Finland's path to road pricing raises some big questions

I wrote on 27 March that the a Finnish Government Working Group had recommended that the country move away from fixed taxation of motor vehicles towards a distance based approach.  I've now had a chance to read the full report (in English) of the Working Group and to digest its analysis and approach, and it demonstrates the one rule of thumb I've often seen in road pricing studies across the world - every country has considerably different contexts, but many common issues.

To read the report yourself, it is available here as a pdf.   

For those who don't want to dive into the detail, I'll summarise my key thoughts and views first, and then put down some more detailed reflections afterwards.  It's particularly pertinent given the upcoming ITS Europe Congress in June, being held in Helsinki.

Finland, most of the population is along the southern coast

On 3 February 2012 a working group was established to explore how Finland could move towards "fairer and smarter transport systems and study long term strategies to introduce road pricing systems, with a specific mandate to assess the feasibility of GPS road pricing".   The focus was on looking at global experience, what objectives road pricing could serve, what technical solutions could be viable, what impacts would arise and how and over what timescale it could be introduced.  The working group was also to look at privacy and whether any other services could be provided using the GPS platform.

This follows previous investigations into congestion pricing for Helsinki alone, which came to the conclusion that the best approach would be some form of distance based charging that varies by time and place.

Summary

The key points from the study are as follows:

- Existing fixed taxes for cars should be replaced with a distance based tax.  Those taxes include car tax (paid on first registration of vehicles in Finland) and annual vehicle tax and vehicle motive force tax.

- The tax considered for the purposes of the study would be €0.033/km (US$0.074/mile) on all cars with another €0.02/km (US$0.045/mile) for non-petrol cars to offset the lower diesel tax.   Some variants on this were tested based on a regional differentiation.

- The distance tax would not replace fuel tax.  Finland's fuel tax rates are €0.6729/l (US$3.52/gallon) for petrol and €0.4966/l (US$2.60/gallon) for diesel, compared to the EU legal minimum rates of €0.359/l for petrol (about US$1.89/gallon) and €0.33 (US$1.72/gallon) for diesel.  (note these are US Gallons for the sake of comparison, not imperial).

- Motoring taxes in Finland already recover more than five times the state spending on road maintenance, with none of the money hypothecated for roads, so the argument for distance tax was not based on revenue generation or protection,  but rather dynamic improvements in economic and environmental outcomes.  By law, such a charge can currently only be a tax in Finland.

- Shifting from fixed taxes to fuel taxes was considered, but ruled out because it would not offer the potential to target congestion and environmental impacts by location and time of day.

-  The distance tax would not apply to buses and coaches because no fixed taxes apply to them.

-  The distance tax would also not apply to HGVs because the fixed taxes that apply to them could not be reduced sufficiently to make the tax work, as the rates are not far above EU minimum rates.

- The net impact of a shift to distance tax by 2025 is estimated as being a 30 million reduction in annual car trips, with a 4% drop in CO2 emissions from cars and around the same proportionate drop in serious car accidents.

Change in passenger km estimated in 2025 from introducing distance charging in Finland

- Most car users would pay less, with commuters in cities and high usage rural users paying more.  The net effect is to reduce barriers to car ownership, but encourage car usage when and where alternatives are not available.

- The estimated capital costs for such a system, for 3.5 million cars, were €89m-133m (US$123m-US$183m) (which I believe to be far too low), but operating costs were estimated at between €116m-133m (US$161m-US$183m) per annum.  The report indicated more scrutiny is needed over these costs.

- However, these higher costs compared to the current tax system would be recovered by the reduced costs to the economy of fewer accidents and emissions.  The savings from reduced congestion were not calculated, but given evidence from previous studies ought to deliver substantially higher economic gains, even if charges did not vary by time of day or location.

- It was considered that the primary benefit from the change would be to allow for charging by specific road and time of day, so congestion charging could be introduced equitably, targeting congestion and locations where there are reasonable public transport alternatives.

- It was strongly recommended that any distance tax have strong privacy protection, so that all data on specific trips be kept with the on board unit and in the possession of the vehicle owner, with only charging data released.  Other data could only be accessed if the owner wished to query the tax calculation or if there is suspicion of systematic fraud.

- There could be industry development potential in allowing such a system, as it would encourage local business to develop complementary systems and potential applications to use alongside the distance tax.

So, Finland is considering a car only based distance tax to replace taxes on owning cars.  That's interesting and revolutionary, but I also think it is missing some key points, which I come to below.  These are:

- Fuel tax ought to be included down to EU minimum rates;

- By including fuel tax, all other vehicles should be taxed by distance and mass;

- The rates of distance tax should reflect, at a minimum, infrastructure costs;

- By shifting to distance tax Finland cannot evade a strong case for partial hypothecation of revenues, in which case it may be wise to consider part of the charge not being a tax, legally speaking;

- The capital and operating costs need far closer scrutiny;

-  The benefits of shifting to distance based charging may be overstated around accidents, due to technology around automation, but understated by excluding the deadweight costs of existing taxes.

