Iceland likely to be first European country to introduce RUC for light vehicles

Few remember Iceland when discussing experience in road user charging (RUC) in Europe, perhaps because it is an island (and so has virtually no foreign vehicles visiting), and it is also not a member of the European Union (but then neither are Switzerland or Norway). 

Iceland has had for many years a RUC for heavy vehicles, in the form of a fairly simple weight-distance charge on vehicles with a maximum allowable mass of ten tons or greater.  In 2008, it raised IKK1.083b (US$7.8m).  

RUC for EVs and plug-in hybrid vehicles

However, Iceland is about to leap ahead of all other European countries in being the first to implement a nationwide distance-based RUC for electric, plug-in hybrid and hydrogen vehicles from 1 January 2024.  Consultation on a draft Bill (Icelandic only) to implement this charge has recently closed. Iceland Monitor reports that the fee will be ISK6 per km for electric and hydrogen powered vehicles (US$0.043 per km or US$0.069 per mile), but hybrids will be charged only ISK2 per km (US$0.014 per km or US$0.022 per mile), to reflect that they continue to pay fuel taxes. 

Iceland has had a significant growth in electric and hybrid vehicles, with 85% of new light vehicles sold in Iceland in 2022 being electric or plug-in hybrids.  This reflects a VAT exemption for such vehicles, and other very low taxes. 73% of Iceland's electricity comes from hydro-power and almost 27% from geothermal energy, so electricity prices in Iceland are immune from international commodity prices.  Nearly 20% of all cars in Iceland are either electric or hybrid of some form, so the impacts on fuel tax revenues have been considerable.

So Iceland will have surpassed the rest of Europe as no European country has so far mandated or even agreed to introduce some form of distance-based RUC for any light vehicles at all. 

RUC for all vehicles

This isn't the end, as the Icelandic budget indicated that the introduction of the new fee will be monitored in 2024 with an eye to applying it to ALL vehicles under ten tons, and to review the future of taxation of petrol and diesel. This had led to speculation that Iceland could put all vehicles on RUC and reduce or abolish fuel taxes used to fund the transport system. If it does so, then it will be a world-leader in transitioning from fuel taxes towards RUC, and so shifting from taxing energy to taxing road use.

Reactions in Singapore to ERP 2.0

Following the announcement of the roll-out of ERP 2.0 in Singapore (using GNSS-based On Board Units for congestion pricing), there has been some comment in the media in Singapore about the new system and policy around it. Some of this is likely to be relevant to other jurisdictions considering mandating such technology into motor vehicles.

What do motorists and car dealers think?

The Straits Times published an article on 25 October by Lee Nian Tjoe on what motorists and car dealers think.

Dealerships generally said that they were ready for the rollout, as some had been establishing how to conceal wiring and have the equipment installed in their vehicles, but some still were awaiting information...

Ms Tracy Teo, marketing director of Komoco Motors, which represents Hyundai, Jeep, Ferrari, Maserati and Alfa Romeo in Singapore, said the company is awaiting information and instruction from LTA on the next steps.

One of the key issues is that getting such equipment installed in a wide variety of makes and models may present challenges for some varieties of vehicles. 

Comments from members of the public approached by the journalist were largely questioning with some concerns, such as the location of the OBU on the side of the passenger footwell.  One objected to the system having capability to have stored value cards inserted given how technology had moved beyond that. 

The article describes how a fleet operator was used to test installation of 500 devices in a pilot.

Should it have been rolled out in the first place?

A second article from the website Techgoondu is critical of the new system.

Author Alfred Siew describes it as:

the unwanted rollout of a costly project that has taken nearly 20 years to complete, if you count its early efforts. It is clearly outdated and inconvenient for users. Many questions have already been raised about this “next-gen” ERP 2.0 unit when it was unveiled two years ago. Most damning was why it was even necessary.

