Thursday, 6 May 2021

Governor of Pennsylvania commits to phasing out state fuel tax

The Governor of the US State of Pennsylvania, Tom Wolf, has announced on his website that the state fuel taxes ("gas tax") are unreliable and will have to be phased out.  He is understood to be the first Governor of a US state to say this and is possibly the first jurisdiction in the world to have done so. 

The key part of the statement reads as follows:

“Our economy, our communities, and our future rely on a strong transportation system that supports our safety and growth. We have more than $9 billion in annual unmet needs across our state-maintained transportation system alone. At the same time, Pennsylvania is relying too much on outdated, unreliable funding methods, and the federal government hasn’t taken meaningful action in decades,” Gov. Wolf said. “Phasing out the burdensome gas tax, coupled with seeking long-term reliable funding solutions that will keep pace with our infrastructure needs, deserves a close examination. Forming this bipartisan commission will bring multiple, bipartisan voices to the table to ensure that we can examine reliable, sustainable revenue solutions to address both near-term and long-term funding needs.”

In other words, there is insufficient revenue now from the gas tax to meet the state's demands, with the US$9b shortfall estimated to rise to US$14.5b by 2030.  He puts the unreliability of the gas tax down to the rapidly increasing fuel efficiency of vehicles and the rise of new motive power technologies (electric and hybrids) that render the gas tax increasingly unreliable.

It is of course also increasingly unfair. It is only those who can afford to buy a relatively new vehicle who get the benefits of new vehicle technologies, so over time it means those who don't have the financial means to buy such vehicles that would increasingly pay a higher proportion of the gas tax.  This argument has been critical to the success of states such as Oregon and Utah in starting a transition towards distance based road user charging. 

The Governor has announced establishment of a "Transportation Revenue Options Commission (PDF for the executive order), to investigate how to progress away from the gas tax.  It's main responsibilities are to:

  • Study  and  prepare  a  comprehensive  list  of  potential  revenue  sources  available  for  current  and  future  funding  of  transportation  in  the  Commonwealth  for  all  modes  of  transportation.    The  funding  sources  must be reliable, dedicated, inflation sensitive, and adaptive to changing environmental factors; and 
  • Prepare  a  comprehensive,  strategic  Commonwealth  transportation  funding proposal.
This is a wide open mandate, but this should be expected. The modes referred to are not just roads, but also public transport, Amtrak, rail freight and airports/heliports, so it will include public transport fares and airport user charges, as well as the road based options well known on this blog.

So I fully expect Pennsylvania to consider:
  • Tolls on major highways and crossings;
  • Full network distance (and weight) based road user charging;
  • Congestion pricing on congested corridors or at major centres;
  • Motor vehicle registration/licensing fees;
  • Taxes on energy;
  • Taxes on land related to it benefiting from transport infrastructure;
  • Other direct user charges;
  • Non-transport related taxes (sales taxes, income taxes).
The Tax Foundation reports that 56% of Pennsylvania's state transportation tax revenue is raised by the state gas tax, and to replace this with distance-based RUC (also known in the US as Vehicle Miles Tax (VMT) or Mileage Based User Fees (MBUF)) would need to be an average of US$0.08 per mile, but rightfully points out that any such fee would have to vary by vehicle weight.  Heavy trucks should pay much more than that, and cars much less, to more closely reflect their current fuel consumption, or better yet to actually reflect the costs they impose on the network (as is done in Oregon).

Pennsylvania currently has one of the higher state gas taxes in the US at US$0.576 a gallon (that's US$0.152 per litre for the metric world).  In July 2020 it was the second highest, so perhaps it is an admission that it isn't just the rate that is the issue, but the yield. Noting that this is significantly higher than the Federal gas tax at US$0.184 per gallon (US$0.049 per litre) which itself hasn't increased since 1993.

Whatever comes out of Pennsylvania, it demonstrates that there is growing political recognition at the higher levels of government in some US States that the status quo is unsustainable.  It is encouraging to see these emerging on the eastern states, given that the western seaboard states (Oregon, Washington, California and Hawaii) have all embarked on pilot programmes (and in the case of Oregon revenue-collecting) to explore RUC. There are bigger challenges in the east, due to the smaller states and much higher interstate traffic movement, but these challenges can be overcome, since they all face the same issue.

In the long term, the gas tax is not only unsustainable, but is unfair.

Monday, 3 May 2021

Would RUC for EVs harm sales?

With the State of Victoria's announcement of road user charging (RUC) for electric (EV) and plug-in hybrid vehicles (PHEV) there have been quite some claims from various circles about how allegedly damaging RUC could be for sales of such vehicles. 

According to The Guardian:

A coalition of car manufacturers, industry groups, infrastructure companies and environmentalists have branded the Victorian government’s proposed electric vehicle tax the “worst electric vehicle policy in the world”.

The more recent announcement about incentives to purchase EVs should help ameliorate this concern, but it remains a moot point as to whether RUC actually disincentivises purchases of EVs.

