Australia pursues road user charging... again...

There has been a lot of coverage in Australian media of the idea of a national road user charge (RUC) being applied to electric vehicles (EVs), mainly in the context of the Australian Government’s recent “Productivity Summit” (officially called Economic Reform Roundtable) which sought to bring together government, business, unions and other non-government organisations to generate ideas to reform Australia’s economy.

The themes of that event were:

• Making our economy more productive.
• Building resilience in the face of global uncertainty.
• Strengthening the budget and making it more sustainable.

So it isn't just about productivity, but also economic resilience and strengthening the government's budget. This is where RUC comes in, it is all about budget sustainability.

In 2022, there were already forecasts of where declining fuel excise revenue would lead in Australia. By 2032, the loss would be around A$3.5b per annum in 2022 values.

Forecasts of Australian fuel excise revenue

Australia started with heavy vehicles

Australia has been interested in RUC for literally decades. From the early 21st century there was recognition of the limitations of the status quo, particularly for charging heavy vehicles. The key issues being the mismatch between what heavy vehicles are charged to use the roads (through fuel excise and weight based registration fees) and the supply of road capacity that matters to them. From the COAG (Council of Australian Governments) Road Reform Agenda and the subsequent Road Reform Project, it was established early on that productivity gains from RUC in Australia would only be fully realised alongside supply side reforms. In other words, the revenue generated needs to be spent on improving infrastructure for heavy vehicles, with transparency around ensuring universal service.  From 2011 the Heavy Vehicle Charging and Investment (HVCI) project was run through till 2014, and although a lot of work was produced, it didn't deliver any reform.  It cost around A$25m  involved a Secretariat set up in Melbourne and over 75 reports were produced, but very little happened. It was a policy wonk's dream, but didn't bring the industry on board. 

This was followed by the Heavy Vehicle Road Reform (HVRR) programme, which itself has lost momentum after several years.  In 2015 the HVRR roadmap was agreed, which you can see below:

Australia's Heavy Vehicle Road Reform roadmap

It was an ambitious reform agenda, it would have seen heavy vehicles subject to direct user charges, the revenue of which would go into a hypothecated fund and investment from that fund co-ordinated based on the priorities of users and broader community service obligations (in particular, ensuring a basic level of service across the rural public road network). An independent economic regulator would set the RUC for heavy vehicles based on what is needed to pay to secure agreed service standards and capital investment, and road managers would be required to deliver those service standards.

In short, it wasn't about just RUC, but about roads operating more like a regulated utility for heavy vehicles.  Progress on this has been slow with reporting indicating that only Phase One has been delivered (greater transparency on expenditure investment and delivery).  Changes in Government, particularly Ministers, but also the change in Government in 2022 have seen this programme get a low priority. This is unfortunate, given the Department of Infrastructure, Transport, Regional Development, Communications and the Arts (DITRDCA) website indicates that the economic benefits of reform are "estimated to be between $6.5bn and $13.3 billion in net present value over 20 years (7% discount rate)".

It seems rather an omission for an economic reform roundtable to not ever utter a word about this.

Most recent progress saw the implementation of the National Heavy Vehicle Charging Pilot from 2019-2024, with one small scale trial and a three phase large scale trial. This was the largest pilot of RUC in Australia. It was primarily an engagement exercise with industry, but also tested multiple technical solutions as well as gathering data on portions of the heavy freight and bus sector to inform policy advice.

The potential to get better investment in the road network, including better results for truck operators in particular, by eliminating network bottlenecks (in particular weight-restricted bridges) and enabling wider network access perhaps should have got more attention.  Given the agenda on road reform has been bipartisan by-and-large (with the COAG work being undertaken under both Coalition and Labor Governments, and likewise the HVRR work started under the Coalition continued under Labor.  Note also that progress on this is dependent on support from States and Territories, but is highly dependent on Federal leadership.

However, HVRR and heavy vehicle RUC doesn't promise much progress on new revenue, so it got less state interest than RUC on vehicles that are not subject to fees to use the roads - EVs.

RUC for EVs

Although talk of RUC for EVs is being said to be in the context of productivity, if politicians and officials were honest, it isn’t really about that. At a stretch, there is an argument that EVs get “overuse” due to them not being subject to any fee or tax to use the roads. This means EV use, particularly in cities where there is a greater chance of alternative modes of travel, is excessive, and more efficient (and productive) use of road space may come if EVs are subject to a RUC that reflects a fair allocation of the costs of maintaining and developing the road network.

