NSW Parliament publishes report into forthcoming road user charge for electric vehicles

New South Wales (NSW) looks set to be the next jurisdiction to implement a distance-based road user charge (RUC) on electric and plug-in hybrid light vehicles, from 1 July 2027.  From that date, EV owners will be subject to a charge of A$0.03095/km (US$0.0347/mile) and PHEVs A$0.02476 per km (US$0.0278/mile). It won't be the first in Australia to do so, as the state of Victoria implemented RUC on EVs and PHEVs in 2021, but this was cancelled in 2023.

The Parliament of NSW has now published a report into the forthcoming RUC.

Background

In Australia, RUC is a complex topic. For years the Commonwealth (Federal) Government studied and even piloted distance/weight based RUC for heavy vehicles, largely because multiple reports indicated that there would be economic productivity benefits from introducing it, alongside a wide range of associated funding and charging policy measures.  In the meantime, heavy vehicles pay registration fees to the States and Territories, at unified rates, and when paying fuel excise duty on diesel, they can claim a 100% refund for diesel not used on public roads and a partial refund of the remainder (with the part that is retained called the "fuel based road user charge"). Since 2024, heavy vehicle RUC has largely been off the political agenda in Australia. 

Then came electric vehicles (EVs), in sufficient numbers that it started to be a concern for future fuel excise duty revenues. Fuel duty is a Commonwealth tax (the States and Territories are not constitutionally permitted to levy such a tax), but is not hypothecated. States and Territories started being interested in whether they could charge a RUC for light EVs, so Victoria did so in 2021, only for a court case to go as far as the High Court of Australia, which struck it out as unconstitutional in 2023.  That court case was supported (but not led) by the Commonwealth Government. I wrote about the decision (known as Vanderstock) at the time, as I agree with the dissenting opinions of the court.  It was quite the stretch of interpretation to treat the Victorian RUC as an "excise tax" that influences the supply of electric vehicles (and therefore only within the Constitutional scope of the Commonwealth Government), but the decision stands.  

However, parallel to Victoria, the NSW Government passed the Electric Vehicles (Revenue Arrangements) Act 2021, with nearly identical language to the legislation used in Victoria.

That Act means that from 1 July 2027, EVs in NSW will be subject to a distance based RUC.

The obvious conflict is that the Vanderstock decision essentially indicated that RUC should be implemented nationally by the Commonwealth Government, not by the states. but since the decision there has been relatively little said at the Commonwealth level about RUC. 

A series of statements have been made by a few Ministers ranging from how important it is to charge EVs for road use eventually, to concern that legislation to enable this might not get passed by the Senate. 

While there has been some work behind the scenes undertaken by officials, no decisions have yet been made. Meanwhile, sales of EVs in Australia (as in many countries) are at a record high. In the year to August 2026. 18.5% of new light vehicle sales in Australia have been EVs, with it being over 26% in the month of August alone. 

NSW's legislation has not been amended or repealed (although the election in 2023 saw a change in State Government from the Liberal/National Coalition to Labor). 

Public Accountability and Works Committee

Earlier this year, the NSW Legislative Council delegated to its Public Accountability and Works Committee a review into the operation of the Act, and in particular:

(a) whether the policy objectives of the Act remain valid, and

(b) whether the terms of the Act remain appropriate for securing those objectives. 

It undertook its inquiry and has now published its report and recommendations.  Most of the ten recommendations should not be a particular problem to implement. Two of them are not good ideas, but not impossible to implement.

The NSW Government needs to respond to the report by January 2027, which gives essentially no time to amend the legislation, especially since on 13 March 2027, there is a state election. 

Report details

I’ve read more than a few reports from elected committees about various forms of road user charging and road pricing over the years, and I’m glad to say this is one of the better ones. By and large, most of the conclusions drawn are at least practical, and have some rational public policy basis for them, although a handful of them are not. 

The report is overall positive and supportive of the implementation of RUC for EVs in NSW, notwithstanding some concerns.  

Issues considered in the report include:

• Implications of the Vanderstock High Court of Australia decision on the legislation, including possible amendments to distinguish the NSW proposal from the Victorian policy
• Effects on EV sales
• Impacts of distance based RUC on different geographical communities and vehicle operators including rideshare, delivery drivers and dealerships
• Impacts on plug-in hybrid drivers
• Merits of pure distance based RUC vs including weight, fuel efficiency and congestion
• Hypothecation of net revenues
• National RUC for EVs vs. states going first
• Administration of a RUC

I won't summarise the whole 88 page report here, but it is worth a read (PDF). 

The concerns expressed are understandable and not unreasonable. It is worth noting that the Committee was chaired by a Green MLC (Member of Legislative Council), with the deputy chair from the Liberal Party.  Besides them, there were three Labor, one National and one independent (Mark Latham) on the Committee. Only Latham made a dissenting statement, and that was to support weight based vehicle registration for EVs as an alternative.

