Tuesday 1 December 2020

Arguments against EV road user charging in Australia refuted

Should Australian states introduce a EV tax - a road user charge based on distance for electric vehicles?

Over the past couple of weeks a coalition of the Australian electric vehicle industry and the leftwing/progressive think tank The Australia Institute have been waging a campaign (actual campaign) against the introduction of road user charging (RUC) for electric vehicles in South Australia, Victoria and New South Wales.  It went so far as The Australia Institute hosting a nearly one hour long webinar (see bottom of the page if you have the time to spend on it) that made a whole series of points which ranged from a whole set of ideas for promoting electric vehicle sales in Australia to opposing RUC not only for electric vehicles. It goes so far as justifying road funding being completely disconnected from how road vehicles are charged, but then arguing for road user charging and including some red herrings, so I thought it would be worth responding to.

Bear in mind that there have been some clear blunders in the design and communication of the “EV tax” announcements to date, but I’ll come to those later.

Behyad Jafari, as CEO, has led the criticism from the Australian Electric Vehicles Council of the proposals for charging electric vehicles by distance.  His claims need to be refuted and the Electric Vehicles Council ought to be engaged to take a far more constructive approach to improving conditions for electric vehicle owners and the road transport sector more generally.  Not only because failing to do so will harm efforts by States to establish RUC, but because if the States fail to do this now, it will come at a much higher price at a later date, for Australia and for electric vehicle owners.

There are insufficient incentives to encourage sales of EVs in Australia:  This may be true. Certainly the Luxury Car Tax shouldn’t apply to them, and there are multiple policy initiatives that could be taken to incentivise sales of lower emission vehicles. The purpose of this blog is not to discuss these, but arguments around the absence of sufficient measures to encourage electric vehicle sales should not be an argument against charging such vehicles for the use of the roads.

RUC for EVs would be a significant disincentive to sales: On the face of it, charging EVs for road use should have an impact on sales, but it is more likely to have an impact on usage. The only state to discuss a rate for EV tax so far is Victoria, at A$0.025 per kilometre.  Given average distance driven by a vehicle in Victoria per annum is around 12,000km that is around A$300 a year to pay to use the roads. It’s difficult to see how this will discourage purchasing electric vehicles except at the bare margins.  Indeed, the idea that someone should buy a car because it costs nothing to use the roads, is negative, because the car still takes up road space (which is scarce in cities and on busy roads) and still benefits from the capital tied up in the network. Bear in mind that most Australians don’t buy new cars (there are roughly three times as many used car as new car sales in Australia each year), indicating those that do tend to be on higher incomes, so are unlikely to see a small per kilometre charge as being a significant disincentive to buying an electric vehicle.

Fuel excise isn’t hypothecated so a loss in revenue doesn’t affect road funding:  This is true, but the analogy to tobacco tax (that if revenue drops governments don’t go looking for new revenue) is a poor one. For heavy vehicles at least, fuel excise is not charged on off-public road use, and there has never been an explicit policy to treat fuel excise as a disincentive to using the roads (unlike tobacco tax which exists, in part, to reduce demand for smoking). If fuel duty erodes, it will affect the capacity of the Commonwealth to fund multiple activities, but there would be merit in it being hypothecated for road spending, at least in part, at the same rate for heavy vehicles and light vehicles. Heavy Vehicle Road Reform proposals have included the concept of hypothecation, in part because a shift towards more direct user charging would establish a relationship between road users and the provision of roads. It is true that, for now and for some years, there is unlikely to be serious erosion of fuel duty revenue in Australia from electric vehicles, but that erosion will become an issue.  