However, it is important to be clear that RUC for EVs is about government revenue, it does not have momentum for any other reason.  It is about "strengthening the budget and making it more sustainable".

It's pretty obvious what this is all about, although it is also clear that the impact of EVs on fuel duty revenue is fairly minimal so far. There is much greater impact from more fuel efficient petrol vehicles, and in particular battery electric hybrids.  Putting RUC on EVs (and plug-in hybrids) is a first step.

Of course Victoria tried to do it at state level, but had its "RUC" overturned by a court case that ended at the High Court of Australia ruling it as unconstitutional.  I wrote about that already.  Meanwhile, New South Wales has passed its own legislation which will see a RUC commence in July 2027 for EVs, Western Australia also has similar legislation.  So the pressure is on the Commonwealth Government to develop a national framework for what looks like a patchwork of State and Territory based RUC.  That raises a whole host of issues.

I wrote about some here. Technology isn't one of them, neither really are the issues around how to implement it.  The biggest issues are around governance including:

• Whether there should be a Federal RUC that is one rate, and separate State and Territory RUCs?
• What rules, if any, will apply to the use of revenue collected by either RUC?
• Who sets the rates at Federal and State/Territory levels? Will rate setting be subject to any independent oversight (e.g. the National Transport Commission or the ACCC)?
• What happens if/when RUC expands beyond EVs to include plug-in hybrids (which pay fuel excise) and battery electric hybrids? Shouldn't policy on this include all new powertrains, and consider what to do about very fuel efficient petrol powered vehicles?
• How should heavy EVs be treated?
• How should travel across State/Territory borders be addressed as regards measurement of distance travelled for State/Territory RUC?

What's next?

One of the outcomes of the Economic Reform Roundtable appeared some agreement to progress RUC for EVs. In an interview on the ABC TV current affairs show Insiders, Treasurer Jim Chalmers answered a question on the topic from Insiders host David Speers:

Speers:

I just wanted to ask you quickly on the road user charge that’s coming. You’ve got to work out the details with the states and territories. Is there a chance that motorists might have to pay both fuel excise and road user charge, or can you rule that out?

Chalmers:

No, our focus in road user charging is on electric vehicles. We’re not trying to work out ways to double‑tax internal combustion engines. We’re trying to make sure that people who drive EVs, increasing numbers of people who drive electric vehicles, are making a contribution to the upkeep of the roads that they use. It’s fundamentally about making the system a bit fairer.

We’ll take the time to get it right. The states are putting together an options paper for us to consider at our meeting, before long actually, the 5th of September, and so we’ll go through that.

The main point of contention at the reform roundtable was actually whether a road user charging regime focused on electric vehicles begins with heavy electric vehicles like electric trucks, and there’s some kind of sequence after that, or whether we be more ambitious earlier.

So, we’ll work through all of that. I don’t want to predetermine the discussions I have with the states or the considerations of our Cabinet, working with Catherine King and Chris Bowen and the Prime Minister and others. But we have made it clear, we do think a change is warranted here, and we’ll take the time to get it right.

Now it's important to remember that fuel excise duty in Australia is not hypothecated towards road spending, so the claim this is about a contribution to the upkeep of the roads is strictly not true (this is unlike fuel duty and RUC in the United States and New Zealand).  He claims whether starting with heavy electric vehicles would be useful first step. I would hate to be a naysayer on this, but it frankly seems like a wasted effort.  There are so few heavy electric vehicles that it would generate little revenue, and would teach state governments little about setting up systems for private individuals driving light EVs (and unless there is a programme for wider heavy RUC, it's not clear what the point of starting with heavy EVs is).

For what it is worth, there is merit in enabling both a national and a state/territory RUC rate, and to take some of the principles of HVRR in having independent price regulation, an investment programme based on what users need and a hypothecated fund that at least collects enough money to cover the costs of maintenance and renewal attributable to light vehicles. 

Allowing States and Territories to set regulated RUC rates to cover a portion of their costs in maintaining their road networks would be a start, on condition they also collect a national RUC.  Cross-border travel can be addressed through various means, there being experience in the US in doing this for heavy vehicles.

There is a lot to do, but the direction of travel on RUC policy is positive, let's just hope that momentum isn't lost for this, as it appears to have been for heavy vehicle RUC.

(Disclosure: My employer Milestone Pacific acquired in 2021 by CDM Smith, advised the Department of Infrastructure, Transport, Regional Development, Communications and the Arts on the National Heavy Vehicle Charging Pilot. I was the PM for that advice).