A key recommendation was to proceed, regardless of progress at the federal level, which I believe is sound, albeit risky.

At the very least, it is clear that States and Territories could wait for a national RUC system and still be waiting one, two, three or even five years from now, mainly because the political will to proceed is tepid at best. That may be proved wrong in the coming months, but it is more likely than not that NSW pushing on with RUC will catalyse action from the Commonwealth Government which is more rapid than simply waiting for something that shows few signs of progressing fast.

I have summarised the recommendations below with comments in italics.

Recommendations

Recommendation 1

That the NSW Government ensure that any future road user charge for electric vehicles is designed and operationalised in a way that does not dampen or impede the uptake of electric vehicles in New South Wales.

Understandable, and easy to address. The basis for this was evidence that RUC when introduced in Victoria and applied to EVs in New Zealand, had no apparent impact on sales. Evidence in New Zealand is blurred by the removal of a major subsidy scheme that saw levies on some new cars used to subsidise the sales price of low emission ones.  That brought forward EV sales, and meant that when RUC was applied to EVs in mid 2024, there was no effect on sales. There remains scant evidence that charging a few cents per kilometre for road use deters a purchase of an EV compared to a ICE vehicle that is already charged the same or more through fuel tax.

Key to complying with this recommendation is perhaps two elements:

• Ensuring administration and compliance for RUC for EVs is simple with minimal friction for owners. It should be easy to buy, have distance reported and be compliant, without prospective EV owners fearing not being able to understand or being fined inadvertently for getting it wrong.  There are plenty of models for doing this  - see New Zealand, Hawai'i and Oregon.
• Setting a rate for RUC, for now, that is cheaper than fuel excise.  A rate commensurate to around half of the average paid by a light ICE vehicle may be appropriate, not least because it would around the same for a battery-electric hybrid vehicle.  The proposed A$0.0395/km seems like it would do that. 

Recommendation 2

That the NSW Government, in consultation with industry stakeholders, monitor the implementation of any future road user charge for electric vehicles in New South Wales with a view to:

• assessing any impact on electric vehicle uptake, and

• promptly identifying other unintended consequences that would undermine the strategic transition to electric and low emissions vehicles.

Agree. There is considerable merit in undertaking impact monitoring, perhaps for the first two years, of RUC on sales and any unintended consequences on users.  Related to this is having flexibility to make regulatory changes at short notice to address any of these, and to take lessons from other jurisdictions about what to avoid (e.g. avoid over-complicating the passage of liability of RUC on vehicle sale or vehicle scrappage).

Recommendation 3

That the NSW Government consider an electric vehicle road user charge exemption for registered dealers of new 'in scope' low and zero emissions vehicles, to be applied up to a prescribed number of kilometres travelled on demonstrator models, and that the threshold be determined in consultation with industry stakeholders.

Disagree.  The objective of this appears linked to Recommendation 1, but this is not a good idea. The best time to educate vehicle owners about RUC is when they purchase a vehicle new.  This appears to be a call for a subsidy for new EVs, when similar exemptions don't exist for fuel duty or even tolls.  It is likely to mean "demonstrator models" get used more by proprietors and staff of dealerships, and then when sold it is a transfer from taxpayers to buyers of those vehicles. 

No other jurisdiction does this (noting Victoria had such a provision). In New Zealand, dealerships buy a block of RUC distance in advance and it is effectively included in the sales price. There is no great burden in having newly registered vehicles including a prepaid block of RUC kilometres, which is essentially like fuelling the vehicle. By contrast, in Oregon the initial OReGO program did not make provision for dealerships to offer RUC to vehicle owners, so they needed to be followed up around a year later to get enrolled with RUC or pay a higher annual registration fee. This is now being amended.

Recommendation 4

That the NSW Government consider hypothecating the future revenue collected under the Electric Vehicles (Revenue Arrangements) Act 2021 towards road maintenance and infrastructure.

Agree. This will help differentiate the RUC from the Victorian programme, but also allow for charges to be more closely linked to what is spent on the network, treating roads as a network utility. This could be done notionally, matching the net revenue collected to a specific allocation of funds for roads maintenance, or more formally (which would progressively grow in scale as RUC expands).  Treasuries hate hypothecation because they want maximum flexibility over the use of tax revenue, but if NSW's RUC is to be treated not as a tax, but as a user fee, it should have a relationship to what is spent on the network.  Furthermore, it is more likely to obtain public acceptability, if it is not treated as just another new source of revenue.  I'll note that the now virtually stalled Heavy Vehicle Road Reform programme includes hypothecation for a future national heavy vehicle RUC.