Significant steps forward in New York, Finland, Germany and Australia

I've been busy, and meanwhile lots has been going on in the world of road pricing.  All of which I will giving more attention in the coming week or so.

They are:
- New push for tolling reform in New York that if implemented, would effectively be a congestion pricing scheme for the city that benefits residents of outer suburbs;
- A Ministry of Transport and Communications Working Group in Finland has recommended that the country move away from ownership based taxes to a "kilometre based" tax system;
- Germany is expanding the scope of its distance based truck toll and will introduce a private car vignette from 2016;
- Infrastructure Partnerships Australia, a lobby group advocating reform of infrastructure policy, has published a discussion paper, notably with several major Australian motoring associations, advocating fundamental reform of road transport taxation and charging, with a strong push to shift away from ownership and fuel taxes, to direct road pricing.

Finland: Minister wants national road pricing, Ministry thinks it is too difficult and costly

There have been discussions about congestion charging in Helsinki for some time, but the political climate for introducing road pricing in Finland seems to have changed, quite dramatically.

The six party coalition formed after the June 2011 elections is quite a mixed group. It is comprised of the National Coalition Party (centre-right liberal), Social Democrat Party (centre-left), Left Alliance (far left), Greens (left), Swedish People’s Party (centrist liberal) and Christian Democrats (conservative).

The new transport Minister is Merja Kyllönen from the Left Alliance, and she is keen on road pricing, but not keen on a Helsinki only congestion charge as I reported previously.

State broadcaster YLE reported that she supports a national road pricing scheme, on all roads, for all vehicles. The idea is that it would vary by time and location, so would charge for congestion, but also charge according to the level of public transport availability. The idea being that, say in Helsinki, it would cost much more to drive if the route had a parallel metro line, but not if someone was driving in a remote area.

She didn’t “have a position” on whether such pricing would replace other charges, but appears open to discussion on it. An obvious option is to replace vehicle ownership taxes and reduce fuel taxes as well.

The YLE report indicated that an advantage for Finland developing such a system would be that it could “sell” it to the world, indicating interest in developing the technology and systems locally to the extent possible (and permitted under EU rules).   However, there are quite a few system developers and manufacturers which would be keen to sell technology for implementation in Finland, to avoid a new competitor arising from, say, a rather significant Finnish telecommunications company?

However, the latest report from the Helsinki Times indicates that the Finnish Transport Ministry does not think it is technically feasible. The claim is that “there were fundamental technological hurdles, adding the system would be expensive and easy to cripple with a piece of aluminium foil.”

It would be a shame for that view to prevail, because it is technically possible to do. Systems in Germany, Slovakia and New Zealand all demonstrate that distance based charging, using GPS, can be implemented not only on motorways, but on all roads, and for heavy and light vehicles (see the links on the column to the right under network road pricing). It is likely that France, Belgium and Denmark will follow (and the Netherlands has several times tried to, but only stopped because of politics).

Yes, there is an issue of cost. The initial cost of installing On Board Units to do GPS based tolling is high, and there are always considerable risks with rolling out any system for large scale public use. This initial expense needs to be considered, but the long run economic benefits of better pricing should more than offset this.

Finally, the claim that you can cripple such systems with aluminium foil has been refuted, because protection against this can be built into the system. After all, Germany has been collected distance based charges from trucks over 12 tonnes, from many countries, since 2005. There are multiple ways to make such tampering ineffective, or easily detectable.

The potential benefits to Finland for national road pricing will come from reduced congestion, reduced emissions, greater certainty of revenue collection (as it wont be related to fuel use) and the ability to target pricing of roads related to road usage and vehicle type. A full costs and charges study and national road pricing feasibility study (similar to those carried out in the UK), could consider how efficient road pricing might impact on demand and would generate information on the costs and benefits, and be a worthwhile first step.  It would provide data behind the intellectual ammunition as to how better pricing can benefit the economy, the environment and affect social change.

My view is that it would make sense for Finland to introduce a national system on heavy vehicles first, to reduce the risks involved, prove the system and help develop a strategy to include light commercial vehicles and then private cars. The benefits from heavy vehicle charging are not high, and come from more efficient operations and routing, and maybe addressing pricing disparities between modes.  However, it is a sound platform upon which to roll out a system to cars, and the Netherlands recognised this with its proposed approach.

