Thursday 31 October 2019

Washington State Road Usage Charge Pilot Program - documentary

The US State of Washington recently concluded a pilot of light vehicle distance based road usage charging, testing an option to replace fuel tax.
Public television broadcaster TVW recently broadcast a documentary on the Washington Road Usage Charge Pilot Project which I have linked to below.  It includes:
  • Comments from two pilot participants; and an
  • Extensive interview with Reema Griffith, Executive Director, Washington State Transportation Commission.
It's around 24 minutes long, and is worth watching as it addresses issues such as comparing charges between the gas tax and paying by distance, privacy protection and use of data, as well as policy options going forward.  A full transcript is also available on the website for the documentary.

(Disclaimer: D'Artagnan Consulting advises and has been delivery partner for the Washington State Transport Commission on the Washington Road Usage Charge Pilot Project)

Wednesday 30 October 2019

Grattan Institute is wrong about replacing fuel duty - the problem isn't just electric vehicles

I wrote before about a good report from the Grattan Institute, in Australia, promoting the idea of congestion pricing.

The report diverts into considering the case for replacing fuel duty in Australia with road user charging on page 32. 

It claims the case is flimsy for three reasons:

  1. Fuel excise revenue is not plummeting, but just isn't growing as a proportion of GDP (this is true).  Drops in revenue in real terms in recent years are because of a freeze on indexing over twelve years, which is a separate matter (but does suggest the politics of raising fuel duty are not that simple).  
  2. It doesn't matter if fuel excise duty plummets because it is not hypothecated for spending on roads and consists of only 5% of Commonwealth tax revenue, and the Commonwealth only pays on average 21% of spending on roads.
  3. Australia has few electric vehicles (0.2% of the fleet) and is only going to be around 4% by 2030.

Now all three points have some validity on the face of it.  Yes, inflation indexation will largely protect revenue from fuel duty for some years.  Yes, the fact fuel duty isn't hypothecated means that road spending isn't dependent on it, and the proportion of electric vehicles is very low.

Yet, this fails to note three other points.

Electric vehicles are only part of the picture. Hybrid vehicles consume on average half as much as standard petrol or diesel engines per km travelled, and sales of hybrid vehicles are around eight times higher than pure electrics, and this figure is only likely to grow.  Furthermore, the trend of fuel efficiency with petrol and diesel engines continues as well, which means that new vehicles, regardless of motive power, use less fuel and so reduce the yield per kilometre travelled from fuel duty.  So while inflation indexing may retaining the value of fuel duty per litre sold, there will be fewer litres of fuel sold per vehicle.  This trend is seen in countries with higher sales of such vehicles such as New Zealand and the United States.  Even if Australia only has 4% of the fleet as pure electric by 2030, it might be more like 40% hybrid, with the remaining vehicles mostly much more fuel efficient than the current fleet. 

Equity is a growing issue.  Even if revenue could be protected solely by indexation of fuel duty to inflation, or increases beyond inflation (and some who advocate for electric vehicles would believe this would increase takeup of such vehicles), it raises a more profound question of equity.  Those acquiring electric or hybrid vehicles in most cases are buying new vehicles, so those who pay the least fuel duty (or none at all), are those who can afford a new vehicle.  Millions of Australians never buy a brand new car, let alone an electric or hybrid vehicle, so the collection of fuel duty over time will fall more and more on those least able to buy new vehicles.  Policy makers may be fine with this, but only if fuel duty is seen to be a tax on emissions, but it is a tax that the wealthiest are best able to avoid by spending A$124,000 on a Tesla  or A$50,000 on a Nissan Leaf.  If fuel duty is to be seen as a charge for using the roads, and contributing to paying for the costs of maintaining and upgrading the road network, then it becomes a much bigger issue, as it is unfair for some to pay and others not.