The incentives package is as follows:

  • Subsidies for 20,000 EVs to be purchased, of up to A$3,000 per vehicle for vehicles priced under A$69,000;
  • A$19m to be spent on EV charging infrastructure across regional Victoria;
  • A$20m for a zero-emissions bus trial;
  • A$10m to purchase 400 new ZEVs for the State's own fleet;
  • A$5m for a Commercial Sector ZEV Innovation Fund; and
  • A$298k for a study on "EV-readiness" in new buildings.
A report by the ABC (Australia) noted that there are only 7,000 EVs registered in the State of Victoria and 20,000 across Australia (for comparison this is about the same number as New Zealand, which has one-fifth of the population of Australia).

The criticism about the RUC came from an advertisement placed by a group consisting of Hyundai, Volkswagen, Uber, Jetcharge, the Clean Energy Council, Solar Citizens, Doctors for the Environment Australia and the Australia Institute.  

There may be legitimate concern about a lack of adequate incentives to purchase EVs in Australia, and that point is worthy of debate. Luxury car tax imposes a 33% penalty on "fuel-efficient vehicles" with a retail price of A$77,565, and could well be waived for such vehicles as it effectively penalises the mid to larger size EVs.  However, can a RUC of only A$0.025 per km really harm sales of EVs?

The Driven reports on a "preliminary study" from the University of Queensland that claims just that, claiming that it could hit sales by 25%. This report deserves some critical scrutiny. After all, when New Zealand RUC exemption for EVs ends (currently scheduled on 31/12/2021, but it may be extended), NZ (light) EVs will be paying the RUC of NZ$0.076 per km (about A$0.07). In Utah such vehicles are charged US$0.015 per mile (A$0.012 per km) up to an annual cap of US$120 (about A$155). In Oregon they are charged US$0.02 per mile. Hawaii, California, Washington State, Colorado, Minnesota, Delaware and Pennsylvania have all piloted (or are currently piloting) such charges, are they all about to do something that could dramatically undermine EV sales? 

Is RUC factored into the purchase price of a vehicle by consumers?

Jake Whitehead "an electric vehicle research at the University of Queensland who also works on the global stage with the International Panel on Climate Change (IPCC) and the International Electric Vehicle Policy Council" is cited as claiming that Victoria's EV RUC will be "perceived" as a A$4,000 disincentive to buying an EV.  This claim is highly questionable.  The report claims:

It would mean that, for example in the case of the petrol Hyundai Kona which costs $24,300 before on-road costs, the all-electric version would in effect cost $63,990 instead of its manufacturer recommended $59,990 price.

At a rate of A$0.025 per km, it is taking the cost of the RUC over 160,000km as a factor that vehicle purchasers take into account when buying a vehicle.  There is no evidence that this happens anywhere where RUC exists for EVs (or indeed any other vehicles now).  A parallel to this would be that purchasers of petrol powered vehicles make the same comparison when purchasing the car, based on the next 160,000km they drive based on fuel tax alone and the vehicle's average fuel efficiency.  So looking at a new petrol Hyundai Kona (which is actually listed at A$28,990)  its combined fuel efficiency is listed as 6.2l/100 (I'll assume the Smartstream G2.0 Atkinson engine not the Smartstream G1.6 T-GDi).  So for 160,000km it will use on average 9920 litres. At A$0.427 a litre, that means the price of the petrol Kona is "perceived by consumers" at around $4,235 more than the retail price (A$4658 if you include the GST on fuel duty). Who does this? I'd wager that next to no consumers do any sort of calculation like this, based on what taxes they pay on using the roads. Besides, the average car in the state of Victoria travels about 13,838km per annum according to Budget Direct.  So what this really means is that RUC on EVs will be a cost of around A$346 in a year (and for the sake of argument, for the petrol Kona it is A$367).  So the net impact is that the EV is still cheaper to own from a user tax basis.

At best this claim is only half-valid when it isn't compared to the fuel tax paid by other vehicles, but at worst it demonstrates that the real impact is a tiny increment, and certainly much less than the depreciation from simply purchasing the vehicle in the first place.  Note that Whitehead is quoted in the AFR as noting the average annual distance driven is around 13,000, so he is not unaware of this statistic.

Will EV RUC reduce the supply of EVs?

The report claims that a whole host of incentives would increase EV sales, mainly subsidies on electricity, exemptions from other taxes and tolls. However, the report has a series of claims that without seeing the actual paper itself are difficult to completely assess. One is that RUC would effectively mean that manufacturers would "withhold supply" of EVs to the Australian market because they would be "difficult to sell".  The evidence for this is unclear, but there is little sense from EV suppliers that would pull out of NZ when its RUC exemption lapses (and results in EVs in NZ being charged three times what they wil lbe in Victoria).  There is a disincentive for EU manufacturers selling outside the EU when they face penalties for selling internal combustion engine (ICE) powered vehicles (and get credits for selling ZEVs), outlined in this article by the ABC, but it seems unlikely Australia could fully offset this without parallel subsidies. In effect, Australia's market is fighting against governments with deep pockets, and that is a wholly different political issue.