Recommendation 5

That the NSW Government investigate fairer distance-based options for electric vehicle road users in rural, regional and outer suburban communities and light commercial vehicle operators without creating loopholes or adding to the administrative burden or complexity for drivers.

Agree, pending clarification of the problem.  The report assumes that people living in rural, regional and outer suburban communities drive more distance in aggregate on average, than those in inner city communities. There is no evidence provided to support this. I'll note that in the United States, RUC America undertook a study comparing the impacts of introducing distance-based RUC to replace fuel excise for people in urban vs. rural locations and it was published in 2022. It concluded that in many cases people in rural areas did NOT drive greater distances, because they drove less frequently than residents in urban areas. Similar research in NSW would be informative and useful.

Some of the commentary in the report around delivery and gig worker drivers seems to ignore that such drivers face these fees now with ICE vehicles, paying fuel duty for driving more.  Research might indicate that delivery drivers pay more in fuel duty per kilometre driven than the average, because of the amount of starting and stopping compared to private vehicle trips. It seems particularly questionable to want to cap what is charged for such vehicles, when EVs are likely to deliver considerable savings in energy costs already.

Notwithstanding this, there is merit in enabling the registration and certification of third-party service providers to collect RUC using telematics systems either as equipment already installed in vehicles or third-party devices, to measure distance by location. This would enable exemption of distance travelled off public roads and out of state, and for measurement to be automated.  This could provide options for rural drivers and drivers located in border communities to avoid paying for travel in adjacent States and Territories. Note that Vermont has agreed to implement RUC for EVs, but requiring such an option be implemented two years later.

Recommendation 6

That the NSW Government amend the Electric Vehicles (Revenue Arrangements) Act 2021 to reframe the road user charge to have the character of a licence fee or fee for service, rather than a tax or excise.

Agree, noting that the timing to do this seems challenging at best. It should be a user fee for the use of public roads in New South Wales, and it could include a means to grant refunds for distance off of public roads or in other states, if evidence is given of proof of such travel. This could only be done after the event, and have an administrative cost to it.

Recommendation 7

That the NSW Government amend the Electric Vehicles (Revenue Arrangements) Act 2021, or use future regulations or any other appropriate mechanism, to introduce a differentiated distance-based regime in which the per kilometre rate takes into account:

• a vehicle's size and weight

• differences in battery performance and life for battery electric vehicles

• differences in emissions performance among low-emissions hybrid vehicles.

Disagree. This appears to be based on a misperception as to wear and tear on road surfaces generated by variations in weight among light vehicles. This is not supported by research commissioned by the National Transport Commission or seen overseas. Beyond the impacts of weather, there is very little impact of vehicle weight on road maintenance below the level of heavy vehicles (GVM >4.5 tonnes).  Note New Zealand did use to charge light vehicles at one tonne intervals, with the rates varying by a tenth of a cent per kilometre. One tonne increments were scrapped for light vehicles some years ago to simplify administration.

The proposal to charge differently according to battery performance and life are highly problematic not least because such data is not collected in the motor vehicle register. It would be difficult to measure this and unclear the basis for varying charges, particularly as performance and battery life varies over time.  The proposal to take into account emissions performance among hybrid vehicles (which in this case would be plug-in hybrids) also has problems around getting a reliable source of data to classify vehicles, and to incorporate it into the motor vehicle register.  It is common to charge vehicles differently by Euro class, in heavy vehicle RUC systems in Europe, but that is for vehicles almost all of which are powered by diesel.

The relative impacts and merits of such proposals seem likely to be not worth the cost and complexity to implement.

Recommendation 8

That, with respect to the administrative arrangements to operationalise any future road user charge, the NSW Government commit to:

• keeping it as simple as possible for drivers to minimise the administrative burden

• fully integrating the charge within the existing administrative scheme for vehicle stamp duty, registration fees and licensing.

Agree. There should be a base level simple product for vehicle owners to interact with, such as a prepaid licence (as in New Zealand), an annual fee based on an estimate confirmed at registration time, or a regular invoice based on an average or submitted distance. It makes perfect sense to integrated with registration fees, but there needs to be a rapid commitment to the base level product that provides the most flexibility to users, while enabling alternatives either immediately or within a couple of years.

Recommendation 9

That the NSW Government continue to work with the Federal and state governments on road user charging policy, with a view to working towards a national road user charging system.

Agree, it should go without saying that a national system or nationally co-ordinated system is preferable to a patchwork of policies that risk incoherence.

Recommendation 10

That, absent a national road user charging framework and regime, the NSW Government proceed to implement the electric vehicle road user charge established by the Electric Vehicles (Revenue Arrangements) Act 2021 subject to the amendments outlined in Recommendations 1 to 8 above.

Agree.

Next steps

The NSW Government is expected to provide the Government Response to this report by 11 January 2027.  This should give a clear indication of what happens next.

