Thursday 18 August 2016

Australian Federal and State Government Ministers reconfirm commitment to heavy vehicle charging reform

Australia has a Federal system of Government, with fuel tax only collected at the Commonwealth (Federal) level, but registration fees collected by the States.  Transport policy between Commonwealth and State level has some co-ordination through the Transport and Infrastructure Council (TIC) which brings together Ministers of Transport/Infrastructure from states and the Commonwealth to decide on matters that need interstate/national co-ordination.  This is already done on registration fees on heavy vehicles.

With the Liberal/National Coalition reelected in July 2016, the latest TIC meeting was important, and  in terms of road user charging, it was notable that the TIC released its communique from that meeting (PDF) mentioning the importance of heavy vehicle road user charging reform for Australia.

The second item from that communique, which is on this specific matter,  is repeated in full below:

The Council noted the growing momentum for road charging and investment reform, including the Council of Australian Governments’ December 2015 directive that Council accelerate Heavy Vehicle Road Reform and investigate the benefits and costs of introducing user charging for all vehicles. A presentation was provided by the Commonwealth outlining pressures on the current model for funding and provision of road services, and the potential benefits of moving to market based provision of these services for all vehicles. Council noted that the immediate priority is further development of the heavy vehicle user charging system. Council will progress next steps, including further, more detailed consideration of potential costs and benefits of reform.

What this means is that there is broad agreement on reforming heavy vehicle charging in Australia, but the emphasis will be on getting a closer indication of the economic impact of such reforms.  Understanding costs means understanding how such a system or systems may work, including the impact different procurement and delivery models may have (e.g. single supplier PPPs vs open system approaches), and how the costs of both in vehicle and on road systems will be recovered.  The benefits of reform need to be calculated and discussed in the context of how they will affect different heavy vehicle user groups, by vehicle type, industry and location.

The existing system has considerable cross-subsidies, and although part of the reform process is going to make these transparent, it is unlikely that those who benefit from those cross-subsidies will support changes that suddenly mean they pay more.  Much more thought needs to be given as to how a transition towards weight/distance/location based charging can be implemented progressively, including the transition away from registration fees (although I'd suggest a portion be retained to recover the administrative costs of registration at least) and fuel tax.

However, the future is positive.  South Australia declared last year that it wants to be the first state to pilot heavy vehicle charging.  Western Australia also announced that as part of its Perth Freight Link project, it wants to introduce a heavy vehicle charge for the route, to help pay for the state's portion of the capital costs and the maintenance costs of the route (rather than a toll).  

The Heavy Vehicle Road Reform programme is well underway (covering much more than charging) going wider than charging, but also towards the use of revenue, the management of roads and how to address improving the productivity of the road freight sector (such as charging to address specific infrastructure deficiencies).  Hopefully, this commitment from TIC is followed by specific commitments at Commonwealth and State levels, and sees action on developing pilots and introducing heavy vehicle charging

Mayor of London proposals on emissions charging resemble expansion of congestion charge

London's new Mayor, Sadiq Khan, was elected on 9 May and although his manifesto showed no interest in changing the congestion charge, he has made one of his top priorities addressing air quality in the city. 

The Transport for London website claims that London breaches EU legal limits on Nitrogen Dioxide (which may not necessarily be a legal matter once the UK leaves the EU, but that doesn't mean there isn't a problem!), and that pollutants "cause" the equivalent of 9,400 deaths in London per annum.  I'm always a little wary of statistical correlations between alleged causes and effects when the actual affects are more likely to be discreet, cumulative and one of multiple factors in accelerating deaths.  It is always a good headline, but there is little sense of the historic state of air quality.  London has come a long way from pea-soup smog (it wasn't fog) due to coal being burnt to heat households, businesses and generate electricity in the 1950s, with gas heating, energy efficiency, the demise of steam locomotives, relocation of port activities to Tilbury and beyond.   Road vehicles are cleaner burning than they have ever have been, although the misguided fiscal encouragement towards purchases of light diesel vehicles in the 2000s (to reduce CO2 emissions) has not helped as low CO2 has come at the price of particulate emissions, which are one of the most serious contributors to respiratory diseases.  

London has severe congestion, which is a contributor to pollution, because the idling times and low traffic speeds mean emissions per vehicle mile are higher than they would be if congestion were lower.

The Mayor of London has decided to consult on using charging as part of a programme to reduce emissions.  

