Australia: Interest grows in moving from fuel tax to distance charging

According to the Australian Financial Review, in a bold and brave step, the Australian Automobile Association (AAA) has declared that it supports a longer term shift from fuel taxes to charging road vehicles on a distance basis.  This comes on the occasion of the Australian Financial Review sponsored National Infrastructure Summit held in Sydney.

The AAA has 7.5 million members and represents eight subsidiary motoring associations in Australia's six states and two territories, and is essentially a lobby group for private car owners, but it has clearly thought much deeper about the how roads are charged and paid for than many such organisations elsewhere across the world.  It estimates that motoring taxes in Australia (including fuel and ownership/licensing taxes) collect around A$34 billion (US$26.2 billion) per annum, with spending on roads at around A$24.5 billion (US$18.9 billion). 

At present, there is no specific move from the Australian Federal Government to implement distance charging, but the debate has certainly livened up.  At present, the Federal Government is seeking to index fuel tax to inflation for the next two years, which the AAA supports as an interim measure, but AAA Chief Executive Michael Bradley wants the Government to think longer term.

Currently 47.4% of fuel tax collected in Australia is spent on roads (after rebates for major non-road users of petrol and diesel, specifically in agriculture, mining and fishing).  The AAA wants this increased to 50%, but its concern over fuel tax is one of equity.

Mr Bradley said:

"Fuel taxes disproportionately affect regional and poor people. It discriminates by geography and it's a blunt instrument that does not allow for time, distance, mass and location – any of these variables – to be taken into consideration"

It's concerned that fuel taxes fall heaviest on low-income households, particularly those in regional and rural areas with few or no alternatives but to drive. Not only do those motorists face, on average, further to drive than those in cities, but are also less likely to be able to afford the newest most fuel efficient vehicles.  

This begs the obvious question as to whether distance charging would exacerbate that, but the AAA wants such charges linked to providing a service, rather than being treated as just another tax.  It is also supporting the use of congestion charges as part of the system, which will mean lower costs for off peak and rural driving.

The report says:

In a submission to the government's tax white paper, the AAA said roads are the only remaining major public utility not subject to usage charges that can vary by time of day, as is the case for telecommunications, gas, water, electricity and other forms of transport.

Notwithstanding that time of day charging for water is not common, this is the key point.  The AAA is supporting a shift to direct charging that replaces existing taxes and the idea of a trial where users are charged by distance, and get a rebate in fuel tax when they fill their vehicles.

Federal Government has mixed views

According to the news website news.com.au, Assistant Infrastructure Minister Jamie Briggs is "interested" in the idea and seems to want further discussion of it.  His chief concern is around estimates that congestion costs could rise to A$31 billion per annum by 2031, and that building new roads and public transport wont adequately address this.  He said:

“In today’s world we generally accept that you pay for the service you receive. Road pricing remains the exception,” 

This implies a genuine interest in a more commercial, consumer based way of charging for and managing roads.  However, his more senior colleague, Deputy Prime Minister and Infrastructure Minister Warren Truss is much more sceptical claiming that distance based charging using satellites wouldn't pass the "pub test" and that the public wouldn't be ready for charging by time of day.  His quote was:

"I think people still like to be able to visit their girlfriends without the whole world knowing – or their wives knowing,"

This resurrects the widely held fear that such charging would mean an end to privacy as to vehicle trips, even though it is clear that options to preserve this can be maintained.  Still, when rejection is about public acceptability, it is much more intelligent than opposing it outright.

The Labor (opposition) Party's Infrastructure spokesman, Anthony Albanese said road charging would only work if "the right policies were implemented", which has to be the tautology of the National Infrastructure Summit. 

Greater state and private interest

Mike Baird, Premier of New South Wales said that government had to explain the benefits of tolling, and that the state government's priority was to make the wide range of tolls on roads in Sydney more "efficient"

Whereas the Chief Executive of toll road owner, Transurban, Scott Charlton argued that fuel tax income is "drying up" claiming that replacing a 20 year old car with a new one costs the Federal Government around A$350 (US$270) per annum in revenue.  He said:

"The driver of a late model fuel efficient car is paying far less in fuel excise than the driver of a less efficient car ... despite them having the exact same impact on congestion and on infrastructure"

Which is dead right, although some would argue there is benefit in lower environmental impacts, this doesn't address the infrastructure or congestion issues.  Transurban is to introduce a "pilot study" in Melbourne to test the impact of three versions of road pricing on motorists' behaviour.  These are:

- Price per trip/access charge;

- One off charge based on anticipated distance;

- Distance based charge.