In the meantime, it is not impossible to expect that there might be an announcement from the Federal government in Canberra about RUC policy nationally (although few would bet on it). The Mid-Year Economic and Fiscal Outlook is due to be issued in December 2026, which would cut it fine indeed, but be timely to signal what might happen nationally.  However, it is also quite likely that nothing will be signalled, given other government priorities.

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. 

Massachusetts permitted to use Turnpike revenue on other roads

Generally speaking, tolling can be undertaken either at specific points on a road or continuously along an entire journey.  Conventional tolling finds fixed points on a road network to charge the road user, whereas distance based road user charging, vehicle mileage tax, time-distance-place road pricing, is about charging a vehicle for its trip on all roads.

It is fair to say that as vehicles don't typically carry the technology to allow the latter, and governments (which own and operate most roads) don't have the political will to shift towards that, there is a preference, for now, to stick with conventional tolls.

So what does a government do when it finds it difficult to raise fuel taxation, but has a series of toll roads which are happily generating surplus revenue, and has a difficulty meeting demands for funds for road maintenance.   Does it divert the surplus from the profitable toll roads into untolled roads?

That's what Massachusetts did and it upset more than a few.

For many a toll road should be self-contained.  The toll should be related to the road it applies to, and the money raised should be enough to pay for its capital and maintenance costs (and upgrades), not to pay for other roads.  

Yet an alternative view is that if the state has assets that are profitable, then why not treat those assets as businesses that can be used to support related infrastructure?

In 1997, Massachusetts faced a problem.  It was the cost of the Big Dig, possibly the world's most expensive urban highway scheme ever (at an eye watering US$22 billion).  The state decided to start using money from the Massachusetts Turnpike to pay some of those costs. 

The Newspaper.com reports on what happened when some of those motorists were unimpressed:

In 2009, turnpike users sued the turnpike authority over 58 percent of their toll money -- $440 million -- being siphoned off for the expensive tunnel, which they argued changed the money from a "user fee" to a tax under the state constitution. The coalition of motorists and trucking associations behind the suit argued the system was also fundamentally unfair.

"The majority of travelers who use Metropolitan Highway System (MHS) facilities each day pay no tolls at all: MTA collects tolls from only 46 percent of the travelers who use MHS facilities each day, allowing 54 percent of travelers to pay nothing at all for their use of the most expensive part of the MHS," lawyers for the plaintiffs argued. "This court should not hesitate to invalidate a tolling scheme that impermissibly functions like a tax or that unreasonably or disproportionately burdens those who are singled out to pay tolls."

The court judgment summarised the claim as:

"according to the plaintiffs, the tolls are lawful user fees when applied to pay the expenses of the tolled roads and tunnels, but an unconstitutional tax when applied to pay the expenses of the nontolled roads, tunnels, and bridges."

However, the Massachusetts Supreme Court disagreed with the claim.

The tolls "were collected to compensate the authority for the expenses incurred in operating the MHS (and limited by statute to the amount necessary to pay those expenses), not to raise revenues for the commonwealth...Where, as here, a public authority manages an integrated system of roadways, bridges, and tunnels, and chooses to impose tolls on only some of the roadways and tunnels in an amount sufficient to support the entire integrated system, its purpose does not shift from expense reimbursement to revenue raising simply because the toll revenues exceed the cost of maintaining only the tolled portions of the integrated system... Because we conclude that the tolls collected by the authority on the MHS were fees, and because we conclude that they would still be constitutional excise taxes even if they were taxes, we affirm the dismissal of the plaintiffs' state constitutional claims"

In other words, the Court treated the Turnpike as part of an integrated network and that just because tolls have not be imposed on all of that network does not mean revenue can only be spent on the tolled segments.  It treated the tolls as "user fees", because they could be avoided by driving on untolled roads (taxes can't be avoided).

Massachusetts can happily continue to reap profits from its toll roads to cross-subsidise the rest of its network (and so offset other taxes).

Background

The Massachusetts Turnpike is one of the oldest toll roads in the USA and is essentially an east-west artery from New York State (where it connects to the tolled New York State Thruway) to Boston.  It is part of the Interstate highway network, being the easternmost end of I-90.  It utilises both manual tolls and the basic "Fastlane" DSRC (RFID) toll tag system (soon to be transferred to the EZPass franchise which it is interoperable with).   Wikipedia has an excellent map depicting how important the Turnpike is to the state.  Within Boston, part of the "Big Dig" project includes a link used as part of the Turnpike (the Ted Williams Tunnel which itself is tolled in one direction) which completed its connection to Boston Logan International Airport.

Vote No on Initiative 1125 if you support better road pricing

I don't have a particular personal interest in the State of Washington, since I've never actually been there.  However, I do have an interest in good public policy on road pricing.  Initiative 1125, which comes up for a vote on 8 November, is not an example of this.