London's existing Low Emission Zone

London already has a Low Emission Zone (LEZ), which was introduced in 2008.   It applies to all roads in London, excluding the motorways (which of course only serve destinations that are on local roads).  It requires the following vehicle standards:

- All trucks, buses and coaches must meet at least the Euro IV standard for emissions;
- All larger vans and minibuses must meet at least the Euro III standard for emissions.

All of Greater London is the area of the Low Emission Zone
The LEZ does not apply to smaller vehicles.  Vehicles that do not meet those standards either must be retrofitted to do so, or be subject to a daily charge for driving in London of £100 or £200.  It is intended to ensure commercial vehicles in London meet fairly average emission standards.  Euro 3 came into force in 2000 and Euro 4 in 2005, so it is not a significant burden to expect most such vehicles to meet those standards.  It wouldn't be unreasonable to uplift that to Euro 4 for light commercial and Euro 5 for heavy vehicles by 2020.  

Yet there is no evidence that the LEZ has had any measurable impact.   According to Citylab, a study from two years ago indicates the LEZ has had NO impact.  There are some guesses made as to why, such as how newer vehicles may be reducing NOx by less than forecast (and one may also surmise that if there has been extensive fraud in emissions testing by manufacturers, that they are somewhat to blame.  Another is that the growth in the number of diesel cars has offset the improvements in heavy vehicles.  Of course the LEZ has no impact on that, and the UK Government has only reformed Vehicle Excise Duty (annual registration fees) to remove the advantage low CO2 (diesel) vehicles get from that tax. 

Mayor's proposals

  • bring the implementation of the central London Ultra Low Emission Zone (ULEZ) forward by one year to 2019;
  • expanding the ULEZ beyond central London in 2020;
  • introducing a new Emissions Surcharge from 2017 for the most polluting vehicles entering central London;
  • giving TfL the go-ahead to start looking at a diesel scrappage scheme as part of a wider national scheme run by the government;
  • keeping Londoners better informed and alerted when pollution is at its worst;
  • making sure TfL leads by example by cleaning up its bus fleet and buying only hybrid or zero emission double-decker buses from 2018.
The fourth, fifth and sixth proposals are nothing to do with road charging, but the other three are, and could have quite a significant impact on the cost of driving in London for vehicles that are not eligible.

Monday 8 August 2016

Connecticut a public relations nightmare on exploring road user charging

As I wrote last week, the FAST Act is providing Federal funding for states in the USA to pursue road user charging pilots. Connecticut is one of four states in the I-95 Coalition (which comprises the states through which Interstate 95 passes) bidding for such funds, but in the state this has stirred up plenty of opposition to the idea of even studying road user charging.  So much so that I'd say that even if the pilot proceeds, the "cause" of better road charging in Connecticut may have been set back years.

Both Republican and Democrat Senate Leaders oppose it, with opposition both to the state spending money studying a mileage tax (because the state cannot afford to “waste money” on investigating a way to raise revenue). 

A Google search of media in Connecticut about the proposed pilot reveals the following:

I don’t believe there is a mileage tax in Connecticut’s near future, if for no other reason than that it’s a complicated and controversial undertaking, and, fortunately, no one seems to be even close to figuring out how to implement it.

Controversial it may be, but complicated and "no one seems to be even close to figuring out how to implement it"?

This is demonstrably untrue

The list of countries/states charging at least some vehicles by distance on at least main highways is as follows:

- Austria;
- Belgium;
- Czechia; 
- Germany;
- Hungary;
- Iceland;
- New Zealand;
- Poland;
- Russia;
- Slovakia;
- Switzerland.

With Bulgaria to come

Even in the USA, four states have weight/distance charges/taxes for trucks and of course Oregon has a voluntary distance charge for cars (which enables a refund in fuel tax for participants):

- Oregon;
- New Mexico (trucks);
- New York (trucks);
- Kentucky (trucks).

Meanwhile, California is embarking on a pilot.  However, media quick for headlines quickly enters into echo-chamber mode.

I understand concern from some about not being aware of the pilot, but the knee-jerk reaction to it is unfortunately ignorant. It's cheap political point scoring by people who are uninterested in detail and substance, fearful that supporting a new form of charging will look like a tax rise.

The Governor has indicated that he supports investigating options for the future, because of the decline in revenues from gas tax.   Quite what's wrong with a study and a pilot is difficult to understand, because it looks like gathering information is a negative?