Part of this is unfair, as it is not a 20 year long project, but it is certainly was being thought about 10 years ago. Singapore needed a new system because "ERP 1.0" was creaky and obsolete, and needed replacement.  It would have been cheaper to go all ANPR (Automatic Number Plate Recognition) based, but certain features would not have been available, and it could have simply been an update of the current technology.  However, Siew notes correctly that the "next-generation" features around traffic information are largely available through apps such as Waze.  Smartphones are able to be used as the in-vehicle display is optional, so the question becomes what it would have taken to make smartphones work?  The key issues around reliability and linking it to the vehicle remain, but this is being trialled in Brussels now.

Siew describes the system as old technology, with the stored-value cards which are increasingly obsolete and an in-vehicle display reminiscent of pre-smartphone navigation systems.  Of course many cars have automaker installed telematics with some key elements of the ERP 2.0 system included, although not available for congestion pricing applications. Making Original Equipment Manufacturer (OEM) telematics systems available and suitable for road pricing is perhaps the "rosetta stone" for ubiquitous road pricing in the future.  Unfortunately efforts to do this so far have been very limited across the globe.

Siew finally criticises it for being a system with the capability to introduce distance based charging, but that capability is not to be used as of yet.  That doesn't mean that it won't  be and it is entirely understandable that a policy decision to do that would not be announced until the entire system is installed and proven, but unless it is used, it seems like an expensive solution to what is just an effort to replace an old system with one with less intrusive roadside infrastructure.

Of course LTA had signed the contract for the ERP 2.0 system some years ago and became committed to the project, so it had to be rolled out.  Hopefully it will all prove to be worthwhile and operate successfully for many years to come.

Distance-based pricing is unlikely anytime soon

Newspaper Today online published an article by Loraine Lee on 25 October saying that it was unlikely LTA would implement distance based pricing soon.

Key issues identified were:

• How to apply it equitably, including the future of fuel taxes and vehicle registration/ownership taxes, so that those that travel the most are not paying disproportionately compared to what they do now.  
• Questions over the location accuracy of the technology in parts of Singapore with tall building, and with tunnels (the latter is not a real issue, as systems elsewhere can clearly note when vehicles travelling on a road disappear and reappear at another location, that they must have been in the tunnel on that route). 
• Need to consider the wider impacts of a shift towards distance-based charging on some road users.

The accuracy issues can certainly be addressed, as they have been in other GNSS-based road user charging systems in Europe, the United States and New Zealand, but the policy issues about Singapore's mix of taxes require some further work to disaggregate.  Clearly fuel taxation will be eroding due to the emergence of electric and hybrid vehicles, and a shift from ownership based taxes to usage based taxes is likely to increase car ownership, but reduce distance travelled by car and congestion, so some modelling will be needed to forecast the impacts on Singapore's traffic (and vehicle fleet size).  

The key point is the new system will provide options, and it would be a poor use of the technology to not have some form of distance based charging or at the very least use it to implement more 'virtual gantries' for pricing.  

Time will tell whether other cities will copy Singapore technologically (they should copy parts of it in terms of pricing policy), my suspicion is that the inclusion of a slot for stored-payment cards is unlikely to be replicated, nor is a in-vehicle display, but the core of the technology still has merits.  The options for using GNSS-technology for congestion pricing are:

• Purpose built OBUs for professional installation in vehicles
• Scaled down "self-installed" OBUs
• OEM telematics 
• Smartphones

Singapore has chosen the first, we will see if the next GNSS-based congestion pricing system selects an alternative.

Singapore launches ERP 2.0... finally

The Straits Times reports that Singapore has, finally, announced to roll out of its ERP 2.0 On Board Units (OBUs) over then next two years. Starting in November 2023, fleet operators will get OBUs installed in their vehicles, and from no later than April 2024, new vehicles will have the new OBUs installed.  Remaining vehicles in Singapore will be required to have the OBU installed based on date of registration over the subsequent two years.  

Installation is estimated to take three hours for a car.  All motor vehicles in Singapore will be required to have the new OBUs, including motorcycles (which have a smaller single unit OBU).  Installation will be free of charge if done within a two month window specified by the Land Transport Authority (LTA) (notified to the registered vehicle owner in advance). 