It is being promoted by activist Tim Eyman, who frankly has taken stands on a number of issues that I would support, since I tend to be in favour of free market oriented solutions and prefer to err on the side of less government intervention over more.   However, as I have written before, I believe on balance, that while i understand his motives, on this occasion, he is wrong.

In September I said Initiative 1125 had good intentions.  I can understand not wanting money collected from road users to be spent on anything other than the roads themselves, but to clumsily only link tolls to the projects they are specifically on limits what can be done to replace fuel taxes over time.  Ultimately, I believe tolls of one form or another, will be applied to all major roads and perhaps all roads, as fuel tax becomes unsustainable.  This initiative would block that.  Similarly, the idea that a road is "paid off" and no longer needs to be paid for, doesn't really bear close scrutiny.

The key problem being that roads always need new capital put into them to be operational.  It is like building a house and assuming you never need to paint it, fix the roof, fix gutters, replace pilings or the like over time.   The setting of tolls should take into account recover of capital for long and short life assets, bearing in mind renewals will eventually be needed for major assets such as bridges.  It is a failure to consider roads like other assets that has seen so many bridges fall into disrepair.  

Beyond that is to consider congestion pricing, and what to do with surpluses from tolls.  The advantages of congestion pricing in terms of improving productivity, reducing delays and emissions are potentially enormous.  Initiative 1125 would stop this because the revenue wouldn't be spent on the roads subject to congestion pricing.  Even if you support using congestion pricing to engage in wider tax reform (e.g. replacing other taxes for money used to spend on road), it wouldn't be allowed.

He could have stuck to the first provision of the initiative (Prohibit state government from diverting gas taxes and toll revenues in the motor vehicle fund or other funds to the general fund or other funds and used for non-transportation purposes”), and I would not have found it problematic, but the rest makes it unacceptable.

The Olympian reports:

This is a typical Eyman initiative that overreaches and attempts to tackle multiple issues with a single initiative. By cluttering I-1125 with multiple requirements, Eyman has torpedoed his own effort. Toll rates should be set as close to the users as possible, not by lawmakers trading political favors in Olympia.

The Yes campaign website says tolls should only be used for "capital costs", presuming capital costs cease to exist at some point.  It seems to suggest congestion pricing is "politically correct social engineering designed to raise the congestion misery index high enough to force you out of your car."  Nothing is more politically correct than running roads in the traditional Soviet style manner of taxing users on an equivalent basis.   However, while I have some sympathy for those who question spending large amounts of money raised from road users on politically driven, financially unsustainable and economically inefficient public transport projects (and road projects), this initiative not only doesn't deliver for supporters of more market oriented approaches to roads, but is positively contrary to it.  Some of what the yes campaign says I agree with, but the ends do not justify the means, and the means are contrary to the philosophy driving the ends.

So while the No campaign looks like primarily a campaign from labor unions, Democrats and environmental groups, it should also be supported by those who believe in more economically rational pricing of roads and indeed may even interfere with privately owned toll roads if they were to be built.

So although I have some reservations about opposing the initiative, I believe those who DO support better pricing of roads, who think fuel tax is a poor way of pricing for road use and think tolls, HOT lanes, congestion pricing and ultimately network wide pricing are worthy tools for the future, should reject Initiative 1125.  Boeing and Microsoft already are opposing it.

Initiative 1125 is being returned by postal ballot by 8 November, it is one of several other ballots on the day.

Washington state toll referendum threatens funding for SR-520 bridge replacement

Seattle PI reports that Initiative 1125, a proposed referendum on severely restricting the use of tolls in the state of Washington, would interfere with the funding for a number of projects according to the State Office of Financial Management.

Some of the effects would be:

- To block use of toll revenue from Interstate 90 to help pay for rebuilding the neighbouring SR-520 bridge;

- To have toll rates set by legislation rather than by the State Transportation Commission;

- To eliminate any potential options for congestion pricing;

- To puts at risk $123 million in Federal funding, secured for the S.R. 520 project, because congestion pricing could not be considered;

- To risk blocking the Alaskan Way Viaduct replacement tunnel because it too includes congestion pricing.

I reported earlier on Initiative 1125 and concluded that, on balance, it would be negative:

It is tempting to stop politicians using tolls as an easy tax to divert from motorists, but it also doesn’t make sense to be ridiculously prescriptive in ways that don’t reflect good economic principles. I can understand imposing a restriction on a hypothecated fund to spend money on roads, and for tolling to be related to the costs of the roads tolled, and be spent on the network of the entity tolling. However, to restrict time and purpose of toll revenue spending is unduly restrictive...it would be wrong for this initiative to pass, because it is better to sacrifice improvements in one area to avoid a significant deterioration in the law on tolling in another.

This simply strengthens my view on this. There are sound reasons for putting some constraints around the use of tolls for non-road purposes, this initiative does far more than that and risks damaging the value of tolling for the State of Washington.