The report claims that "EV owners already pay a significant amount in road taxes under the current model" which for an academic paper is really only a value judgment when it is clear that this "significant amount" is a fraction of what other vehicles are charged. A petrol Hyundai Kona will be charged A$834.80 in registration fees in Victoria, but an electric one will be charged A$100 less.  What the report claims is that they then pay a "significant" amount, when they pay nothing in fuel duty, whereas the petrol Kona will be around A$367 per annum based on average usage.  

What is the basis of this research?

The report from The Driven doesn't contain details of the methodology of the University of Queensland paper.  However, The Guardian in November 2020 did reveal that:  

Whitehead’s study, which has not yet been peer-reviewed and has been released earlier than planned in the wake of the state government announcements, included a survey of 500 Queensland households on their preferences on road pricing.

They found a 2.5c/km tax was seen as being equivalent to a $4,500 increase in a vehicle’s purchase price. By comparison, a $5 congestion tax charged on driving in inner-city areas, capped at $15 a day, was seen as equivalent to adding $2,800.

So the basis for the modelling in this report is a stated-preference survey (which has not been revealed) which has somehow led those surveyed to conclude that they would perceive EV RUC as being around the same as driving 156,000.  This is equal to 11.5 years of vehicle ownership. Do consumers also look at registration fees over that period?  Do they look at maintenance costs or indeed more important than all of these the relative fuel costs vs. electricity costs of a petrol vs. an electric vehicle, over this period?  Sure they will consider it in a shorter term, but over 11.5 years?

Even more absurd is the idea that the study could model a stated preference survey for congestion charging.  If this is seen as $2,800, assuming this is based on a similar period as the A$0.025 of RUC (11.5 years) then it is assumed the average driver enters the congestion zone, 49 times a year.  This is an odd figure, as a regular commuter to such a zone might be assumed to enter around 200 times a year, whereas most other drivers might enter it rarely (in London around half of all vehicles entering its congestion charge zone only do so once every 6 months).  The point then being "so what"? Why would it be a GOOD thing for EVs to be exempt from driving into downtown Brisbane or Melbourne?  They cause congestion, that congestion increases emissions for other vehicles (including commercial vehicles with fewer choices), and Australia's major cities are heavily focused on encouraging public transport and active modes for travel downtown, not cars?  London has announced that the ZEV 100% discount for its congestion charge will be abolished in the end of 2025. Cars generate congestion after all.

In short, the basis for the study that claims that Victoria's A$0.025 RUC would somehow devastate EV sales and emissions targets appears to be flimsy.  It isn't necessarily surprising that automotive companies are happy to go along with these claims, but for a "think tank" to align itself with such research is disappointing.

Conclusion

There is a valid debate to be had about how Australia at state/territory and Federal levels about incentives for purchasing EVs. Victoria's recent announcement seems to clearly indicate that its RUC for EVs and PHEVs is only part of its policy package, and should ameliorate concerns.  However, the case for RUC for EVs is clear, in that it is easier to introduce such a policy when vehicle numbers are low, so that the message that EVs do not get to use the roads for free is clear.  There are obvious benefits for replacing petrol and diesel vehicles with EVs and PHEVs, in terms of improving local air quality and reducing greenhouse gas emissions from vehicle use, but there are also benefits in sending direct road use cost signals to road users in the form of RUC.  This can be lower than fuel duty, and it is a step in the right direction for hypothecate such revenue initially to support capital spending on EV infrastructure and then the road network. Longer term such vehicles can reasonably be expected to be paying their fair share of the total costs of maintaining and developing the road network, and as such not to be cross subsidised by others, nor to have inappropriate signals sent about driving in an urban environment, such as having an exemption from any future congestion charges.




Wednesday, 21 April 2021

Victoria to be the first Australian state to introduce RUC for light vehicles

The Australian State of Victoria looks set to be the first Australian jurisdiction to introduce road user charging (RUC), albeit for light zero-emissions vehicles (ZEV), from 1 July 2021.  Legislation has been introduced to the Victorian Parliament to put this policy into effects which sees the following introduced:

A$0.025  per kilometre (US$0.03 per mile) RUC for zero-emissions vehicles, specifically pure electric and hydrogen powered (and any other zero emission vehicle).  

A$0.02 per kilometre (US$0.024 per mile) RUC for plug-in hybrid vehicles.  Presumably the lower rate for plug-in hybrids acknowledges that they also use petrol (and pay the fuel tax on that, albeit all of that money is collected by the Commonwealth Government, not the Victorian state Government).

The RUC wont apply to conventional hybrid vehicles (those essentially petrol or diesel-electric hybrids fuelled by petrol or diesel).  

The charges will be collected at the time of registration fee collection with vehicle owners asked to supply odometer readings. This represents a very simple approach to collecting this data, and has some parallels with the first RUC pilot operated in the US State of Hawaii, which used odometer data collected at annual vehicle safety inspections to generate mock invoices comparing a RUC with what is paid now with fuel tax (Hawaii is investigating the merits of RUC to apply not only to electric and hybrid vehicles, but all light vehicles).