To achieve a balanced debate about road charging, it is critical that agencies communicate the advantages and disadvantages of various road-charging options with politicians and the public, including addressing the following messages:

1. Charging by mile would replace fuel tax, not be an additional tax;

2. Charging by mile need not be administratively expensive and complicated, when costs of collection as low as 5% of revenues have been seen in established systems;

3. Charging by mile does not necessarily means the state tracking everyone’s movements, as charging can be done by competing private companies which can offer distance charging options that need not include location.

4. Charging by mile is not unfair on people travelling longer distances, as they pay more now by using more gas, unless they have an electric or hybrid vehicle and so pay much less even though they benefit from money spent on roads.  

5. The basis for charging should be have some link with a fair allocation of the costs of maintaining and upgrading roads, that means allocating fixed costs across all road users equitably, and allocating marginal costs according to the costs imposed by different road users.  That means moving beyond politics into economics.

Sadly the road charging debate in Connecticut has nothing to do with economics, with only the Governor showing any sign of courage and interest in even investigating reform.  The big lesson is that decisions on studying and pursuing a demonstration need to be made transparently and those in charge need to have a clear communications strategy to beat down the opposition.  

The messages should have been clear about:

- Declining yields from fuel tax will make it unsustainable and increasingly unfair;
- Charging by mile could replace fuel tax;
- Charging by mile is feasible, is done elsewhere, but the state needs to understand a lot more about it and how people would react to it, before considering it further;
- Any money from such charges would be dedicated to road maintenance and upgrades.

That hasn't happened

Friday 5 August 2016

Australian toll road lawsuit successful

Some time ago I wrote about the Clem 7 toll road in Brisbane, Australia.  It provides a north-south tunnelled bypass of the Story Bridge and other roads approaching downtown Brisbane from the south and east.

It is a PPP toll road that went bankrupt as the demand for the road was little more than half that forecast.  In December 2013, the road was taken over by Queensland Motorways, which at the time was a company owned by the Queensland State Government, but has since been privatised and is now owned by Transurban. 

The road was acquired by Queensland Motorways for A$618 million (US$472 million), but cost A$3.2 billion (US$2.4 billion) to build.

Transurban's latest traffic data reports AADT of 27,000 on the road, which is notable when you consider the forecast was that up to 100,000 a day would be using it.   

However, what was significant about this case was that around 1000 investors who bought shares in the project engaged in a class action lawsuit (PDF detailed) against the demand/revenue forecasting consultants - AECOM - and the original Rivercity Motorway company.   The Sydney Morning Herald reports that they have won a settlement gaining a payout of A$121 million (US$92 million).   The allegation was that AECOM had made traffic forecasts without reasonable grounds, and specific information had been excluded from the product disclosure (prospectus) document for investors.  

FAST Act funding assisting US states to develop road charging pilots

It has been remiss of me not to explain to those outside the USA what is the most groundbreaking initiative on road pricing at the Federal level that I am aware of.

Perhaps the most interesting transport policy development at the Federal level in the United States under the Obama Administration has been the FAST (Fixing America’s Surface Transportation) Act, which besides a great deal of taxpayers' money for road, railroad, public transit and other modes, has made special provision to support states that want to demonstrate what it calls “user-based alternative revenue mechanisms”.

Section 6020 of the new law provides US$95 million over five years (hidden in to help states interesting in progressing various forms of road charging, on a 50/50 basis. US$15 million is available in the first year (under the Research pool of funding in the pie chart above). States or group of states may apply for funding through a grant process administered by Federal Highways Administration (FHWA). Applications for funding are expected annually, with the deadline for the first tranch of applications having passed on 20th May, decisions from FHWA on which states have been granted funds are expected shortly.