It’s about time the Finnish Transport Ministry took a good look at the costs of implementing GPS based road pricing, and the technical risks and how they can be addressed. Things have moved on a lot in recent years, the real issue should be about how best to extract the greatest benefits for Finland as a whole, whilst keeping risks and costs at manageable levels.  What the Minister is seeking does have a high upfront cost, but it is technically feasible, and the benefits will be akin to that of Helsinki congestion charging, but on a wider scale.    Indeed, if Finland can embark on a programme of national road pricing for all vehicles, it will certainly be a world leader. 

(PS: My news on Finland is derived from translated Finnish sources and English sources.  Obviously if someone in Finland knows more about the current position, I'd be keen to hear from you).

tiemaksut

tiemaksuilla

ruuhkamaksuja

New Finnish Transport Minister pours cold water on Helsinki congestion charge

After some years of positive work on congestion charging, the recent Finnish election (and formation of a six party coalition) seems to have changed the official Finnish government position on introducing congestion charging in Helsinki.

According to Finnish state broadcaster, YLE, new Transport Minister, Merja Kyllönen, has said that congestion charging is not a priority and need not be introduced, and if it was, public transport would have to be significantly improved.  It is notable that Ms. Kyllönen is from the Left Alliance party, a far-left grouping formed from the merger of two communist parties.

However, these statements have not impressed the liberal centre-right National Coalition Party which leads the government and has been supportive of congestion charging. 

Of course, it is notable that the Left Alliance is opposed to congestion charging, presumably because it will most affect those who are least willing to pay.   Additional public transport is also not always necessary, when charging improves the efficiency and capacity to turnaround bus services in particular.   However, it would be a shame if the good work done so far on congestion charging in Helsinki is thrown away, when it has substantial potential to improve mobility and the competitiveness of the city.   If introduced as a way of replacing some existing taxes, it could make a positive impact on the economy.

The most recent report on options for congestion charging in Helsinki is available here as a PDF document.

Finnish government opposes Helsinki congestion charge but..

The City of Helsinki has been investigating congestion charging for the past couple of years, with a comprehensive study undertaken two years ago (here).   Now a new report has been released by a Finnish central government working group saying the fairly obvious, that a Helsinki congestion charge could reduce congestion, improve traffic safety,  reduce air pollution and increase patronage of public transport.   As a city with an excellent metro, suburban rail, tram and bus network, and a downtown bounded by a major ring motorway and water, it seems clear the potential is there. 

Helsinki city showing ring roads around CBD

Yet the response of the Transport Minister, Anu Vehviläinen of the Centre Party, according to the Helsinki Times, has been to oppose the idea for two reasons:

- The mode-shift would require extensive increases in public transport capacity, and there is insufficient funds to pay for this;

- The system proposed is extremely risky.

The public transport issue is real, but one might ask whether this is exaggerated, because a significant part of the change in behaviour will be time shifting and consolidation of journeys.  In addition, what is often ignored is that peak time public transport use is typically underpriced, which is why there is never sufficient funding to provide adequate capacity.  Yet a congestion charge that also increases peak public transport fares would be doubly unpopular.  One solution would be to borrow against future revenues, using that revenue to make improvements to roads or public transport capacity.   

The risk issue arises from the proposed solution, which is to use a GNSS-based distance charging system.  That would mean all vehicles in Helsinki needing an On Board Unit to measure distance correlated by GNSS signals against an on board map.  This has parallels to the German and Slovak heavy vehicle tolling systems.  Technically it could work, but the risk of a government driven programme to do so are not low.  In addition, the key barrier is the cost of retrofitting vehicles with On Board Units of this sophistication.

Of course, for Finland it is about politics, as it is elsewhere.  Finnish Parliamentary Elections are this year, and the   YLE reports how the Helsinki Region Chamber of Commerce is sceptical, which of course means that the big issue - what to do with the revenue - would need to be addressed. 

The current Finnish government is a four headed coalition led by the Centre Party, the liberal centre-right National Coalition Party, the leftwing Greens and the liberal Swedish (yes Swedish) People's Party.  The Greens favour congestion charging, and polling currently shows a threeway split between the Centre, National Coalition Party and the opposition centre-left Social Democrats.   

After the election, there might be some sense about this issue, and I hope Helsinki and Finland can find a way forward that delivers net benefits to the city and transport users.  Getting a politically palatable solution will be a lot of work.

It will be about getting pricing right, about investing in transport bottlenecks and about being creative about technological solutions.   Motorists will need to see net benefits in reduced congestion, other transport users will benefit from less congestion on networks, and the potential for greater viability for other modes.  Overall, it could make Helsinki more competitive internationally.   The key is to apply lessons learnt from elsewhere.