More closely linking what road users pay to what is spent on the network is a good policy objective. This goal has previously been mentioned in respect to reform of charges of heavy vehicles, and from an economic efficiency point of view, moving roads closer to a utility model whereby (beyond toll roads), road users pay various charges to use the network, based on the costs of maintaining and developing that network.  Hypothecating fuel duty for light vehicles (and heavy vehicles) would do this, and enable longer-term decision making to be made on road maintenance and renewals, allowing long term planning and better management of the costs of maintenance and construction over time.  Making fuel duty more transparent, so road users know what they pay and know it is spent on the network would make it much easier to evolve towards direct road user charging to replace it (and consider reducing the high registration fees in Australia, so that road use, rather than vehicle ownership, is more heavily charged). 

In the long term, road user charging can support congestion pricing.  Over time, if more and more vehicles are paying based on vehicle characteristics and distance, then charging by location and time of day could also be included.  However, it is not a reason to introduce road user charging for electric vehicles or hybrid vehicles in the next decade, nor should the interest in congestion pricing await such technology.

So I reiterate, Australia should investigate light vehicle charging, and along with Heavy Vehicle Road Reform, how reform of the funding, governance and rate setting of light vehicles can deliver a more accountable, transparent and better value for money system of road management for Australia.   It would be timely to reopen consideration of light vehicle charging once the proposed Large Scale On-Road Trial of Heavy Vehicle Charging is launched in 2020

Fuel duty will need to be replaced in Australia because it will be grossly unfair for the wealthiest Australians to pay a fraction of the cost to use the roads than those who can't afford vehicles with newer forms of motive power.  The research on future scenarios and options to address them should start, and within a few years all new electric vehicles registered in Australia, at least, should be required to pay a road user charge, and for work to be started to transition hybrid vehicles onto such a road user charge in due course.

Tuesday 29 October 2019

Australia needs to charge electric vehicles for road use

Until around a year ago, the Australian Federal Government was investigating the merits of introducing some form of distance based road user charging for light vehicles.  The primary focus being on the expected revenue sustainability and equity issues as the light vehicle fleet transitions towards hybrid and pure-electric vehicles over the next couple of decades (the question of charging heavy vehicles is dealt with quite separately in Australia, and is subject to its own reform programme known as Heavy Vehicle Road Reform, and currently includes a small scale trial of heavy vehicle road user charging).  

It had come from the visionary Minister for Urban Infrastructure at the time, Paul Fletcher, who had announced in November 2017 that there would be a study into light vehicle road user charging.  The revenue sustainability issue has barely registered yet in real terms, not least because fuel duty in Australia is not hypothecated at all, so could arguably be said to be just an incidental tax on using the roads paid for by light vehicles.  The study was presumably cancelled because of political concerns, particularly because at the time, political polling indicated that the then Liberal/National Government led by Scott Morrison would be unlikely to win the Federal Election which was held in May 2019.

What happened was that Scott Morrison DID win that election, with a slightly increased majority, but nothing has been said about road user charging since then, except in the heavy vehicle sphere.  Yet there have been increasing calls from various parties to do something about it, not least because it is easier to study, test and implement road user charging for electric vehicles when they form such a tiny proportion of the vehicle fleet.   

Let's be clear, in 2018 only 0.3% of new vehicle sales in Australia were pure electric, although more recently around 2.3% are hybrids.  So it is a very small issue in fiscal terms, but the growth is considerable.  In the first six months of 2019, new electric vehicle sales are double that of the same time in 2018, and hybrid sales are up 84%, with a 10% decline in new petrol vehicle sales (and 9% on diesel), indicating a growing share of the overall market. 

With so few vehicles affected, you might wonder about the politics of acting, and the simple point is that it is never likely to be easier.  It might not be the issue around revenue that is important now.  The Grattan Institute dismissed the issue of replacing fuel tax in its recent report on congestion pricing, but the issue really shouldn't be about revenue first, but rather equity.  Why should someone who spends over A$100,000 on a new Tesla get to use the roads, essentially for free?

Furthermore, what I witnessed on TV last night indicated that it might be easier than many politicians think.

I happened to glance a TV polemical talk show in Australia last night, Paul Murray Live on Sky News Australia.  It is widely recognised as a rightwing, conservative (although more libertarian than traditional conservative) show, with a host that might be said to reflect some of the views of the Liberal Party base.  For Americans, it is closest thing Australia gets to Fox News.  The strong narrative is sceptical about new taxes, growth in government and a strong belief in personal freedom.