The revenue collected from the new RUC will be initially dedicated to funding infrastructure to support electric vehicle growth.  Specifically:

This will include new electric vehicle charging infrastructure and reforms to enable electric vehicle ready new buildings.

It is important to note it is LIGHT vehicles only (heavy vehicles are subject to a different pilot programme for RUC being led by the Commonwealth Government in Canberra).  The Victorian Government estimates that these charges are still substantially lower than what petrol or diesel powered light vehicles pay in fuel duty to use the roads.  They are estimated to pay around A$600 a year in fuel duty, on average, whereas RUC should generate around half that.  In other words, ZEVs will still be driving at a discount to use the roads in Victoria compared to conventionally powered vehicles.

What will vehicle owners need to do?

From 1 July 2021, existing ZEV owners have 14 days to lodge an initial odometer reading with VicRoads, and then the distance is reported when the owner updates the vehicle's registration (which can be done annually, half-yearly or quarterly). Odometer declarations need to be supported by "evidence" which is yet to be defined by registration. In US jurisdictions with this system, there is a specific app (VehCon's OdoPhoto for example) to record images on a smartphone and "fingerprint" a vehicle's dashboard to reduce the scope for fraud.  Maybe this will be required? An alternative could be for the telematics system built into the vehicle is used as a platform for an application to transmit such data, but that would require both an application to be developed and installed, and for VicRoads to have a contract with the telematics systems supplier for such a service, which seems unlikely between now and July.  Third-party devices could also be installed to report such data, although again it is unlikely this will be available in the timeframe. Given distance reporting is at the most, quarterly, the need to constantly report trip data doesn't exist. However, some questions remain.

What about distance travelled out of state? Well Victoria will tax you for that, as without any means to identify location along with distance yet specified (although it could be), all distance means ALL distance, including drives to and within other states. This presents an obvious issue if a neighbouring state introduces a similar RUC system which limits distance charged to that within the state.  If a Victorian ZEV drove to South Australia it might face paying a South Australia RUC along with its own.

What about distance travelled off-road? Realistically there wont be much of that, but longer term it will be an issue for vehicles in rural areas on large farm properties or privately owned roads. 

How will enforcement be carried out? Depending on the evidential requirements, there will still be a need to check that odometer reading data is correct, which is not just about fraud, but also inaccuracy (simply misreading the number and reporting it incorrectly).  It is far from clear whether Police might check on odometer readings, but it will depend on the concept of operations developed for reporting readings and verifying them.

What happens when vehicles are sold?  The issue being that if you sell the vehicle and haven't reported distance correctly, who is responsible? The easy answer is caveat emptor, which will require some education of those buying ZEVs to want evidence that RUC is up to date.

What about out of state vehicles? On the face of it, none of it applies to them, so if you have a second address that you can register your ZEV at, outside Victoria, then you might see some advantage in this, but for the sake of a few hundred dollars a year it might not be worth it.  It's not clear how many out of state ZEVs enter Victoria regularly, but it is unlikely to be very low.  Still, you would expect any policy to be able to be future-proofed against the growth of such vehicles over time, and it is not quite clear that it is yet.

Conclusion

Victoria is clearly pre-empting a longer term trend for ZEVs to progressively displace conventionally powered light vehicles, and so it is setting up a new source of revenue from those vehicles.  It wont earn much money, but in ten to fifteen years if the vehicle fleet has 15-20% ZEVs, it will be a sizeable sum that Victoria can use to contribute directly towards road infrastructure costs (and this is money that otherwise might have been collected by the Commonwealth if the vehicles were powered by petrol or diesel). There are questions around implementation, but as the first mover on this, Victoria is starting to shape policy.  It doesn't need to focus on any of the issues above, except enforcement, in the short term, but it seems difficult to sustain a system that charges for all distance travelled by Victorian registered ZEVs, but none for out of state vehicles.  Current rates of ZEV ownership in Australia are so low that this is not likely to present a short-term challenge, especially as distances and infrastructure make interstate driving of ZEVs challenging (although plug-in hybrids are fine), but it starts to look like there needs to be at least some co-ordination between states and territories on this issue in advance of obvious issues such as interoperability, enforcement and out-of-state travel.

Friday, 19 March 2021

The case for road pricing in the UK

(This follows on from a submission to the Transport Committee of the UK House of Commons calling for written evidence on an inquiry on zero emission vehicles and road pricing prepared by a consortium of experts, comprised of Ian Catling, Andy Graham of White Willow Consulting and Andrzej Kowalski, with Steve Morello from Milestone Solutions (as am I))

The primary reason there is any political interest in road user charging in the UK today is fiscal pressure.  However, there is a wider economic, social and environmental case for moving towards road pricing, not least because existing charging mechanisms are very poor at sending price signals to road users about vehicles use.

