Thursday 1 December 2011

Distance charging replacing fuel tax?

Only six years ago talk of road pricing in the US was rare beyond conventional tolls and HOT lanes. Now the big talk is about replacing fuel tax with some form of road pricing and today it is Oregon that has so far led progress on that front with its trials of a system that would charge per mile, and refund fuel tax at the petrol pump.  Such a system would be ideal in principle for a transition away from fuel taxes.

Oregon is progressing investigation of the introduction of a distance tax on electric cars, as a first step toward dealing with the long run erosion of fuel tax revenues because of the growing efficiencies of the vehicle fleet. Oregon sees the obvious first place to start being vehicles that don’t pay fuel tax now, followed by those that pay much less than others (i.e. plug-in hybrid vehicles).  The other point being that it need not worry about the complication of introducing a refund for fuel tax for vehicles that either don't or hardly pay any fuel tax now.   Office of Innovative Partnerships and Alternative Funding Manager Jim Whitty of Oregon Department of Transportation is now recognised in the US as being one of the leading officials in driving this programme at the state level, and the efforts there are being keenly watched by states as far apart as California, Minnesota, Texas, Florida and New York

What is driving this? Quite simply a combination of the political unacceptability of continually raising fuel taxes, and chronic levels of underinvestment in much of the US road infrastructure. Maintenance, let alone major capital works are becoming more difficult for many states as they face declining fuel tax revenues, not just because of the economic situation, but because the vehicle fleet is getting more fuel efficient.

You might think the obvious response is to increase fuel tax, but this does not provide a fair answer for electric vehicles or hybrids, which use the road network but may pay half as much as conventional vehicles. It also doesn’t take into account the level of antipathy towards raising fuel taxes in a country where a significant proportion of voters do not trust politicians to spend such taxation wisely.

Yet distance charging obviously provides a platform with the potential to do more than just charge a flat rate for road use. It also would allow variation of charges by time and place, ultimately meaning congestion pricing could be introduced where viable. However, no US state is talking that far ahead. The acknowledgement is that while the potential is there to do truly efficient road pricing, for now the interest is in replacing fuel tax. The question I have is not why the US is having this debate, but why the idea of replacing fuel tax remains alien to Europe (where road user charging to date has always been in addition to fuel taxes), when it faces the same challenges of declining revenues due to vehicle efficiency. Is it just that European motorists tolerate very high fuel taxes more than Americans?

Australia is starting to have the same debate as the USA, and it is not driven by revenue problems per se, but the distortions inherent in raising more revenue from fuel tax.  Australia has barely noticed the global financial crisis as its economy has been buoyed by high demand for minerals from China, it has low public debt and its infrastructure is in good condition.  However, urban congestion in major cities has been getting more serious and whilst its three largest cities all have several toll roads (mostly using electronic free flow technology) that serve as major arterials, and extensive rail, bus (and in Melbourne tram) public transport networks, it is becoming clear that future revenues may be better obtained by a transition to network based distance charging.

Why?  Well besides the slow decline in revenues from fuel tax due to growing vehicle efficiency, it is a recognition that introducing congestion charging in new world cities the London, Singapore or Stockholm way is likely to be very limited in scope.  The reason being that travel and commuting patterns are not dominated by suburb-CBD movements, but by a massive cross cutting series of trips around, within and across the metropolitan areas.  A downtown congestion charge in central Melbourne would relieve traffic congestion in central Melbourne and on its approaches, but do precious little for most of the city.   To deal with wider congestion will require a network approach whereby all vehicles in a city pay according to the roads they use, not just for crossing an engineering driven cordon.  The key risk with cordons being the distortion they present for those making a short trip across them.

Furthermore, Australia recognises the value of shifting from fuel tax to distance charging for trucks, given the heavy loads and vast distances travelled on a network that, outside the cities has relatively low densities of usage. 

The most recent tax discussion paper from the Australian Federal Government raises both congestion charging and heavy vehicle road user charging.  I expect the Australian Federal Government to leave congestion pricing to the states, and hope they make the first move on doing what they can there, but for a bigger push to come on heavy vehicles across the country.   It is only the heavy vehicle angle that offers a chance to extend into light vehicles including cars in due course.  The appetite for localised congestion pricing schemes in major cities is not high, and if done would likely require a multi-zonal approach to try to avoid the distortions inherent in a single cordon type system.

Still, the important thing is that Australia is recognising fuel tax is achieving diminishing returns from road vehicles, and so the need to have a long term sustainable revenue source from road users is starting to come together with the long recognised economic arguments in favour of road pricing to ensure all heavy vehicle users pay their fair share of road infrastructure costs, and to help manage congestion.  Hopefully they will also understand the other half of the benefit of road pricing - better signals towards where investments in roads should go.

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