At around one hour and fourteen minutes into the show (excluding commercials), the host reported that The Australian newspaper published a poll result in which 76% of Australians believe that electric car users should pay to use the roads, and that around half believe it is unfair that they don't pay fuel excise.  The show continued with the conclusion from the host and the two panellists (one being Liberal Party Vice President Teena McQueen and other being former Labor candidate Sam Crosby that there should be action taken to develop means to charge electric vehicles for using the roads, and the sooner the better.

This is notable, not least because what is often referred to as "Sky News at night" is usually filled with commentators which are very much to the right of the Australian political spectrum, unashamedly, and to the right of the Government.  Now the audience for the show is not large, but it is likely to be around 50,000 viewers, mostly of whom might be considered the Liberal/National Party "base" and those further to the right.

So what COULD be done?

For a start, the Government could start the conversation about the issues and the possible solutions.  The number one issue should not be revenue sustainability, as this falls out of the issue rather naturally and is less convincing in a country without hypothecation of fuel tax revenue.    Rather, the issue should be equity.  The graphic below from The Australian outlines roughly the issue, which is that owners of older larger cars pay a lot more to use the roads than hybrid or electric vehicles, and the question of how fair this is?

The counter-argument is that electric vehicles are "good" because of their environmental impact, which would hold some sway if the purpose of fuel excise was as an environmental tax on emissions, but that isn't the stated purpose.  If fuel tax is to be seen as a way of recovering road infrastructure costs from light vehicles (which part of it is for heavy vehicles), then it becomes a more compelling narrative around fairness.  Electric cars need well maintained roads and contribute to demand for safer and higher capacity roads as much as other vehicles, so it isn't clear why they should be exempt from paying.

The second point is to discuss the possible solutions, which really come down to two options:
1.  Significantly higher registration fees
2.  Distance based road user charges.

Higher registration fees are more likely to deter purchase and ownership of electric cars, but also wont reflect their use of the network.  It will encourage electric car owners to drive more after paying a high fixed cost, rather than consider the costs of each trip.

Distance based road user charges are exactly what is currently piloted in Oregon, Washington and Hawaii, and has been piloted in California and Colorado, and will be implemented in Utah.  

The graphic below Washington Road Usage Charge Pilot Project outlines the options to measure distance used in that pilot:

Washington RUC pilot distance measurement options

Australia could test these options and possibly others.

What Australia needs is to study the outcomes of the extensive overseas research on this, and New Zealand's own long standing Road User Charging system (which will be able to charge electric light vehicles in due course), then look to pilot multiple options for electric vehicle owners.  It will also need to consider how to treat hybrid vehicles, since they continue to pay fuel duty, so would need to have that refunded or pay a road user charge that is lower than that for electric vehicles.

It is likely that if confined to electric, hydrogen fuel cell and hybrid vehicles, that a study into charging light vehicles beyond fuel tax (and the relatively high price of registration) ought to be able to obtain some bipartisan support, as it has done in the United States.  

Friday 18 October 2019

Congestion pricing in Australia should be a no-brainer

Centrist Australian think-tank, the Grattan Institute, has released a report advocating congestion charging for Australian cities.  The report is a good summary of the fundamental problem of traffic congestion and the strategies adopted by Australian cities and states in addressing it.

None of this will be news to readers of this blog.  The key point being that it is almost impossible to sustainably address traffic congestion in major cities by simply building capacity (paid for largely by those not using that capacity) to meet demand, whether it be capacity on roads or on public transport (which is commonly seen as the main way to attract traffic off of roads).   It cites the avoidable costs of congestion from a BITRE study of (Bureau of Infrastructure, Transport and Regional
Economics) of A$6.1 billion in Sydney and A$4.6 billion in Melbourne.  This is a figure imputed from the costs of lost travel time (and vehicle operating costs), but is still an economic drain.  There is no plausible way of significantly reducing these costs without pricing to spread and moderate demand.