The revenue case

As the UK vehicle fleet transitions to more fuel efficient engines, including all types of hybrids and electric vehicles, and this accelerates due to the looming ban on sales of new internal combustion engine (ICE) powered road vehicles, fuel excise duty revenues are in decline as fuel consumption per mile driven drops.   The UK Office of Budget Responsibility’s last published forecast of fuel duty revenue was in March 2019, when it forecast that fuel duty revenue would fall by 0.1% of GDP by 2023/2024 (from 2018/2019), that assumed that fuel duty would rise by inflation (Retail Price Index) from 2020/2021, which has just been stopped by the Chancellor of the Exchequer.  

A report by the Institute for Fiscal Studies in October 2019 looked at fuel duty and made a number of conclusions.  

Fuel duties have a roughly equal impact (as a share of spending) across the income distribution, but among car owners make up a greater share for lower-income households. For nearly one household in twenty, fuel duties (and the VAT on them) make up a tenth of their total non-housing budget and for many driving is a necessity, one reason why this is an unpopular tax. 

There is a long term trend of reducing road transport emissions, with emissions having dropped 4% in 25 years, despite considerable growth in demand, but the UK Government announced last year that sales of new petrol and diesel light vehicles will be banned after 2030, with hybrid vehicles only permitted to be sold until 2035.  This is expected to have a significant impact on the fleet during the next decade.  In 2018 only 6% of vehicles sold were “alternatively fueled” (electric or hybrid), but in 2020, despite a 29% decline in sales due to Covid19, the share of sales by electric and plug-in hybrid vehicles increased to a 10.7% share, with conventional hybrids as another 6.8%.  This compares to 3.1% for electric and plug-in hybrids in 2019, and 4.3% for conventional hybrids.  Although a true picture wont be clear until there is a year without Covid19 dramatically hindering the economic, the trend away from conventionally powered vehicles is clear. It indicated that revenue from fuel duty will progressively disappear in coming decades and that the time to address this is now, as it will become increasingly difficult to replace this revenue if a high proportion of the fleet becomes vehicles that are not subject to any form of charging for road use.

Around £28 billion a year is raised from fuel duty and another £6.5 billion from vehicle tax (formerly called vehicle excise duty).  Some argue that fuel duty is a good way of recovering the monetised social costs of road vehicle use, but it simply isn’t. The IFS noted that although the social costs of car use were estimated to be £0.169 per kilometre in 2015, 78% of those costs are generated by congestion, with only 7% of those costs attributable to either climate change or health impacts of noxious emissions.  The average amount paid per vehicle per km is around £0.07, but if most of the other costs are congestion then it’s worthwhile to ask some serious questions as to whether fuel duty is an effective way of recovering those costs.

Fuel duty is arguably a good tax to charging for CO2 emissions, and an acceptable tax for noxious pollutants, but it is an awful way of charging for congestion, not least because it charges all vehicles the same regardless of where or when they are being driven.  

The IFS noted that the most congested roads (London A Roads) have marginal congestion costs of around £0.80 per km, but comprise only 3.5% of all trips in the UK. By contrast, 23.2% of all road trips are on rural A roads, but the congestion costs are only £0.026 per km.  Fuel duty charges vehicles based on fuel consumption, which varies by engine type, driving style and road conditions, but not by that extent.  Furthermore, those costs vary by time of day.  The IFS noted that congestion costs at weekday PM peaks are on average nearly four times as high as offpeak.  However, this is all academic for electric vehicles as they pay no fuel duty and so do not arguably pay for any externalities.

So for around half of all car trips, fuel duty over recovers the social costs of driving, with this over recovery disproportionately affecting driving in rural areas and at off peak times.  If you usually drive in London at peak times then fuel duty is “too cheap” (and the chronic congestion in usual conditions reflects this), but if you usually driven in rural areas at most times, or in regional towns and villages outside peak periods then fuel duty is “too expensive” as a tax.  However, what is the point of taxing congestion if it has a negligible impact on it at all?  Much earlier work on the effects of fuel duty on overall driving demand indicated an impact of about 10% on total vehicle kilometres driven.  This isn’t insignificant, as it assumes that if fuel duty were abolished, there would be around 10% more road travel, but this is exactly how electric vehicles are treated today.  Electric vehicles contribute nothing towards road maintenance, or any other externalities, and they are the future.

Fuel duty has only three advantages: it is very cheap to collect, difficult (although not impossible) to evade and does effectively target CO2 emissions.  However, it is blunt, it does not reflect the wide range of variations in congestion costs and is inequitable, as for many motorists it means they are charged too much to use the roads.  

IFS concluded: 

Alternative taxes will be needed to ensure the social costs of motoring are reflected in the prices people pay. The government should take the opportunity it has now to set out both its long-term strategy for taxing motoring and how it will get there. There is a window of opportunity to do this quickly, before revenue from fuel duties disappears entirely.

The wider policy case for road pricing

If it were just about revenue, the simple answer to the end of fuel duty would be to tax vehicle ownership.  This would mean that vehicle owners would pay thousands of pounds every year to register a vehicle, regardless of how little or how much they use the road network.  This would obviously have a negative impact on the road network, as it would mean those that use the roads the most are cross-subsidise by those that use it the least, so any replacement of fuel duty has to be a charge on using the roads.  It means embracing the user-pays principle and linking what is paid to the costs of what is being used.