Washington State Initiative 1125 - good intentions marred by unrealistic complexity

According to The NewsPaper, there will be a vote in November in Washington State, USA, on Initiative 1125. The referendum will require a yes vote for a negative proposition that “no revenue in the motor vehicle fund or toll fund could be used for non-transportation purposes”. Now it looks on the face of it like a great initiative for motorists, particularly since it avoids diverting such revenues to top up other funds. However, when you get into the detail it contains some flaws.

The proposals are:

- “Prohibit state government from diverting gas taxes and toll revenues in the motor vehicle fund or other funds to the general fund or other funds and used for non-transportation purposes”. 

Now I can go along with that, given it is about specific funds and revenues from road users. The case for diverting such funds for non-transport purposes is weak in an environment of publicly owned conventional toll projects. Indeed, it might strengthen the case for tolls. 

- “Prohibit state government from transferring or using gastax-funded or toll-revenue-funded lanes on state highways for nonhighway purposes”. 

This is not exactly grammatical, but I infer from it that it means not allowing revenue raised from toll lanes or indeed gas tax on state highways to be spent for “non highway” purposes. If it means not spending on other roads, I wouldn’t be supportive of that because there are plenty of instances where it is sensible to cross subsidise parallel routes, feeder routes or bridges over major highways. This is clumsy and its objective isn’t clear.  I am unsure as to what it adds to the above provision, other than confusion.

- “Require tolls to be dedicated to the project they’re paying for, ending such tolls when the project is completed, and only allowing tolls to be used for purposes consistent with the 18th Amendment to the Washington Constitution. Tolls on a project must be spent on that project and may not be diverted and spent on other things (allowing tolls to be imposed on anyone and spent on anything stops them from being tolls and makes them into de facto taxes)”. 

This is where it really gets unstuck. The myth that a road is ever “paid for” and that after the initial capital expenditure has been recovered, no more capital ever need be put into the road. It’s nonsense. The surface, road furniture and the like regularly need replacing and renewal, the base layers will eventually need renewal, and bridges will as well. Only the land and the earthworks for the original right of way are “permanent”, the rest of the road needs regular injections of capital. So this doesn’t exactly reflect economic reality. If it said tolls should be based on recovering the long run costs of capital and operating costs of the road, I’d be more inclined to agree. However, to confine tolls in time does not make sense. The counter-factual is not that “tolls be imposed on anyone and spent on anything”, but that they be introduced on a network basis. 

How would a system like the German truck tolls manage under this? Revenue from the entire motorway network and some highways would need to be directed to the exact roads charged in proportion to the revenue raised? No other utility network is that precise. Rail, telecommunication and electricity network providers engage in pricing that reflects network costs and spend money across a network, not just revenue raised on individual components, although there may be some review of costs and revenues at such levels where it makes sense. I understand the purpose, but I don't think it is economically efficient or reflects economic reality, but rather a widely held misperception that treats roads unlike any other capital assets. 

It is tempting to stop politicians using tolls as an easy tax to divert from motorists, but it also doesn’t make sense to be ridiculously prescriptive in ways that don’t reflect good economic principles. I can understand imposing a restriction on a hypothecated fund to spend money on roads, and for tolling to be related to the costs of the roads tolled, and be spent on the network of the entity tolling. However, to restrict time and purpose of toll revenue spending is unduly restrictive. For example, toll revenue needs to be spent on running the toll system itself, or may be spent on a common toll system for multiple roads, which may be in breach of the third proposal. While I am no great fan of tolling be used to fund public transport, I am also not a fan of tolling being prescribed to specific conditions that would limit it scope inefficiently.

It’s a shame. It is good to have public engagement on these issues, but it would be wrong for this initiative to pass, because it is better to sacrifice improvements in one area to avoid a significant deterioration in the law on tolling in another.

EU step forward in allowing pollution charges on truck tolls

Heavy vehicle road pricing in the European Union is governed by EU law, best summarised in a Directive I am quite familiar with.–Directive 1999/62 otherwise (inaccurately) known as the Eurovignette Directive. It sets rules that, in summary, have meant that Member States can charge heavy vehicles for road use, but only up to their contribution towards infrastructure costs. They have been allowed to vary charges based on environmental and congestion factors, but still must only recover in total the costs of maintaining and developing the infrastructure.

IEWY News and Business Green reported changes to the Directive to allow surcharges to be implemented to cover air and noise pollution.

The recently announced changes will mean that Member States will be able to charge large trucks an additional 3 Euro cents per kilometre to cover air pollution and noise.

Charges for congestion (which are already permitted) can now be up to 175 per cent more than the average charge during peak periods of up to five hours. Lorries with greener Euro V-class engines are exempt from the charges until 2014, providing firms with an incentive to operate cleaner fleets. The changes have to be adopted by the European Council and will take two years to come into force.