I think the report provides a quite compelling case for congestion pricing in Sydney and Melbourne.  It particularly includes research and data that is pertinent to other "new world cities", characterised by largely low density population and land use, high private car ownership and usage and dispersed employment locations.  Many assumptions that may be widely held among decision makers and the public should be challenged by this report.

Some of the highlights are the following:
  • In the morning peak up to 21 per cent of trips on Sydney roads are for socialising, recreation, or shopping (i.e. not commuting, or trips to education) (p.8).  This infers that the scope to price some of those trips onto other modes or at other times should be significant, and more importantly, even a drop of a quarter of those trips would likely have a noticeable effect in reducing congestion).  (The figure for Melbourne is 11%).  It also might infer that the elasticity of demand for those trips in the morning peak is greater than for others, but this ought to be established by further research;
  • There is record spending on urban road and public transport infrastructure in major cities (over A$35 billion in the current year), indicating that it isn't a lack of spending on supply that is the issue (p.12), and the majority of committed spending is on public transport (p.8).  Quite simply, building more capacity will never be enough (and the value of that spending continues to drop);
  • ANPR technology is now the most feasible option to use for cordon and corridor charging (p.13), as toll tags are increasingly unnecessary;
  • There is insufficient use of "repurposing road space", which can be used to increase overall capacity or provide dedicated capacity to specific road users.  On average, 14% of road space can be reallocated (typically to cycling and pedestrians) without reducing overall capacity (p.22);
  • Parking levies have very limited impact (A$2490 for Sydney CBD, A$1440 for Melbourne), noting that up to 40% of vehicles in the Sydney CBD are through traffic (compared to a third in Melbourne). (p.25);
  • CBD cordons in Sydney/Melbourne could improve speeds by up to 16% in the CBDs and 20% on roads approaching them, and 1% improvement in whole of network speeds (pp.28-29), with more details to come in a report next week;
  • CBD cordons would mostly affect high income drivers, as it is them who predominantly drive to the CBDs.  Only 15% of jobs in Sydney and Melbourne are in the CBD (pp.35-36);
  • People on higher incomes tend to drive the furthest to work, 30% of workers live in the suburb they work in, or an adjacent one (p.36). Which may also indicate that charging by distance will mostly affect those on higher incomes;
  • Low income drivers with few alternatives can be protected from excessive impacts of congestion charging (p.40).
  • The report claims "now is the time" because others are doing it, but this shouldn't be the only determinant.  Of the proposals listed, Hong Kong is on hold for fairly obvious reasons, Vancouver's proposals received a very poor public response and are unlikely to proceed, Jakarta's proposals have been fraught with a range of difficulties (which I have written about on this blog).  I doubt in the short term whether any US city, other than New York, will advance further given the politics and lack of creative policy thinking (p.10).
The report rightfully (and in contrast to some other reports lately) notes there are broadly three main options for charging:

1.   Cordons (this should include area charging), although it only talks about CBD (central city) cordons, when this tool could be applied more widely onto other centres of activity.  London (as an area charge), Stockholm, Gothenburg, Milan, Valetta and the future New York and Abu Dhabi schemes are all cordons, and Singapore has one as part of its scheme;
2.   Corridor charges, although again this could be wider than a major highway and could include charges on viable alternative routes. Singapore and Dubai both have corridor charges; and
3.  Network charges, which it defines only as distance based charging, but actually needs to disaggregate by route and time of day (simply charging all travel at a flat rate by distance within an area wouldn't achieve much in comparison).  No city has this for congestion pricing to date, although Singapore will be implementing the technology that could facilitate this in the next year.

The reaction

Sadly I'm not surprised that the political reaction has been poor.  With the possible exception of former (Federal) Minister for Urban Infrastructure Paul Fletcher, there is at best a void of interest in congestion pricing in Australia and at worst antipathy which demonstrates fear most of all.

Of course, the experience of London is well known, and there was a flurry of interest in the UK in the five years after London implemented its congestion charge, but other schemes came to nought, for a range of reasons including lack of trust that charging elsewhere could deliver improvements for those paying that were worthwhile, and antipathy towards yet another increase in the cost of motoring. 