Also included in the pilot are variations based on time of day and CBD based charging.  It is unclear how this pilot will work, particularly outside its own roads, but it is clear Transurban sees a business case for supporting wider road pricing in Melbourne.  

Wider issues

Charlton also indicated that mass adoption of driverless vehicles may be expected by 2030, which could change car use and reduce the incidence of second car ownership and traffic levels overall.  

John Daley from the Grattan Institute (a thinktank) has claimed that Austalia has stagnant car use, with statistics from the Bureau of Transport Infrastructure and Regional Economics claiming passenger kilometres by car are stable, which suggests the assumption of continuous growth in car use may be wrong (but also that increased road capacity will necessarily induce more traffic).  

In other words, assumptions about future endless growth in car traffic seem to no longer hold true, at least in the Australian context (although similar observations are being made in some other developed economies).

Studied to death

None of this should be that new, given that the Australian Productivity Commission and the Henry Tax Review have both recommended a shift away from fuel and ownership taxes to distance based charging.  The problem for Australia is jurisdictional.

Fuel tax is charged at the Federal level, so moves to replace that would have to come from that level of government, although the size of the country and the complications of having States with varying degrees of interest in distance charging means that there is some reluctance at the Federal level. However, vehicle ownership/licensing/registration taxes are charged by States, which suggests moving from those taxes to distance charging could happen at the state level.  Yet, it is far from clear that it would be worth it just to replace much of those taxes at the state level.

The suggestion of a pilot at the Federal level would make more sense, but what is needed is not just a strategy for charging, but what to do with the money, how charges will be set and how to transform roads into a service.  If one state can work with the Federal Government, and start a pilot which addresses both fuel and ownership taxes, it would suggest that there could be some way forward. However, Australian politics typically sees different parties governing at state and federal levels. 

The clear impression is that the Federal Government is waiting on a state pushing for distance charging, whereas states are more enthused about a Federal push.  For now, it appears more discussion is the future, with the hope that the more it is talked about, the more work might be done to make some progress, implement a pilot, and start a transition down a path of reform that can be largely agreed upon.

That would mean:

-  Option to replace most of ownership taxes with distance based charges;

-  Partial rebates of fuel taxes for those paying distance charges;

-  Creation of new structures to set charges, distribute revenues and for roads to be managed on a more commercial basis;

-  Options to move from pilot trials to full scale charging either by geography, vehicle type or some combination of both.

Dartford Crossing issues

I was invited by BBC Essex radio to be interviewed on the James Whale breakfast show this morning, specifically about the Dartford Crossing - the UK's busiest tolled crossing - because of a range of issues arising from its conversion to fully electronic free flow tolling.

A recording of the programme is here (and will remain for 30 days) and the segment I was in starts at 2:11 into the programme.

Regardless, I thought it might be useful to write a number of key facts about the Dartford Crossing given the debate in the county.  It is clear the toll remains highly unpopular, not least because it was original sold to road users on the basis that when the capital costs of the crossing were repaid, the toll would be removed.  The first single lane each way tunnel was opened in 1963, followed by a second tunnel in 1980, which was connected to the M25 on the northern side in 1982 and southern in 1986. Subsequently, the Queen Elizabeth II Bridge was completed in 1991.  

As effectively the only tolled section of London's only ring motorway - the M25 (although technically the crossing is not part of the motorway, in practice it works as part of it), it is controversial, because there are no alternative local crossings of the Thames by road for another 12-15 miles west, at the heavily congested (untolled) Blackwall Tunnels.  Local cross Thames traffic must use the tolled crossing, although a discount scheme means residents of the Dartford and Thurrock Boroughs can pay £20 a year to get unlimited use of the crossings.

Dartford Crossing charges with and without an account.