Payment options will remain the same including direct debit of credit or debit cards, or use of prepaid stored value cards (which can be inserted into the base unit of the OBU).

The car unit is in three components:

• Processing Unit
• Antenna Unit
• Touchscreen Display

The image below is the official depiction of the ERP 2.0 installation.

Singapore ERP 2.0 OBU for cars

The touchscreen display is optional, as motorists can choose to use their smartphone which will deliver road pricing and traffic data through a choice of three apps. 

The report notes why the LTA did not choose smartphones as the processing devices:

• Security for real-time charging transactions from prepaid stored value cards
• Reliability, given the range of smartphone models and operating systems available (including older models)
• Concern over ensuring whether an app is functioning, the smartphone is sufficiently charged and is connected to the mobile network.

Singapore's highly intrusive ERP gantries will not be removed until the installation is completed, after which they will be progressively removed and replaced with signage, and in some cases Automatic Number Plate Recognition (ANPR) cameras for spot enforcement (and to ensure ERP 2.0 devices are not malfunctioning). 

Importantly, Singapore has no plans to change its policy on road pricing, and plans to keep charging at specific points on the network as it does now.

More details are available here on the LTA website.

The installation of ERP 2.0 is three years later than originally planned by the Singaporean Government. It had been delayed by a combination of the effects of the Covid 19 pandemic, and subsequent chip supply shortages hindering the production of the new system.  In 2016 I wrote that Singapore was planning to have the new system up and running by 2020.  It is unclear if the budget for the system S$556m has been exceeded as a result.

What it does mean is that Singapore can be declared as having the world's first GNSS-based congestion pricing system.  It has the flexibility to charge by distance, but also the flexibility to introduce "virtual gantries" anywhere in the network, and with the installation of OBU 2.0 as compulsory, it means there needs to be only small-scale enforcement of whether the devices are installed and functioning, unlike cities with many vehicles visiting from other jurisdictions. Foreign vehicles in Singapore without an OBU are charged on a per day basis for the time spent in Singapore, at a rate of S$5 per day, regardless of the extent of use of ERP charged roads. 

Singapore's OBU 2.0 may provide a benchmark for other cities, although the need for three hours of installation time, and at least two components, is likely to be seen as expensive and intrusive for many other cities. Nevertheless, Singapore still remains the gold standard of congestion pricing systems internationally, and it remains notable that in a city-state that has relatively low levels of evasion and little difficulty in enforcing traffic offences, that it continues to be sceptical of the reliability and security of using smartphones for road pricing.  This might reflect the commitment it had already sunk into the new OBUs, but it has accepted the use of smartphones as a customer interface and information system.

This video has been published by Channel News Asia (of Singapore) about the new OBU:

Victoria (Australia’s) electric vehicle road user charge ruled unconstitutional

In a landmark court decision, the High Court of Australia ruled (in a narrow 4-3 ruling) in the case of Vanderstock & Anor v State of Victoria, that the Zero and Low Emission Vehicle Distance-based Charge Act 2021 is invalid under Section 90 of the Constitution as it imposes a duty of excise.  The charge was known as the ZEV in Victoria.

This effectively means Victoria’s distance-based road user charge (RUC) for battery-electric and plug-in hybrid electric vehicles is illegal.  The basis for the decision is interesting, as it appears to be that:

The charge was deemed by the court to be “a tax on goods because there is a close relation between the tax and the use of ZLEVs, and the tax affects ZLEVs as articles of commerce, including because of its tendency to affect demand for ZLEVs”. 

If I put my legal hat on (I am a lawyer), this is quite an interpretation, as it seems to regard the charge as being an excise because it affects demand for zero and low emission vehicles. This blog is not the place to debate the legal arguments, indeed the dissenting judgments amply raise the key issues.