However, things have changed elsewhere.  The United States, where car use is dominant in all cities (except lower Manhattan), now has a flurry of interest in investigating congestion pricing. New York is proceeding, but the jury is out on other cities. Closer to Australia, work has continued on congestion pricing in Auckland (indeed Auckland has had multiple studies on congestion pricing specifically or considering pricing as part of a wider package for over 15 years).  The fact that new world cities are seriously considering it ought to mean the same should happen in Australia.

However in Australia the reaction from most circles is a big fat no, which is exactly what came from several sources in the days after the report was released.  Victorian Premier Daniel Andrews (who was re-elected in 2018 with an increased majority), who has a strong reputation for action on climate change said (according to the ABC):

The best way to ease congestion is to build a public transport network system which can deliver more trains, more often — and we're getting it done....We have no plans and do not support a congestion tax.

New South Wales Premier Gladys Berejiklian (who was re-elected earlier this year) said pretty much the same (according to 7News):

The best way to reduce congestion into the future is to build major public transport projects

The NSW Transport Minister echoed this. 

Unfortunately, they are all wrong.

London and Paris have public transport networks that would be the envy of any Australian city, but the simple rule is that large cities cannot build themselves out of congestion with public transport or roads, if pricing is not used as a tool to manage demand.

It is almost a cliché to say "building new roads just generates more demand", but this is in a climate of not applying efficient pricing to that capacity. 

But what about the toll roads?

Ah but Sydney and Melbourne have toll roads you say.  Yes they do, but only some major roads are tolled and almost none of them have higher prices at peak times (the Sydney Harbour crossings do, but the difference between peak and off peak prices are so small (A$1) as to have a correspondingly small impact).

Road Australia map of Sydney toll roads including those under construction

The negative for Sydney, Melbourne and Brisbane is that residents of those cities are highly likely to see congestion pricing as "just another toll", and media coverage of the issue reinforces this.  Because some toll roads are regularly congested, there is likely to be a high degree of scepticism that congestion pricing at modest levels would reduce congestion, when relatively high tolls do not appear to have that effect (but of course they DO have the effect of reducing demand on those roads, but as long as they remain priced the same all day long, there wont be any real difference in demand patterns compared to untolled roads, except parallel routes in very low traffic volume periods). Furthermore, as many toll roads are private concessions with concession agreements that limit policy options to constrain the revenue from tolls for the concessionaires, practically speaking it could be difficult to implement congestion pricing on a wide scale without having to compensate investors in those toll roads.

Melbourne toll roads in red

In other words, tolling is a negative when it is unpopular and linked to a choice of using a new road which is tolled compared to an existing road.  Yes tolls in Sydney and Melbourne contribute to moderating demand, but that effect is not apparent because most toll roads have the same price all day long.

What should happen?

States should investigate congestion pricing as a tool to reduce traffic congestion, sustainably manage demand on the road networks, encourage mode and time of day travel shift (very few commentators really note that part of congestion pricing is changing when people drive not just how people travel.

Congestion pricing is obviously thought of as a way of generating more revenue to spend on transport, but it could also be used to replace or reduce existing charges. For example, registration fees could be cut state wide, benefiting those in regional and rural areas who have virtually no transport alternatives.  Private vehicle registration fees in Australian state are high compared to New Zealand and US states (e.g. Victoria charges up to A$834.80 a year). 

Furthermore, congestion pricing options should be developed based on making noticeable improvements to network performance NOT revenue raising, and the debate about recycling the revenue can proceed.

Be very clear, there will be severe traffic congestion in Sydney and Melbourne for many decades, no matter how much money politicians pour into roads and public transport.  It wont be significantly eased without the use of pricing.  It's about time that work was undertaken to investigate options, to engage with the public about such options, what they would mean in terms of winners and losers, and how congestion pricing could reduce the burden of registration fees for everyone (much better than the ludicrous NSW toll relief on registration fees).

What I predict is that Auckland will have congestion pricing by 2025, even on a small scale, but by then the debate wont have moved on in Australia at the political level, if the politicians themselves don't get investigations undertaken about congestion pricing.