Dartford Crossing facts

• The Dartford Crossing raised just over £80m in gross revenue in 2013.  This revenue is accounted for in Department for Transport accounts, but it not dedicated to any specific purpose.  Given around £40m is spent per annum on the Crossing and its associated approach roads, it is reasonable to assume it offsets this.
• The Dartford Crossing design capacity is 135,000 vehicles per day, it currently just exceeds that;
• It cost £384 million to design, build and operate the free flow tolling system for the next seven years, but it did cost around £26 million per annum to operate the previous system;
• £42.5m was spent on the Dartford Crossing in 2013, of which £26.7m went to Connect Plus, the British/Swedish/French consortium that holds the PFI contract for the upgrade and maintenance of the entire M25 and the Crossing.  Another £15.8m was spent on capital improvements to the crossing  for fire safety and for the introduction of free flow tolling;
• Connect Plus subcontracts management of toll collection of the Dartford Crossing to SANEF, a French company that owns and operates many motorways in the northeast of France;
• There is currently a 10% non-compliance rate, but after one year this should be expected to come down. In the first year of the London Congestion Charge, just over 5% of chargeable events were violations.  Good practice at free flow tolling roads elsewhere is around 2-3% non-compliance rates;
• Around 3% of vehicles using the Dartford Crossing are foreign registered vehicles;
• 22% of foreign lorry trips, and 40% of foreign car trips currently do not pay, but around 18,716 vehicles are being pursued for unpaid tolls through a European debt collection company;
• 10% of penalty charge notices were reported unpaid in December 2015;
• The system of detection is purely using Automatic Number Plate Detection (ANPR) cameras, which now can achieve accuracy readings of over 90% (some of the latest systems achieve 98% accuracy), although the actual accuracy of the Dartford cameras is unreported;
• According to DfT calculations, the benefit/cost ratio of converting to free flow tolls at the crossing is over 4:1. 84% of the benefits come from travel time savings;
• Congestion costs at the Dartford Crossing are estimated to be around £15 million per annum. 
• Proposals for a new crossing range in cost from £1.2 billion to £3.4 billion, and all options include full or partial funding from tolls.  At the current schedule for development, a new crossing will not be completed until 2025. A preferred option is expected to be announced later this year.

The options A and C in this map are now the ones under consideration for the new Lower Thames Crossing

Previous articles about the Dartford Crossing

Call for much wider road pricing in London

London's congestion charging scheme is world famous, in the esoteric world of road pricing, because it was the first major Western city, to adopt charging of existing roads.  Its success is such that it ceased to become a political issue after its implementation, (notwithstanding the poorly targeted Western extension of the original central charging zone, which was scrapped by the current Mayor Boris Johnson because of local unpopularity and modest traffic impacts). 

Discussion about expanding the scheme further has been largely limited to the Green Party, which as a vocal minority has keenly supported an ambitious concept of charging cars and trucks by distance largely to penalise such traffic to reduce congestion, and to raise revenue for its own preferred projects to favour cycling and public transport.  Whilst this would make a significant impact on the environmental impacts of road transport (and congestion), it would appear to reflect more of an ideological opposition to motorised road transport that involves private cars or lorries, rather than an interest in optimising the use of the network or an efficient level of pricing.   

Yet the merits of road pricing are widely acknowledged not only by some environmentalists and opponents of growth in motorised road transport on the political left, but also laissez-faire free-market proponents who are more neutral about growth in road transport on the political right, who believe in more efficient allocation of road space.

So it is interesting to see Baroness Jo Valentine, Chief Executive of lobby group London First, in the Guardian advocating a vastly expanded road pricing scheme for London. 

London First is described as:

representing the capital’s biggest employers in financial services, property, transport, hospitality and retail, along with its universities. Its stated aim is “to make London the best city in the world in which to do business.”

The article cuts across a number of major issues for London, such as housing and governance, but transport is always a big issue.  

Baroness Valentine proposes a radical expansion:

“You need pan-London road pricing,” she says. “Probably not right out to the M25, but to the north and south circular. The population’s growing, the roads are never going to keep up with the natural growth in demand, so you’ve got to ration it in some way. I would do more sophisticated road pricing than we have at present more widely. You’ll get a version of it with the new river crossings, if those are ever built.” Again, she thinks the sums would soon add up: “If you relieve congestion in London, that produces economic benefits and the Treasury benefits too.” 

How could you expand pricing to the A406/A205?

There could be a few different ways of doing this.  The existing zone is relatively tiny in the context of greater London, as seen below

Existing London congestion charge zone

Expanding out to the North Circular (A406) and South Circular (A205) roads would be a significant expansion of the charged area, as can be seen below. 

London congestion charge if expanded to the "circular" roads.

The most economically efficient way of doing this would be with distance based charging, that had a time and location element to it, but to do this would require the use of either dedicated on board equipment or the realisation of the concept of using a mobile phone app, securely linked to the vehicle, to enable such charging.  The potential to cleverly target congestion, discouraging "rat running" on local roads and maximising utilisation of the network is considerable.