I'm somewhat wary of charging for noise, given that noise is typically internalised in the prices of properties adjacent to noisy roads.  Unless the additional "noise" money is being used to mitigate noise at those properties, it would seem like a less than well targeted surcharge.  On air quality, it is simply an extension of what is already done by some Member States (e.g. Germany, Austria, Czech Republic) in charging less for cleaner burning engines compared to the dirtiest ones.  That has had positive results in Germany at least, where stats I have seen show a profile of heavy vehicle usage moving significantly towards the Euro IV and V categories of engines.   However, congestion based charging is more difficult, given that without charging of all vehicles, you are not seeing much benefit to those paying.   Congestion charging of trucks simply means less trucks, with a small improvement in traffic flow, but not to the extent that may be justified by the high toll that the remaining trucks at those times would be paying.

I look forward to seeing the details of the revised Directive.

French Ecotax truck toll appeal successful

It appears that France's distance based truck toll system is going to roll, once more.

Italian toll road operator, Atlantia, has produced a press release announcing that the French Council of State (appeal court) has overturned the decision by the lower court that had annulled the tender for the proposed "Ecotax" distance based toll for trucks to apply to government owned untolled motorways.

I previously reported on the suspension of the tender, the conflict of interest issue raised in the case and the decision to appeal the original court decision.

The Ecotax is intended to apply to all trucks over 3.5 tonnes in weight, on 12,000 km of highways and 2,000 of secondary roads, and would mean around 600,000 French trucks and 200,000 foreign trucks expected to have accounts.  The system was meant to be operational from 2013, but obviously now faces a delay of around 6 months.  Estimated revenue was around 1.2 billion Euro per annum, with charges based on distance at rates of between 8-14 Euro cents per km (US$0.11-US$0.20).

As a result, the Autostrade led consortium is the winning tenderer, as had been originally the case and confirmed the tender process was valid after previous claims of a conflict of interest between advisors RAPP Trans who were working for the government, but who had also undertaken work for Autostrade.  The contract is expected to be for 13 years and Autostrade will now be negotiating the final terms before signing the contract.

No doubt the French Government will be relieved.  The Ecotax is a new charge, so will be new revenue and the sooner it is operational the better for the government.

Of note is that the Ecotax will be a distance charge, with distances measured using GPS technology.  This will make it the third system based on GPS to charge for distance (after Germany and Slovakia), and the fifth system using GPS either to supplement another form of distance measurement (Switzerland) or as a voluntary option (New Zealand).   The objective of the French government is, in part, to rebalance demand between tolled and untolled highways, as there has been an issue of trucks choosing not to use the private and state owned toll roads in favour of the untolled parallel routes.

UPDATE:  More details on France's Ecotax here.

Irish toll road case goes to Supreme Court

The National Roads Authority, Ireland’s government highways agency, initially took Celtic Roads Group (Dundalk) Ltd to court, for overcharging motorists paying tolls on Ireland’s M1 tolled motorway. The M1 connects Dublin from the north to the border with the UK (Northern Ireland). The Irish Times reported that the claim was that around 26,000 Euro a week in additional tolls was being collected above that which was legal under the PPP agreement.

The key point being that the bylaw regarding PPP tolls allows for toll operators to vary tolls according to inflation to maximum levels, but the NRA claims this means that at times of deflation, tolls should be reduced. As the consumer price index in 2009 in Ireland was negative, the NRA claims the toll of 1.90 Euro per car should have dropped to 1.80 according to TV3 Ireland.

Noting that it was acknowledged that it is impossible to reimburse the difference, the Commercial Court in Ireland agreed with the NRA. As a result, Celtic Roads dropped the toll immediately on the M1, as did the owners of three other Irish toll roads with similar PPP contractual conditions.

The Irish Times has since reported that Celtic Roads is now appealing the decision to the Supreme Court. Part of the motivation is that toll roads in Ireland are now in dire financial straits because of the recession and collapse of the property and banking sectors in Ireland. With demand down, toll revenues are down, and the owners are facing significant difficulties in meeting their debt management obligations.

Irish taxpayers are saved this risk of course, because it isn’t their debt, the roads were built (and to a high standard), so regardless if the owners go bankrupt, the roads will still be there for use. Meanwhile, the projections of investors in toll road PPPs may take a pause for breath before investing so quickly in new roads in economies that so clearly are subject to an inexplicable bubble of growth. Celtic Roads Group will be hoping its Supreme Court appeal is successful, as it is likely to want as much revenue as possible in the current economic climate.

France's Heavy Vehicle "Ecotax" to go to appeal

I reported some weeks ago here and here, that the tender for the proposed French heavy vehicle "ecotax" had been frozen because of a French court intervening regarding irregularities in the procurement.