Reform of charging for road use should start with heavy vehicles:  There is a lot of merit in this, but this is already happening. There has been a small-scale trial of RUC for heavy vehicles in Australia already, and work underway on developing a larger trial of distance, mass and location based heavy vehicle RUC, alongside supply side reforms. Richard Denniss from the Australia Institute claims in The Guardian that “undercharging of heavy vehicles” has seen a loss in mode share for freight from rail, which is highly debatable.  Railways since the 1980s have moved away from a model of handling wagon loads of goods to small stations (which are not economic to handle or competitive in price and time with road transport), to focusing on bulk goods and line-haul containerised freight.  The same has happened in New Zealand over that period which has had RUC for heavy vehicles since 1978.  The claim that heavy vehicles in Australia only pay 12.5% of land transport taxes is simply wrong, because it ignores what is spent on registration fees, which for heavy vehicles can reach over $10,000 a year. Undercharging may be true in the current year, based on the NTC’s Cost Allocation Model, although the road freight peak bodies note that for several years the amount charged by the fuel-excise based RUC was higher than the model stated should be recovered from heavy vehicles. In other words, the populist belief that trucks are always underpaying is not true. However, the system does need reform, and Heavy Vehicle Road Reform could result in this and this does not reduce the arguments for RUC for light vehicles including electric vehicles.  

So, should electric vehicles get to use the roads for free?  

The argument suggested by some that “we don’t charge people to use public parks” implying that roads are the same doesn’t bear close scrutiny.  Roads are not public parks, as their scarce capacity is much more readily reached in cities and unlike public parks (except at very rare extremes), roads beyond a set capacity becomes congested and their utility is significantly diminished. Congested roads also increase fuel consumption for all vehicles, increasing emissions for non-zero emissions vehicles, but also increasing energy costs for electric vehicles. I doubt the Australia Institute would argue against congestion pricing, but in the absence of congestion pricing, allowing a category of private vehicles to use city roads for free will exacerbate congestion, discourage use of public transport. There IS a legitimate question as to whether electric vehicles pay a discounted rate or even for free when numbers of electric vehicles are extremely low, but that is different from claiming that they shouldn’t pay for road use at all, or that a small per kilometre charge is devastating.

Electric Vehicle supporters should advocate for the interests of Electric vehicle owners in reforming how roads are charged for and funded.

There is virtually no relationship between what motorists pay to use the roads today and what they get, except for toll roads.  A shift towards RUC develops that relationship, and RUC with a hypothecated roads fund, with RUC rates directly related to the costs of spending on the roads attributable to different types of vehicles, WOULD see such a relationship and mean motorists move from being taxpayers to being consumers of a service – roads.  This would mean more emphasis on consistent levels of maintenance, in improving the network in ways that best support the safety and efficiency of road use, rather than political calculations around popular, but low value large projects.

This has the potential to change how roads are charged for, so that users pay for what they use, but also how money raised from that is spent. A shift towards longer-term guarantees of maintenance funding and a more commercial approach to road management and funding, that sees funding based on long-term revenue forecasts and demand, so that capital spending on roads is user driven, rather than politically driven.  Highway England is an example of how that is done, with a five year funding settlement, from a hypothecated roads fund (from registration fees), it has to deliver set service outputs around maintenance, safety and new projects to enhance safety and reduce congestion. 

Are there enough incentives to buy Electric Vehicles in Australia? Probably not, but that’s a different argument from saying they should get free use of a capital intensive resource that excludes the use by others.  More electric vehicles will reduce CO2 emissions and noxious emissions, but it will not reduce congestion and a transition towards direct road user charging for all vehicles needs to include light vehicles and light vehicles that don’t pay fuel duty are an easy and simple place to start, before developing options for those that do.  This is what has happened in Utah and Oregon, and is being developed in other US states.  It is exactly what should happen in Australia, it is just a shame that the Commonwealth Government has been silent on this, because it will need some co-ordination and common policies. 

Given jurisdictions as diverse as Oregon, Hawaii, California, Washington State, Utah and New Zealand are all on pathways (or already are) charging electric vehicles by distance, some of the hysterical responses in Australia to the concept need to be dismissed, including the bizarre non-sequitur that a state-run odometer reporting system for reporting distance is about "privatisation".

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