Tuesday, 3 December 2013

France's EcoTax suspended - politics triumphs for now

It appears that France's EcoTax (HGV distance based road charging/tolling system) is now on hold, although the latest reports indicate that it will still be introduced on 1 January 2014.  It is not because of any technical problems, it is politics.

France does protests on a level unseen elsewhere

I am not surprised.  The politics of France is peppered with disruptive protests by vested interests unhappy whenever governments implement major changes to the status quo - typically by specific interests negatively  affected (never by the wider group of citizens positively affected).  The OTRE (Organisation des Transporteurs Routiers Européens), a trucking industry association, comprised mainly of smaller operators, has protested that it would hurt their businesses.  Their protests have included road blocks, with a deliberate attempt to halt foreign trucks (they aren't so keen on competition from their European partners).  Protests have included vandalism and arson against enforcement gantries (which include ANPR cameras, laser profilers and DSRC detectors).

It is difficult to imagine that level of anger in many other countries.

France's Ecotax truck toll network

Ecotax isn't a creation of Hollande's socialist government, but wasn't opposed when in Opposition

The Ecotax proposal was approved by the previous centre-right Sarkozy administration, and was supported by the Socialists (who run the current government) at the time, but some in the government now think that the amount that Ecomouv - the consortium that won the contract to develop, install and operate the system - is paid, is excessive (Ecomouv is to receive 20% of the gross revenue, which is quite generous).  Ecomouv is a consortium comprised of Autostrada (the well known Italian toll road owner/operator), Thales (a French technology, aerospace and defence company), SNCF (the French national railway), SFR (French telecommunications company, primarily operating mobile services) and Steria (French IT-services company).  
So the socialist bent of the French Government is coming out in thinking that the private sector may be profiting too much from the system.  

My view is that costs are quite high, although they ought to come down over time, and part of the procurement is to allow for competitive service delivery, which ought to keep pressure on costs (although it isn't clear that Ecomouv has quite the same pressure). 

However, the simple point is that a large government contract to collect revenue is always going to be a chance for operators to ensure they minimise costs so they maximise their own revenue.  That obviously is controversial when it comes to a tax.  Given the system does involve GNSS based technology with on board units, communicating via the mobile phone network, the simple point is it will be costly to introduce.  owever, I would not be surprised if political risk is factored into the price - which is wise.

Meanwhile, it appears, in rather typical French style, that government is now negotiating with protestors over what to do next - even though the contract with Ecomouv binds the French Government.  In short, the key risk is that rates will be lowered, but Ecomouv will insist on receiving the fees it contracted for.  General taxpaers, the interest group that seems to be least loud, may pick up the difference for a short while at least.

Who is to be liable?

The Ecotax is still intended to be France’s distance based tax on heavy goods vehicles over 3.5 tonnes.  It would apply to the 10,000 or so km of national highways that are not subject to concessions (non-tolled highways) and around 5,000km of country roads that have been designated as tolled, primarily to avoid “rat running” by trucks seeking to avoid the tax.

This tax is due for all vehicles registered in France or abroad, with liability for payment held jointly by the owner, lessee, sub-lessee, driver or any user (in short, it appears all who may use the vehicle are liable). 

Vehicles exempt are all buses, coaches, “priority general interest vehicles”, state or local authority “utility vehicles” used for road operations and maintenance, agricultural vehicles and equipment, milk tankers (makes no sense from an economic point of view, but it is the very protected French farmers once more having influence) and military vehicles.

How much would they pay

Prices are to range from €0.088/km to €0.154/km.

In Brittany the tax rates are halved, because there is no toll motorway network (no, I can’t see the economic basis for that either).  In Aquitaine and the Midi Pyrenees regions, the toll is discounted by 35% because they are “peripheral” regions.  The theory being that because they are further away from other parts of the country, they shouldn’t pay more.  That, of course, has nothing to do with costs.