Road pricing or road user charging can be used to link paying for the road to a number of factors such as:

Road infrastructure costs, which vary somewhat by location, but also vary considerably by vehicle type and weight (in particular, heavy vehicles generate exponentially more wear and tear on the network than cars do, but noting that around half of all road maintenance costs are attributable not to road use, but simply the effects of the climate (sun, rain, snow and temperature changes) on road structure).  Charges can vary by vehicle type and configuration (as is done in many countries for heavy vehicle road user charging).

Congestion.  This is a factor of both location and time of day, but road pricing can allow for charges by those factors, to help encourage changes in road demand.  This could be to change time of travel, mode of travel or route.

Environmental factors.  Road use might be charged based on emissions or by location to reflect the environmental sensitivity of a specific location (to deter its use for through traffic). 

What determines what road pricing is used for are the other policy objectives that politicians want to apply beyond simply raising revenue.  The submission suggested the following:

• Reducing emissions and carbon impact, and improving other environmental outcomes (including supporting transition to EVs)

Road pricing, even if it replaces fuel tax, can be structured to reduce emissions and support better environmental outcomes.  The simplest way to do this is to have charge rates that vary by Euro engine rating as is commonplace for HGV charging schemes in continental Europe.  This could be applied to all vehicles, and incentivise zero-emission vehicles (without making them exempt) and disincentivise the highest emitting vehicles.  There is some evidence that this approach has been successful in Germany in driving greater use of Euro 5 and above rated vehicles on motorways.  

A more complex approach would use location and time of day to incentivise more environmentally behavour.  Congestion pricing in itself would have environmental benefits in reducing emissions through better traffic flow, but location based charging could also see higher charges for driving on roads which expose people or sensitive ecosystems to higher environmental impacts.  This could encourage changes in route or mode, and combined with differential charges for vehicles based on emissions.

Emissions could be reduced by having preferential rates for lower emitting vehicles compared to others.  Zero-emission vehicles could be charged less than those with low-emissions which are also charged less than higher emitting vehicles.  Just because road pricing might be introduced doesn’t mean there cannot be higher charges for the most polluting vehicles.  

 • Delivering a better level of service for all road users (to give a secure funding stream to address the maintenance deficit and reform highway governance to be more accountable to road users)

A better level of service could be achieved by more fundamental structural reform in how highways are funded and managed. Revenues from road pricing could be dedicated to funding road maintenance on a long-term basis, much like revenues from water and energy bills are dedicated to funding their relevant network infrastructures. Highway governance could be reformed (perhaps following on from the relative success of Highways England as an independent professional highways manager led by meeting performance targets informed by what users want), and the long-standing maintenance backlog with roads (particularly local roads) could be addressed by a sustainable programme of improvements. There are unseen costs to poor road maintenance, in safety (particularly for pedestrians and cyclists), delays, higher fuel consumption and in some cases detours (especially for heavy vehicles facing weight restrictions on life-expired bridges). All road maintenance should be on a long-term performance-specified basis, so highway contractors can establish economies of scale and the staff with professionals on a long-term basis, like with energy and telecommunications contractors, rather than rely on ad-hoc politically driven pothole funds, which literally patch up a problem that arises from the governance model for roads. Road pricing can link the user to the provider, and enable those structural issues to be addressed and for funding above that to be available to deliver the many high-road improvements needed to address road safety blackspots, congestion bottlenecks and access issues on parts of the network, informed by user demand.

The primary objective would be to put all roads on a sustainable long-term funding basis, linked to what users pay and users needs, economic efficiency and be able to more dynamically respond to changes in vehicle and traffic trends, which vary considerably across different communities.  A hypothecated roads fund, with an independent regulator to allocate funds and monitor how they are spent by highway authorities could form the basis for this.

 • Better managing congestion, or distributing it across wider time periods, places and routes

Congestion may be much better managed if road pricing includes measurement of trips by time of day and location, as congestion pricing may be introduced strategically on parts of the road network. Rather than blunt cordon/area charge schemes as have been introduced in London and proposed for other cities, congested corridors may be charged a higher per mile rate at peak times, with small increments, and charged less off-peak, encouraging motorists to change trip times, route or mode of travel.  No other single policy measure would be more effective in reducing congestion. Although network wide road pricing with time and location would require a lot of vehicles to be equipped to measure road use by such factors, the benefits in reduced congestion could be dramatic, with much of the impact coming from changing time of travel as prices during off peak periods could be commensurately lower, so that overall the same amount of revenue is collected, but with much less paid by drivers in rural areas or during off peak times. The congestion reductions would automatically increase the capacity of bus networks, as buses would not be trapped on congested roads so could undertake trips more quickly, and more frequently, and so be able, in part, to meet higher demand for their services.  However, to do this would require a much bolder step technically than just introducing a per mile charge, which would take more time and at greater cost.  The policy question is whether to do this at the same time as introducing a distance-based charge or to leave it as a subsequent step.