The "Ecotax" is intended to be essentially a distance based toll system to apply to national highways in France - that being all major highways that are not currently tolled/owned by private concessionaires.  In effect, the proposed distance charge (which would also vary by vehicle size) would address issues of diversion from tolled routes to untolled routes, but was primarily intended to generate additional revenue whilst heavily incentivising a shift towards trucks with cleaner engines.  The "Ecotax" is intended to apply to all freight vehicles over 3.5 tonnes and 12,000 km of national highways (and 2,000 km of secondary highways that would otherwise face diversion from the national routes).  An estimated 600,000 French and 200,000 foreign trucks are expected to have accounts and the system is intended to be operational by 2013.

AFP reports that:

Thierry Mariani, Secretary of State for Transport has confirmed that the government has appealed the decision to the Conseil d'Etat, although it is understood this will delay development by some months.

The winning consortium was called Atlantia, on the basis of a 13 year contract worth 2 billion euros.  Atlantia comprises:

- Italian toll road owner/operator Autostrade (70%)

- French electronics manufacturer Thales (11%)

- French railway operator SNCF (10%) (which raises interesting issues of cross-modal competition)

- French Mobile phone operator SFR (6%) and

- French IT provider Steria (3%).

However, the issue was that one of Autostrade's past advisors - RAPP Trans - was acting as advisor to the French Government meaning the decision to award the tender to the consortium was against "the principle of transparency and the principle of inviolability of applications" according to the administrative court in Cergy-Pontoise.

A Dutch (language) website indicates that apparently the annual revenue estimated for the proposed "Ecotax" was 1.2 billion revenue of which two-thirds was intended to be hypothecated for the government infrastructure agency AFITF.   The average charge is intended to be 8-14 Euro cents per km, with discounts of up to 25% for more remote parts of the country.

One thing is for sure, Europe's likely second largest truck tolling system will be delayed and consultants will have to be particularly cautious about ensuring real and apparent conflicts of interest are addressed.  Certainly RAPP-Trans's activities around this project will be under the spotlight in the coming months.

UPDATE:  Appeal successful
SECOND UPDATE: More details on France's truck Ecotax here. 

French court decision identifies RAPP Trans on Ecomouv conflict of interest

Further to the story from yesterday, French website Transport Logistique reports that the Swiss based consultancy firm RAPP Trans is the firm implicated in presenting a potential conflict of interest with the French heavy vehicle tolls project.

The report (in French) indicates the consortium ALVIA (comprising Sanef, Siemens and Atos) alleges "that the competitive dialogue did not obey "the principle of transparency and the principle of inviolability of applications".

The problem allegedly being that the French government relied on RAPP Trans to provide it with professional services.  RAPP Trans is a technical consultancy, best known for having designed the Swiss LSVA heavy vehicle distance based charging system that has been in place since 2001.  It has also undertaken other technical advice work in a number of European countries. 

RAPP Trans also allegedly has "close trade links" with Autostrade, the lead company in the winning bid for the French system, through work with the European Commission.

The fundamental legal question in the appeal will likely be whether those links are sufficient to overturn the tender. 

The appeal will be most interesting.  If the appeal does not succeed, it will raise questions about how transparent RAPP Trans was with the French government about its relationship with potential suppliers, it will possibly create a far higher standard of due diligence of separation of roles between advisors (if RAPP Trans had done work for Autostrade during the time of its work for the French government, it would appear to be a clear cut case of conflict, but if the relationship was beforehand it would seem less clear).   It could simply mean consultants have to choose more distinctly whether they want to advise governments or advise suppliers.  It is a decision that gets undertaken quite frequently - and it does not look good if any company is caught out appearing to be able to give unfair advantage to tenderers.

French truck toll system (ecotax) on hold

A French Court has suspended the contract offered to the Autostrade led consortium to develop, build, install and operate a distance based heavy vehicle toll system on untolled French highways, because of allegations of conflict of interest according to Le Monde.   The Ecotax contract had been won by a consortium called EcoMouv.

The issue appears to be that one of the companies associated with the winning consortium was also providing advice to the French government that issued the tender - a classic case of conflict of interest.   It is hardly appropriate or ethical business conduct if this is the case, as one cannot be seen to be providing advice to a government entity that issues a tender, whilst also being party to one of the tenderers.

More details will be reported as they come to hand, but the Autostrade led consortium  (Ecomouv) intends to appeal the decision.  If the decision holds, at the very least it will mean the tender will need to be started from scratch, and anyone that was a party to the alleged conflict of interest would be ruled out - which could be very costly for those involved.  However, regardless of the outcome of appeals, it would appear that the proposed heavy vehicle toll system for France is suspended.

UPDATE:  It's all go, appeal successful.

UPDATE 2:  More details here on the Ecotaxe.