What is the purpose

It was called the EcoTax as it was intended to be sold as a measure to improve the environment.  However, it was also intended to encourage a shift of truck traffic onto the commercial/concession toll road network and to recover revenue from foreign vehicles.

The intention being threefold:

1. Reducing the incentives on trucks to avoid the tolled concession motorway network, which can mean longer trips (and higher emissions);

2. Toll specifically to encourage cleaner burning engines (e.g. the intention was to charge Euro 5 and above class vehicles less than those of Euro 3 or less);

3. Improve competitiveness of other modes (specifically rail) over road transport.

It would be fair to say that the environmental gains from the first two objectives were more likely to be meaningful than the last, as there are more fundamental structural and cost reasons why rail is less competitive for freight in France than it could be.

However, let’s be clear, this tax was driven by a desire for revenue.  France has not had a budget surplus in over 30 years, and faces crippling levels of public debt.  Meanwhile, France’s socialist government has found it difficult to cut spending for political reasons, and has been increasing taxes whenever it could.   However, it is important to note that the decision to introduce the EcoTax was made under the Sarkozy Government.

What will be done with the revenue?

All of the revenue is to be hypothecated:  The French Agency for Financing Transport Infrastructure (AFTITF) is to receive all of the net revenue collected from the national highways, and the revenue collected on the county roads will go to the regional authorities that manage those roads.  It is effectively a way to reduce the call upon other taxes to pay for highways.  Over €1.15 billion Euro (US$1.56 billion) per annum is planned to be collected, with 20% expected to go to pay for the system.

However, it is important to remember that France retains fuel taxes on petrol and diesel.  No taxes are being reduced in response to the EcoTax.   That may be a key mistake.  

How will it operate

Ecomouv is the company responsible for setting up the system and operating it. 

Those who are liable to pay have two broad choices:

- Sign up with Ecomouv itself, an receive an EcoTax GNSS unit with a prepaid account; or
- Register with a Registered Toll System Company (there are six of these) and choose a range of services which also can include automatic payment to use other toll roads in France and some neighbouring countries, and fleet management and logistics. 

The law states that those who register with one of these firms automatically get a 10% discount, presumably because it becomes far less burdensome to track down and gain payment.  

The other primary benefit offered by these companies is post-payment, so that users only pay what they use, rather than pre-pay into an account in advance.

In both cases, installation of an on board unit is mandatory.  There is no option of paying without one.

What are the service providers?

Axxes : Axxes offers three products.  Payment of Ecotax only, payment of Ecotax and toll roads in France, Spain, Portugal and Belgium (not including the forthcoming Belgian truck toll system), and all of that plus a fleet management system.

DKV: offers products to pay tolls in France, Spain, Belgium and Germany (individual toll roads NOT the LKW Maut system).

Eurotoll:  Offers packages that can include French, Spanish and Belgian toll roads.

Ressa:  Offers packages to include French, Spanish and Portuguese toll roads

Telepass:   also offers payment on French, Spanish, Portuguese, Belgian and Italian toll roads

Total AS24: over payment of toll roads in France, Spain and Belgium

What should be done?

Well it's a bit late to be backing out of it now.  So the best solution would be for the Government to assess whether the EcoTax, along with fuel taxes and other motoring taxes over or under-recovers the infrastructure costs that are attributable to trucks.

If it over-recovers, then it would make sense to lower the ownership and/or fuel taxes that apply (bearing in mind that the fuel taxes fall on all vehicles), and to consider a more comprehensive reform, which includes how other roads are charged for.

The EcoTax makes sense as an infrastructure toll on the non-concession highways, but it may be more sensible to put the national highways into one or more national highway companies, and let them receive the revenue from the "EcoTax" and set prices on their roads that differ - much like the toll roads.

Such a reform would mean linking the charges to the costs of network provision, which vary across the country, and would  be more difficult to oppose - except, of course, on the grounds that other taxes already mean they pay too much.  Until there is some independent research on this, that is a point that is difficult to debate either way.

Footnote:  I was interviewed by La Tribune over this matter, the report is here in French.

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