If road pricing includes location and time of day (which would require the use of GNSS telematics either built into vehicles, installed or reliably linked to a vehicle through a smartphone) then it could vastly reduce congestion on UK roads. Studies from 15 years ago indicated that a good national road pricing system could HALVE congestion in the UK.  It is not economically efficient to price all congestion off the roads, because some congestion is due to bottlenecks in the network that haven’t been efficiently relieved (e.g. London’s North Circular Road has three locations where capacity significantly reduces compared to the adjacent section of road), but also it is likely to be efficient to allow some reduction in level of service at peak times, as long as it ensures optimal flow of traffic.  The M25 may function more efficiently at 50mph than 70mph at peak times, so there is no need to price it to sure a consistent 70mph speed of travel.  

The management of congestion should be understood as not being about pricing trips off the network, but rather a mixture of behavioural responses:

Most motorists will continue to drive as they do now, paying for a better level of service than they get now. Experience with sophisticated congestion pricing schemes, such as Singapore, indicates perhaps 70-80% of trips do not change;

Some will change time of travel, to a cheaper time with more spare capacity. Around half may do this;

Some will change route, as in some cases the congested route is parallel to less congested alternatives;

Some will change mode of travel, dependent on the convenience, cost and speed of an alternative mode;

Some will choose not to travel at all, which may mean fewer trips, but the same tasks undertaken by those fewer trips (logistics companies already seek to do this, but it might mean some people plan appointments together on one day rather than on multiple days).

 • Better recovering road user costs from foreign vehicles as well as UK vehicles

Road user costs from foreign vehicles are only partly recovered now from vehicles over 12 tonnes with the HGV Levy.  Road pricing could enable all foreign vehicles to be charged, and for the flat HGV Levy (which is a charge on the number of days a foreign lorry can access UK roads) to one based on actual usage.  By enabling interoperability with systems in continental Europe (at least for heavy vehicles as there are no light vehicle network road pricing systems in continental Europe so far), then foreign vehicles could be charged per mile for using British roads on the same basis as UK vehicles.  This avoids the trend for some to refuel outside the UK to avoid the UK’s higher fuel duty.  Longer term care will be needed to address concerns if the UK has abolished fuel duty but neighbouring countries have not, but this effect is nullified somewhat if road pricing has equivalent costs.  Filling up on fuel in the UK might be cheaper, but to actually USE UK roads for that purpose will be more expensive, and it will still only be an activity undertaken if there is business in the UK (notwithstanding some potential issues with the Irish border).  

• Digitising highways – making the most of the rich seam of anonymised data from connected vehicles for improved network management, road safety and network planning

Road pricing has the potential to more digitise how highways are managed, by providing an extensive amount and breadth of anonymised data from road users to improve network management, predict maintenance requirements and schedule works.  From the timing of road works, to the provision of information to road users on diversions through to information about the number and average weight of heavy vehicles using roads (and how that affects maintenance) can make the highway network as a whole run more efficiently by delivering operational and asset management savings over time.  Increased data about congestion and what sorts of vehicles are affected by it can help inform interventions to alleviate congestion, or choices about allocation of road space.  For example, what would be the impact of reallocating road space to cycling and pedestrians, as to what types of road users are affected, and how pricing itself might target congestion.

• Other policy objectives, e.g., supporting walking and cycling, modal shift, levelling up costs of travel

Finally, by having road pricing, there is a pricing tool that can be used to meet a range of other policy objectives.  For example, it could discourage short motoring trips to help promote walking and cycling, or it could price differently if there is a lot of spare public transport capacity in parallel.  Pricing offers flexibility that doesn’t exist with fuel duty, albeit the greatest flexibility will need more sophisticated systems capable of measuring distance varying by time of day and location.

Tuesday, 23 February 2021

Submission to UK Inquiry on road pricing

On 18 December 2020, the Transport Committee of the UK House of Commons called for written evidence on an inquiry on zero emission vehicles and road pricing.

Leaving aside zero emissions vehicles (of which I am not so much of an expert), the road pricing elements were of interest.  The terms of reference had the following questions:

  • The case for introducing some form of road pricing and the economic, fiscal, environmental and social impacts of doing so;
  • Which particular road pricing or pay-as-you-drive schemes would be most appropriate for the UK context and the practicalities of implementing such schemes;
  • The level of public support for road pricing and how the views of the public need to be considered in the development of any road pricing scheme;
  • The lessons to be learned from other countries who are seeking to decarbonise road transport and/or utilise forms of road pricing.

I was part of a consortium of experts, comprised of Ian Catling, Andy Graham of White Willow Consulting and Andrzej Kowalski, with Steve Morello from Milestone Solutions (as am I).  The next few blog posts will be about that submission and elaborate further.

I lived in the UK from 2005 until 2019, so have extensive experience with transport and highways policy in the country, and still have a personal interest in the UK.  The UK notably embarked upon and then abandoned a radical programme called "National Road Pricing" between 2005 and 2009, failing due to enormous public and political backlash.  The lessons learned from that attempt need to be heeded again, although technology has changed much in that time, not just for road pricing, but in vehicle motive power technology.  