The obvious policy question is if a charge of A$0.028 per km on the use of zero emission vehicles is an excise because of its "tendency to affect demand for ZLEVs”, and if the tax (it was critical that it be deemed a tax, and not a fee for services) is a tax on goods, is not the annual registration fee (which is A$876.90 (US$553) for a car in a metro area of Victoria) similar? It is effectively a tax on being able to use the car.

However, the court has ruled, and it does beg a wide range of questions both at the strategic policy level around charging road vehicles to use roads in Australia, and the effect the decision has on the options to do this.  At a basic level there are two points:

1. The Victorian ZLEV tax as it was designed is unconstitutional: This was a mandatory charge, that had no option (as applies in some states in the US) to pay a flat annual fee instead, which only applies to a small proportion of light vehicles.  Would a tax that had another option be legal? Would a tax that applied to all light vehicles be legal, including one that might largely replace registration fees (so may have a neutral effect on demand for light vehicles as a “good”)? Would it have been legal had the Department levied it as a fee based on costs of providing a service, rather than as a tax? 

2. The Commonwealth can levy a tax charge such as the ZLEV, but only across all of Australia: If it were policy, the Commonwealth could pass legislation requiring all electric vehicles in Australia to pay a per km RUC.  Similarly, could it apply it to all light duty vehicles? Arguably fuel excise duty does that now, but fuel excise duty strictly speaking affects demand for the fuels that are taxed, if you consider the definition applied by the High Court.

What happens next is obviously going to be a matter for the Victorian Government to consider, and indeed given both New South Wales and Western Australia have legislated for their own RUC systems to apply to electric vehicles from 2027, they will have an interest (along with all other States and Territories).  Is it possible for them to design a road user fee, based on provision of a service (roads as a service) and the costs of providing it?  If so, how could that be legally drafted without simply empowering a road manager to implement such a fee? Could it be applied across all road managers in Victoria? There are 79 local road managers and at least 1 state road manager in Victoria.

Victorian Premier Tim Pallas argued that it was about “fairness” and noted that electric vehicles were heavier and contributed more to “road degradation”. That latter point is highly questionable, but also not really relevant.  The difference in weight between types of light vehicles makes very little impact on road wear, as most road wear and tear arises from the effects of weather and temperature, and the passage of heavy vehicles, not vehicles weighing < 4.5 tonnes.

The Commonwealth Government might be expected to have a view on the future of charging electric and other light vehicles for road use, as it was supportive of the plaintiffs. It would be reasonable to expect a policy position to be expressed in the coming months either to advance investigations in how RUC might be implemented for electric vehicles across Australia or to defer considering it until they are a larger proportion of the fleet. Ultimately it cannot be avoided, and it is in Australia’s interests to have a single coherent strategy to charging vehicles for using the roads, as it affects the sustainability and future of fuel excise duty.  I hope that decisions are made in coming months for the Commonwealth to investigate pathways towards transitioning how light vehicles pay to use the roads, and alongside that, how revenue collected from them can be managed and efficiently distributed.

It's important to note that the Commonwealth already has a clear role regarding how heavy vehicles are charged for road use.  Part of fuel excise duty is legally called a Road User Charge, which is what heavy vehicle pay to use the roads.  Owners of such vehicles are entitled to refunds of the remainder of fuel excise duty when being driven on public roads (and to receive a full refund when driven off public roads). The Commonwealth has already been piloting options for a long-term transition from fuel excise duty and (State and Territory collected) registration fees towards paying by distance and weight. There is already some knowledge and understanding of the relevant issues within the Department of Infrastructure, Transport, Regional Development, Culture, and the Arts (DITRDCA).

Could States and Territories design a RUC that is not illegal?

It might be theoretically possible to design a light-vehicle RUC at the State and Territory level that does not come within the definition of excise, as indicated in Vanderstock & Anor v State of Victoria.  Some of the characteristics of such a fee could include:

• It is a fee based on consumption of a service, not a tax. This affects how it is collected and how it is enforced.
• A fee that replaces another charge (aiming to be revenue neutral), such as replacement of registration fees. Arguably this would not affect demand for the “good” if it replaces a different type of tax. 
• A fee that applies to all types of (light) vehicles, which is also a replacement of registration fees, so it does not affect demand for one type of vehicle.
• A fee that does not apply to consumption out-of-state. Victoria's tax applied to distance travelled anywhere on public roads, making it more difficult to claim that it was about consumption.