The bigger problem is dealing with occasional drivers into the zone.  Having a single flat charge, as exists with the current congestion charge, to be effective would need to be high, and so excessively blunt for those crossing the outer cordon (or taking a single trip within the area).  An alternative would be to adopt an Italian style multiple zone scheme, splitting the area within the ring roads into multiple cordons, so that motorists pay to cross multiple zones.  Of course, any multiple zone system creates distortions at the boundaries of zones, so design would have to be careful to minimise these.

However, any options to create a new congestion charge based on existing ring roads have their own difficulties, because in all cases they involve compromises.

The first point to note is that at the eastern end, the two roads don't meet up over the Thames, but are connected by a free car ferry which is wholly unsatisfactory as a major arterial crossing in a major city.  However, one option could be to adapt the route to be bounded by the A12/Blackwall Tunnel or to build the proposed Thamesmead Crossing to bridge the gap.  Another point is that parts of the North Circular and all of the South Circular roads are far from being dual-carriageway grade separated main highway standard, but are actually residential streets in many cases indistinguishable from neighbouring ones.  Quite simply, if these roads are meant to carry traffic around a charging zone they are severely inadequate in some locations, as can be seen below.  The blue lines are where the roads are 2 or 3 lanes each way, grade separated, the red lines are where the roads are either not grade separated (and have significant bottlenecks) and between 1 and 3 lanes each way.  Note also the gap to the east.  

Gaps in London North and South Circular roads

A simple approach would be to create a second charging zone outside the existing one, but that would only penalise movements from outside the zone to inside it, not around it.  Of course the lack of any real differences between outside and inside the boundary in some locations would make such a charge quite arbitrary.  Look here at the suburban commercial district Forest Hill, which would be divided by a road that is indistinguishable.

Forest Hill, red line is the south circular road

Assuming that the billions of pounds needed to build serious orbital highways to fix this aren't going to come soon, if at all (given it would involve heroic levels of tunnelling), then it is difficult to envisage a congestion charge being introduced to the South Circular road without it causing serious disruption along that route.

Vignettes?

None of this is a reason not to consider various options, one floated is a "vignette" whereby motorists from outside London pay to cross the greater London boundary (which could mean most journeys within the M25 ring motorway), although the congestion reduction impact would not be significant beyond that point.  However, once again, it could be a start, charging both to use a vehicle within London and for entering London, although what is the value gained from such a blunt move?

Better deal for motorists?

What will be essential is to link any charge to delivering a better standard of service to motorists in London.  A lot of money is being spent on upgrading intersections in London, by and large to accommodate cyclists.  For safety reasons (and because of significant increases in cycling at peak times), some of these projects are justified, but in some cases they are increasing motorised traffic congestion.

Jo Valentine is a cyclist, but says that the current programme to reallocate road space on many routes to dedicated (and in some cases segregated) cycling lanes also imposes costs on other road traffic, in the form of congestion.  From 1996 to 2009, central London has seen approximately 25% of its road network capacity transferred to walkways, cycleways, bus lanes or public space (Source: Travel in London Report 4, 2011, Transport for London, Figure 4.12), although over than time demand for that road space has declined by about 12% (in significant part because of the congestion charge) (Source: Travel in London Report 4, 2011, Transport for London, Figure 4.13).  In effect, it means the congestion charge has meant reallocation of road space has been more tolerable than it would have been otherwise.  

I couldn't source readily the most up to date data on central London traffic figures, but extrapolating from 2007 data which indicated that 42% of motorised vehicle trips are chargeable, it appears that around 21% of vehicle trips into central London are by cars that are not exempt or 100% discounted from the congestion charge (because of disability or being ultra low emission vehicles).  So the scope for modal shift in central London appears to be low.  This is hardly surprising, as driving in central London is notably slower than using the Underground or cycling until after around 10pm and before 6am.

So if there are going to be more charges for motorised road users, there needs to be a consideration of using much of the new revenue either to offset other charges or to improve roads, either by addressing bottlenecks (the Bounds Green bottleneck on the A406 seems obvious), or by more tunnelled highways to take traffic away from pedestrians, cyclists and town centres.

The potential is there for traffic congestion to be significantly improved in London through charging, but the quid pro quo needs to be for the revenue from charging to be recycled either by reducing other taxes (e.g. the council tax contribution to road maintenance) or addressing the major shortfalls in the network.  The Greens understandably want to use congestion charging in London as a stick to relentlessly contain road traffic, but I believe most of their objectives can be achieved by taking a more consumer led approach.

It's time to talk about roads as a utility.