Background

The UK Government is looking at road pricing for one reason, revenue from fuel duty is in decline because of the switch towards electric and hybrid vehicles, and the ongoing improvements in fuel efficiency of petrol and diesel vehicles.  It’s worth noting that this revenue is treated as general tax revenue in the UK, unlike fuel duty in many other jurisdictions (notably the United States at Federal and State level).  It is important to note that the policy motive comes from a desire to protect general tax revenue, not tax revenue to pay for road maintenance and capital spending more specifically, but the tool being looked at is one generally used to do the latter, although some jurisdictions that hypothecate fuel taxes for transport do so for modes other than roads.

I’ll write more about this in the coming weeks, but for now I want to summarise the six key messages:

Get your objectives clear from the start

Given the primary objective of this exercise is to consider the value of road pricing to raise revenue, it’s important to consider what transport policy outcomes politicians want from introducing road pricing.  If it is simply about revenue sustainability from user pays, then scheme design can be simpler than if it is intended to address congestion.  However, as a tool the introduction of road pricing can be undertaken to be simple at first, but with flexibility built into it to meet other objectives.  Don’t try to do too much at once.

Public acceptability is critical

The UK’s National Road Pricing programme faltered after one of the first online petitions to Number 10 saw over a million signatures in opposition to a policy to introduce time/distance/place based charging.  The reason being that the British public did not accept the need or desirability of the concept, not least because many feared they were to be taxed again with little benefit for them (reflecting the many years that fuel duty increased with the infamous “fuel tax escalator” which increased fuel duty by beyond inflation – all of which was simply general revenue for the Exchequer.

For public acceptability to even begin to exist in the UK, talk of road pricing has to be about replacing fuel duty and largely vehicle tax and the HGV levy.  The public will not accept road pricing on top of existing taxes.  Secondly, road pricing must deliver value to road users, as seen in how at least some of the money is used, such as by addressing comprehensively the backlog of deferred road maintenance and providing a steady schedule of high value road projects to be delivered. Thirdly road pricing must include user choice, whether it be in the technical solution to measure and report distance data, but also the entity a motorist uses to have and to pay a road pricing account.  If roads are going to be much more like other utilities, then paying for the roads ought to learn the lessons from those experiences – competition, choice and consumer interests are important.  One way to develop public acceptability would be a demonstration programme not of technology, but to test the public’s experience of what it would be like to pay by mile instead of paying through fuel.  There is extensive experience in the United States of this that the UK would do well to heed.

Keep it simple and don't try to do a "Big Bang" introduction

Keep it simple by avoiding gold plating requirements (don’t seek to try to implement too many policies at once – it should be about charging by mile, by vehicle type, on public roads) and do not try a Big Bang approach. The National Road Pricing programme sought to do too much in one step, by applying to all vehicles and charging them by road type and time of day.  It would be lower risk to introduce pricing to one type of vehicle first,  such as Heavy Vehicles (replacing the HGV Levy and fuel duty for them) or electric vehicles.  Experience in New Zealand, Oregon and in some European countries indicates that starting with heavy vehicles may make it easier to move to light vehicles subsequently, as heavy vehicles are more complex and need a more complex rate structure (taking into account changes in configuration).  Heavy vehicles and electric vehicles may make sense as the first groups to transition, followed by hybrids and then newly registered conventional vehicles, with a transition that may take some years.

Use proven technologies and systems, but don't treat it as just another IT service.

There is no need to reinvent the wheel.  The time for treating road pricing as bleeding edge technology is long over, as multiple jurisdictions have proven.  However, it isn’t just another IT service, so don’t just treat it as buying an IT and billing system.  Road user charging involves reliably and consistently identifying a chargeable vehicle, metering its use of a geographically defined (and vast network) and billing it accordingly (and enforcing it).  Experience in many jurisdictions should be brought to bear in designing the system, by specialists who know how it works from years of actually operating systems.  Note that no jurisdiction to date has introducing road user charging for all vehicles on all roads, but a few have applied it to some vehicles on all roads.

Let competition drive innovation and user choice

Let the market provide innovative competitive customer service options this could range from a plain, simple account to an account that provides a platform to pay for parking, pay-as-you-drive insurance, roadside assistance and other related services.  There shouldn’t be a government mandated single box and account, but rather allow road user charging to be just another service that is offered.  This reflects experience in countries like Belgium, Hungary and New Zealand. 

Use this as an opportunity to reform the UK highways sector more generally

Highways England was a good start, but this should take things much further as it applies to all public roads and should move roads away from the current panoply of central government funds supported by council tax, to a more dedicated and accountable system of funding all roads from a user charge.  It should mean that users get a better level of service, that maintenance is prioritised and maintenance happens at times that minimise disruption to road users.  It should mean delivering objectives around reducing congestion and improving safety, and a dedicated funding stream available to ensure the road network enhances accessibility.  It should mean an end to ad-hoc politicised funding of roads driven by central and local politicians wanting to make names for themselves, rather than meeting the needs of those who are paying.