The objectives are outlined below:
  • to test the design, acceptance, and implementation of two or more future user-based alternative mechanisms; 
  • to improve the functionality of the user-based alternative revenue mechanisms; 
  • to conduct outreach to increase public awareness regarding the need for alternative funding sources for surface transportation programs and to provide information on possible approaches;
  • to provide recommendations regarding adoption and implementation of user-based alternative revenue mechanisms; and 
  • to minimize the administrative cost of any potential user-based alternative revenue mechanisms.
According to FHWA, States receiving funds under this provision are required to address the following issues:
  • the implementation, interoperability, public acceptance, and other potential hurdles to the adoption of the user-based alternative revenue mechanism;
  • the protection of personal privacy;
  • the use of independent and private third-party vendors to collect fees and operate the user-based alternative revenue mechanism;
  • market-based congestion mitigation, if appropriate;
  • equity concerns, including the impacts of the user-based alternative revenue mechanism on differing income groups, various geographic areas, and the relative burdens on rural and urban drivers;
  • ease of compliance for different users of the transportation system; and
  • the reliability and security of technology used to implement the user-based alternative revenue mechanism. [FAST Act § 6020(d)(1)] 
Recipients may also address—

  • the flexibility and choices of user alternative revenue mechanisms, including the ability of users to select from various technology and payment options;
  • the cost of administering the user-based alternative revenue mechanism; and
  • the ability of the administering entity to audit and enforce user compliance. [FAST Act § 6020(d)(2)]

Network charging not HOT lanes

What this means is interest in finding new ways to raise revenue from using the roads, around replacing or augmenting fuel tax. I doubt if the popular trend for HOT lanes is innovative anymore, nor is simply the use of tolls for new or improved infrastructure, but rather it looks like interest in more network wide charging, whether it be tolls on all major highways, distance charging or time based charging (charging based on duration of network use or prepaid access like vignettes in Europe).

Private sector service provision

It outlines key obvious policy issues around acceptability and privacy, but also interestingly embraces "use of independent and private third-party vendors to collect fees and operate the user-based alternative revenue mechanism".  This implies using either the open system approach embraced in Oregon (and now California with its pilot), Hungary and New Zealand, or a full blown PPP, both of which are significant innovations in a country that has one of the lowest levels of private sector participation in the ownership, operation and funding of roads in the developed world.

Congestion pricing

The inclusion of "market-based congestion mitigation" is interesting too, which could range from peak time tolling, to cordons, to full network time/location based charging (the latter potentially presenting challenges on privacy). Market based mechanisms will need to have some direct link of charges to demand and supply, and arguably even infrastructure costs. Ensuring road users pay for the full cost of infrastructure would have an incremental impact on congestion for a start, but to have a time and location based element will be a challenge, although one that pilots should consider.

Equity concerns

It's obvious what this is meant to mean, which is concern that road charging will disproportionately impact those on low incomes or those who use the roads the most. Not sure anyone does equity impacts of the price of food or clothes or many other goods or services where people pay according to supply and demand, but still the impacts of major reforms are important to identify. Part of this should also identify:

- the absolute equity impacts of fuel tax (i.e. are those able to afford to buy expensive electric cars having the roads they use be subsidised by those who cannot?);

- the equity impacts of general taxation funding of roads (consider if telecommunications or electricity infrastructure were funded that way);

- the equity impacts relatively in the current charging system, who bear the greatest cross-subsidy cost and benefit?

Ease of compliance

This is critical, but also alongside ease of enforcement. Users should know what to do and for the compliance costs to be low, but also it should be easy to detect, identify and pursue those who deliberate fail to pay or seek to defraud any system.

User choice

Flexibility and choices for users sings like what has been done in Oregon and California. Users are expected to get more than one option to pay for road use, bearing in mind that the scope to do this is limited by the inevitable game playing of users to minimise charges. The obvious example is not to have both time and distance based charging, because the highest users will pay by time and be cross subsidised by the lowest users. Concerns about overcharging the highest users could be address by volume discounts (as in Slovakia). 

Administrative costs

One of the biggest criticisms of any form of road charging compared to fuel tax is that fuel tax is cheaper to collect. This is indeed true. Yet it ignores the deadweight economic impacts of not directly charging for a service, and the behavioural impacts that ensue. That's not to say that ensuring costs are minimised is not important, it absolutely is. However, I always recall a study in New South Wales Australia that estimated that the economic benefits of abolishing registration fees for vehicles, and replacing it with simple distance/time/location based charging (location being urban/rural, time being peak/offpeak in urban only) would far outweigh the collection costs. 

Who is going to get funding?

That's the US$15 million question. It is known that there are proposals in from at least California, Oregon, Minnesota, Washington, Hawaii, four states in the "I-95 Coalition" (Connecticut, Delaware, New Hampshire and Pennsylvania) and RUC West (a grouping of Western states formerly known as the Western Road Usage Charge Consortium). However, there may be others.