING the roads, not OWNING a car.  Piloting will demonstrate that it isn't a "new tax", but a change in how motorists are charged for using the roads, and it is better because...
  3. ALL REVENUE WILL GO ON THE ROADS. A National Roads Fund from which all central government spending on roads will be allocated, based on need will mean true user-pays.  It will depoliticise decisions on maintenance, and all highway authorities will have to meet standards for road maintenance and operations, as well as addressing the priorities of road users. Yes in built up areas it still involves balancing the needs of different types of road users (cyclists, pedestrians and public transport), but it means road users are now customers and should expect more of highway authorities, not less.
  4. DON'T START WITH LOCATION AND TIME OF DAY SPECIFIC CHARGES: It is hard enough moving from fuel and fixed charges to distance and vehicle type, to also add location and time of day to try to manage congestion from day one. For a start, the whole governance arrangements around roads will need to be reformed to make that work effectively.  So start simply.  Charges vary by vehicle type, by mile.  Vary by location and time of day later, incrementally.  Starting simply means not everyone needs GNSS telematics in their vehicles, but it can be made mandatory for newly registered vehicles so the capability is there.  
  5. DON'T HAVE THE GOVERNMENT DELIVER THE SYSTEM: Develop an open market for road pricing accounts and technologies, avoiding the past mistake of thinking that government should buy everyone a device for their vehicles. Open market systems are working in various European countries (notably Belgium and Hungary) for heavy vehicle road user charging, and in New Zealand and Oregon more widely.  If a company wants to set up an account, supply a system that collects trip data and bills road users, it should be able to be certified to do so, AND provide a means to measure and ensure credits of fuel duty towards the road pricing account.
  6. START WITH PURE ELECTRIC VEHICLES. As they don't pay any fuel duty, it is easy enough to start them paying by distance now, and then transition to hybrid vehicles that do pay some fuel duty.  Develop a sustainable pathway to expand the system, but it is hard to argue that electric vehicle owners shouldn't pay for the roads they use, and it is much easier to start with such vehicles than try to include all in one big bang.
  7. SET PRICES BASED ON COST ALLOCATION: While prices will initially be flat, they should reflect forward looking spending on the road network, over a five year period of maintenance and new capital spending.  Link charges to cost, as in other utilities, so it isn't a political football.
  8. USE PRICES TO INCENTIVISE ENVIRONMENTAL GOALS: Yes electric vehicles may be charged first, but the price for them should be lower than hybrids and lower than pure internal combustion engine powered vehicles, yet it shouldn't be so low that their road costs are subsidised excessively by others.
  9. MAKE IT OPTIONAL EXCEPT FOR NEWLY REGISTERED VEHICLES INITIALLY: All newly registered vehicles (regardless of motive power) should be on a road pricing system, but let existing motorists pay as they do now and incentivise them to shift over several years.  Over time set dates for a transition, so all remaining electric vehicles switch over one year after introduction, then plug-in hybrids a year later followed by ordinary hybrid vehicles.  Then move heavy vehicles off of the HGV Road User levy in two or three tranches, and then finally conventional petrol and diesel light vehicles (provide some exemption system for vintage vehicles).
  10. UNDERSTAND WHAT IT MEANS FOR DIFFERENT USER GROUPS: The fears of rural communities about paying more are unfounded given the experience of other jurisdictions (people in rural areas don't necessarily drive much longer distances on average than people in cities (outside London), but the research should be carried out to identify trip patterns).  The incidence of road pricing should be identified by geography, demographic and vehicle type, so that the effects can be understood.
It can't be just about replacing what is done now, which is a proxy tax on fuel that is used to raise tax revenue for general government spending, it is a fundamental reform, and if that isn't understood it wont go anywhere.  Last time it failed because there was too much vagueness about cutting other taxes or how the money would be used, but a surprising amount of "certainty" around how much everyone would pay per mile (because someone modelled what it could be, so of course the media took the highest price modelled).  Moreover, National Road Pricing was sold as a way of relieving congestion, but few believed it would because nothing had been demonstrated to show it would do that (and the London Congestion Charge had an incremental effect on congestion that was not discernible to most motorists).

Beyond these points there are other matters that should be clearly communicated:

  1. No road user will be charged twice.  Under the National Road Pricing proposal, politicians said road pricing would partially replace current taxes, but few believed them.  Unless the public is convinced that they wont be double-charged, it wont gain support.
  2. Decisions on spending of net revenues should be taken out of politics: As tempting as it is for central and local government politicians, shifting roads to a utility means that decisions on spending on maintenance and upgrades shouldn't be about buying votes ahead of an election or triumphalism over getting funding for an inefficient road project (or stopping an efficient one).  Road should be regulated utilities, with the spending of money prioritised on maintenance (especially the huge backlog of deferred maintenance) and then large and small scale projects that generate net economic benefits, AND reflect the stated preferences of road users.  
  3. Management of roads should be placed in the hands of utility organisations:  Highways England has been an excellent first step, as far as the Strategic Road Network is concerned, but local authorities should be required to cluster their road networks into regional road companies, operating at arms length with funding based on the revenue generated from road users in their region.  An independent regulator could oversee level of service expectations, the companies would set up corridor plans to develop short to long term plans to maintain and upgrade roads, and buy land and plan for any improvements, such as new intersections, widening, tunnelling or new corridors (and sell surplus land).
  4. Over time, road pricing can replace congestion charging, tolls and low emission zones as well:   Only when most vehicles are on the system can these other charging systems be switched off, but they should be as they wont be necessary.  Congestion WILL NOT BE SOLVED QUICKLY when a whole vehicle fleet needs to be equipped with the right technology, but this isn't about congestion is it? It's about how roads are paid for.  The ability to do congestion pricing will be a bonus, but it shouldn't be the focus for now, because to do that will confuse messaging even further. 
Most of all Chancellor of the Exchequer, Rishi Sunak is a smart man, he ought to look at what has been done in Oregon and Utah, not just the European states so many officials (and consultants in the UK) think are appropriate comparisons to the UK.  He ought to look not just as US experience in piloting road user charging, but also the experience in New Zealand and more recently trialling heavy vehicle charging in Australia.  He ought to talk to those who obtained political approval to advance these programmes, such as Jim Whitty from Oregon and be wary of Treasury's motivation around "just raising more money", but also the motivation of some on the more hardline environmentalist side to use road pricing to "punish road use and raise money for public transport", because NOWHERE in the world has this ever been done for such reasons successfully on a scale remotely similar to the UK. 

He should NOT be swayed by well meaning lobbyists like the Social Market Foundation which want all vehicles equipped with GNSS based road pricing technology, when even Singapore has found this challenging for its much smaller (and very long established and sophisticated Electronic Road Pricing system).  The idea that people should get a "free allowance" of distance to travel just incentivises richer people to have more cars, and moves away from a pricing approach to a permit approach, it is based on the misnomer that the people who drive the most are the wealthiest, forgetting that it is in London where the highest incomes are observed and the lowest rate of car ownership and usage. Forget using road pricing to engage in redistributive activities, if people in the UK own a car, and are poor, they almost certainly don't own an electric one, so replacing fuel duty with a distance charge should be positive for them.

No doubt many lobbyists will complain how unfair it is to embark on the principle of user pays, but it is done in energy and telecommunications, it is time that road pricing was advanced, as part of a wider package of reform of the highways sector in the UK.

UPDATE:  Of course the narrative everyone hears is that they will pay more than they do now. Why can't the UK learn from its past failures and the experiences of others?

Thursday, 12 November 2020

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

 The South Australian Treasurer announced with his budget that:

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

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

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

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

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

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

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

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

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