I suspect States and Territories might investigate such options, if they are determined to implement a form of RUC, but there may be a preference to simply leave it to the Commonwealth. Motorists are likely to prefer this, but the political will to do it will depend on one government taking a chance (and needing to work with the State and Territory Governments, all of which control motor vehicle registers essential to making it work), rather than eight separate entities doing so.   

What does the Commonwealth need to consider?

Clearly the basis for having the Commonwealth proceed is that it is Commonwealth revenue being eroded by changes in vehicle technology. Given work already underway investigating RUC for heavy vehicles, it would make some sense to have a unified approach, which co-ordinates with States and Territories.

A wide range of issues would need to be considered including:

• What types of vehicles should first be moved onto RUC? Just those that pay nothing now (EVs), those that pay significantly less fuel tax (PHEVs and BEVs) or allow any light vehicles to opt into RUC?

• What would be the best basis for rate-setting? Should it be based on cost-allocation on a forward-looking cost base as has been proposed for heavy vehicles?

• Would it (and if so when would it) apply to vehicles currently paying fuel-excise and if so, how would fuel-excise be treated (i.e., refunded, credited to a RUC account)?

• What technical solutions would be suitable?  Automated options require equipment to be installed or existing telematics to be used, manual options require verification.

• Will technical solutions be piloted with a section of the public (as is being done for heavy vehicles)?  What would be the purpose of piloting RUC?

• Will revenues be hypothecated into a roads fund? If so, how would revenues be distributed among States and Territories compared to existing Commonwealth funding for roads?

• Would a Commonwealth RUC be applied at a single rate regardless of State or Territory, or have rates set that vary by location?  A location based RUC would limit the technical options that would be feasible.

• What entities would be responsible for operation and enforcement of a Commonwealth RUC? How would a high standard of customer service be ensured?

• What roles would States and Territories have with a Commonwealth RUC?

What now?

Regardless of what happens, there would need to be a significant Commonwealth role in any case. It would be costly and complicated to have potentially eight different RUC systems, all of which are focused on collecting data and money from vehicle owners in their own borders, and to enforce RUC across them.  It may have been less problematic for some (Tasmania, Western Australia and the Northern Territory all have low levels of cross border traffic), but much more complex along the eastern states and territory.  

Given States and Territories have generally made EVs exempt from registration fees and are unlikely to want to apply RUC more generally across all light vehicles, it seems likely they will now turn to the Commonwealth to get some direction around how it wants to approach RUC for EVs and RUC more generally. This is an opportunity to consider the wider road charging and funding framework across Australia, including the role of fuel excise and registration fees. RUC is inevitable for highly fuel-efficient vehicles, the question is not if, but when, but it should be considered within the wider context of the questions outlined above. 

With three US states having implemented RUC for parts of their light-vehicle fleets already (Oregon, Utah, and Virginia) and a fourth having mandated it (Hawaii), and multiple others piloting and investigating it (including the Federal Government), there is extensive experience in addressing many of these issues. New Zealand’s long standing RUC system will soon be extended to electric vehicles (it already covers all heavy vehicles, and all light diesel vehicles) also provides some useful lessons. There are also several pilots that have been undertaken in Europe.

The Commonwealth Government may not decide to do anything in the meantime, but that is a policy choice, and it could be undertaken with the clear message that it is intended to encourage growth in EVs and PHEVs. However, the easiest time to introduce a RUC is when the vehicles it is meant to apply to are few, and technical and policy options to do so can be easy to test.  Australia has time to develop a strategy for road charging that might place both heavy and light vehicles within a single framework. It would be wise to do so over the next few years, and take the chance to bring States, Territories, stakeholders and most importantly, the public with it.